wEPA
United States
Environmental Protection
Agency
Economic Analysis of Final Effluent
Limitation Guidelines and Standards for the
Construction and Development Industry
November 23, 2009
-------
U.S. Environmental Protection Agency
Office of Water (4303T)
1200 Pennsylvania Avenue, NW
Washington, DC 20460
-------
ACKNOWLEDGMENTS AND DISCLAIMER
This document was prepared by U.S. Environmental Protection Agency Office of Water staff. The
following contractors provided assistance in performing the analyses supporting the conclusions
detailed in this document.
Abt Associates, Inc.
Office of Water staff have reviewed and approved this document for publication. Neither the United States
Government nor any of its employees, contractors, subcontractors, or their employees makes any
warranty, expressed or implied, or assumes any legal liability or responsibility for any third party's use of
or the results of such use of any information, apparatus, product, or process discussed in this document,
or represents that its use by such a party would not infringe on privately owned rights. References to
proprietary technologies are not intended to be an endorsement by the U.S Environmental Protection
Agency.
-------
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Table of Contents
Index of Tables vii
Index of Figures xiii
Abbreviations and Acronyms xiv
1 Introduction to the Economic Analysis 1-1
1.1 Background and Purpose of the Final Rule 1-2
1.2 Industries and Activity Affected by the Final Regulation 1-3
1.3 Overview of Approach for Assessing the Economic Effects of the Final Rule 1-5
1.4 Overview of Approach for Assessing the Benefits of the Final Rule 1-6
2 Summary of Results from the Economic Analysis 2-1
2.1 Firm- and Industry-Level Effects 2-1
2.2 Projections of Future Regulatory Cost and Economic Effects 2-3
2.3 Single-Family Housing Affordability Effects 2-5
2.4 Social Cost of the Final Rule 2-7
2.5 Economy-Wide Output and Employment Effects of the Final Rule 2-8
2.6 Regulatory Flexibility Analysis (RFA) 2-8
2.7 Unfunded Mandates Reform Act Analysis (UMRA) 2-10
2.8 Benefits of the Final Rule 2-11
2.9 Comparison of Total Social Cost and Monetized Benefits 2-13
3 Economic Profile of the Construction and Development Industry 3-1
3.1 Introduction to the C&D Industry Profile 3-1
3.1.1 Defining the C&D Industry 3-2
3.1.2 Key Data Sources 3-5
3.1.3 Key Insights into the Current and Future State of the C&D Industry 3-5
3.1.4 Organization of the C&D Industry Profile 3-8
3.2 Recent Trends in the C&D Industry 3-8
3.2.1 Establishments by C&D Industry Segment 3-8
3.2.2 Establishment and Employment Births and Deaths 3-9
3.2.3 Value of Construction by C&D Industry Segment 3-12
November 23, 2009 i
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
3.3 Establishment and Firm Characteristics in the C&D Industry 3-15
3.3.1 Establishment-Level Industry Characterization 3-15
3.3.2 Firm-Level Industry Characterization 3-31
3.3.3 Small Entity Characterization 3-37
3.4 Industry Dynamics and Forecast 3-40
3.4.1 Annual Value of Construction and Housing Starts Indexed to Real GDP 3-41
3.4.2 Financial Condition and Performance 3-43
3.4.3 Housing Starts: Actual and Forecast 3-47
3.4.4 Value of Construction by C&D Industry Segment: Actual and Forecasts 3-50
3.4.5 Overall Outlook 3-52
4 Developing the Analysis Baseline 4-1
4.1 Estimating the Baseline Quantity of Acreage Developed Annually by the C&D Industry 4-3
4.1.1 Estimating Historical Acreage Intensity Values, by C&D Sector 4-3
4.1.2 Analyzing Changes in Acreage Intensity over Time 4-6
4.1.3 Estimating the Quantity of Acreage Developed During 2008 4-7
4.2 Distributing Baseline Acreage across States, Sectors, and Project Categories 4-10
4.2.1 Distributing Acreage across States and C&D Activity Sectors 4-10
4.2.2 Distributing Acreage across Model Project Categories 4-14
4.2.3 Final Calibration of the Model Project Distributions 4-21
4.3 Baseline Specification of Industry Segments, Establishments, and Firms Affected by the Final C&D Rule4-23
4.3.1 Excluding Segments and Establishments That Are Not Involved in Land Disturbance 4-24
4.3.2 Excluding Segments and Establishments That Are NotNPDES Permittees 4-24
4.3.3 Adjustments and Exclusions Based on Data Limitations 4-24
4.3.4 Number of Potentially Affected Establishments 4-25
4.3.5 The Firm Universe Affected by the C&D Regulation 4-25
4.4 Adjusting the Baseline Firm Universe to Reflect 2008-Trend Conditions 4-28
4.5 Baseline Specification of Model C&D Firms 4-31
4.5.1 Defining Economic Sectors and Revenue Size Ranges for Model Firms 4-31
4.5.2 Assigning Baseline Financial Information to Model Firms 4-32
4.5.3 Summary of Model Firm Financial Data 4-40
4.6 Key Sources of Uncertainty and Limitations 4-42
5 Overview of the Economic Impact Analyses 5-1
ii November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
5.1 The Regulatory Baseline 5-1
5.2 Mechanisms by which C&D Markets May be Affected by the Final Rule 5-1
5.3 Summary of Economic Impact Analysis Models and Organization 5-3
6 Analysis of Firm- and Industry-Level Economic Impacts 6-1
6.1 Review of Model Projects and Model Firm Concepts 6-4
6.1.1 Model Projects 6-4
6.1.2 Model Firms 6-5
6.2 Assigning Model Projects and Associated Compliance Costs to Model Firms 6-6
6.2.1 Assessing the Feasibility of Model Project Performance by Individual Model Firms 6-6
6.2.2 Assigning Model Projects to Model Firms 6-9
6.2.3 Assignment of Compliance Costs for the Economic/Financial Impact Analysis 6-15
6.3 Estimating the Change in Model Firm Financial Performance and Condition 6-16
6.3.1 Impacts Analyzed 6-17
6.3.2 Incorporating Compliance Cost Estimates into Baseline Financial Statements 6-18
6.3.3 Assessing the Effect of Compliance Outlays on the Impact Measures 6-20
6.4 Applying the Findings from the Model Firm Analysis to the Total Industry 6-23
6.4.1 Estimating Industry Level Occurrence of Economic/Financial Impacts 6-23
6.4.2 Estimating Total Cost of Compliance and Total Acreage Incurring Compliance Costs 6-24
6.5 Assessing Potential Barriers to Entry of New Businesses to the C&D Industry 6-24
6.6 Uncertainties and Limitations 6-25
6.7 Results of the Firm-Level Economic Analysis 6-28
6.7.1 Firm-Level Cost and Impacts 6-28
6.7.2 Barriers to Entry Analysis 6-31
7 Projection of Cost and Impacts Over Time 7-1
7.1 Projecting Aggregate C&D Industry Activity into the Future 7-1
7.2 Projecting Total Cost and Economic Impacts into the Future 7-3
7.3 Uncertainties and Limitations 7-4
7.4 Results of the Cost and Impact Projection Analysis 7-5
8 Analysis of Single-Family Housing Affordability Impacts 8-1
8.1 Defining the Concept of a Housing Affordability Impact 8-1
8.2 Estimating Critical Income Values for Single-Family New Home Purchases 8-4
November 23, 2009 iii
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
8.3 Estimating the Change in New Single-Family Home Prices due to the Regulation 8-6
8.4 Estimating the Number of Potentially Affected Single-Family Home Buyers 8-7
8.5 Assessing the Practical Impact on the New Home Purchaser: Opportunities for Offsetting Potential Price
Effects 8-11
8.6 Uncertainties and Limitations 8-12
8.7 Results of the Single-Family Housing Affordability Analysis 8-14
8.7.1 Results of the Median Price Single-Family Home Analysis 8-14
8.7.2 Results of the Lower-Quartile-Priced Single-Family Home Analysis 8-16
8.7.3 Results of the Lowest Priced Single-Family Home Analysis 8-21
9 Analysis of Social Cost 9-1
9.1 Summary of the Partial Equilibrium C&D Market Models 9-2
9.1.1 Estimating the Baseline Construction Market Equilibrium 9-2
9.1.2 Estimating the Post-Compliance Construction Market Equilibrium 9-3
9.2 Inputs to the Partial Equilibrium C&D Market Models 9-4
9.2.1 Construction Market Quantities 9-4
9.2.2 Construction Market Prices 9-4
9.2.3 Incremental Compliance Cost Effect per Construction Unit 9-6
9.2.4 Elasticity of Supply and Demand 9-7
9.3 Estimating the Resource Cost, Welfare Loss, and Output Loss Due to the Final Rule 9-7
9.3.1 Estimating Resource Cost and Additional Social Welfare Loss 9-8
9.3.2 Estimating the Loss in C&D Output 9-9
9.3.3 Price-Effects in C&D Markets 9-10
9.4 Uncertainties and Limitations 9-10
9.5 Results of the Social Cost Analysis 9-11
10 Analysis of Economy-Wide Output and Employment Impacts 10-1
10.1 Economy-Wide Economic Effects Arising from Resource Cost of Compliance Outlays 10-1
10.2 Economy-Wide Economic Effects Arising from the Direct Loss in C&D Industry Output 10-2
10.3 Results of the Economy-Wide Analysis 10-2
11 Benefits Assessment Methodology and Results 11-1
11.1 Analysis of Benefits to Navigation 11-2
11.2 Analysis of Benefits to Water Storage 11-6
iv November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
11.3 Analysis of Benefits to Drinking Water Treatment 11-8
11.4 Analyzing the Benefits of Water Quality Improvement 11-11
11.4.1 Estimated Changes in Water Quality (AWQI) from the C&D Regulation 11-11
11.4.2 Benefits of Water Quality Improvements 11-17
11.4.3 Estimating Total WTP for Water Quality Improvements 11-18
11.5 Estimating Total Monetized Benefits 11-19
11.6 Sources of Uncertainty and Limitations 11-23
11.6.1 Water Quality Model Limitations 11-23
11.6.2Focus on Selected Pollutants of Concern (Sediment and Nutrients) 11-24
11.6.3 Benefits to Navigation 11-25
11.6.4Benefits to Water Storage 11-25
11.6.5 Benefits to Drinking Water Treatment 11-25
11.6.6 Omission of Several Benefit Categories from the Analysis of Monetized Benefits 11-26
11.6.7 Willingness to Pay Estimate 11-26
12 Social Costs and Benefits of the Proposed Rule 12-1
12.1 Summary of Social Cost 12-1
12.2 Summary of Partially Monetized Benefits 12-1
12.3 Comparison of Social Cost and Monetized Benefits 12-2
13 Assessing the Impact of the C&D Regulatory Options on Small Entities - Regulatory Flexibility Act
(RFA) Analysis 13-1
13.1 Definition of Affected Small Entities 13-1
13.2 Determining the Number of In-Scope Small C&D Firms 13-2
13.3 Estimating Economic Impacts on Small C&D Firms 13-3
13.4 Consideration of Small Entity Impacts in Regulatory Option Selection 13-6
14 Assessing the C&D Regulatory Options in Accordance with Unfunded Mandates Reform Act
(UMRA) Requirements 14-1
14.1 Assessing Costs to Government Entities 14-1
14.1.1 Administrative Costs 14-2
14.1.2 Compliance Costs 14-3
14.1.3 Total Government Costs and Impacts 14-5
14.2 Assessing Costs and Impacts on Small Government Entities 14-5
14.3 Assessing Costs and Impacts on Private Entities 14-7
November 23, 2009 v
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Appendix A: Adverse Analysis Case Results for the Firm- and Industry-Level Impact Analysis A-l
Appendix B: Detailed Results for the Firm- and Industry-Level Analysis B-l
Appendix C: Sensitivity Analysis of Industry-Level Financial Impacts C-l
Appendix D: Detailed Results for the Housing Affordability Analysis D-l
Appendix E: Distribution of Single-Family Home Price Increases E-l
Appendix F: C&D Industry Definition Crosswalks F-l
Appendix G: Estimating the Compliance Cost Financing Multiplier G-l
Appendix H: References i
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Index of Tables
Table 1-1: Industries Potentially Affected by the Final Rulemaking 1-4
Table 2-1: Summary of Cost and Economic Impact Analysis for Final Rule Options 2-2
Table 2-2: Cumulative Cost and Economic Impacts for the Final Rule, 2010 - 2014 2-4
Table 2-3: Total Value of Construction Activity and Cost, by Year (millions, 2008$) 2-4
Table 2-4: National Results from the MSA-Level Affordability Median New Home Price Analysis - Price and
Household Affordability Effects - based on Owner Occupied Households that Recently Purchased a New,
Option In-Scope, Home 2-6
Table 2-5: National Results from the MSA-Level Affordability Median New Home Price Analysis - Change in
Monthly Mortgage Payment 2-6
Table 2-6: National-Level Change in Down-Payment Required to Offset Effect of the Regulation for the Median
Home Price 2-7
Table 2-7: Total Social Cost of the Final Regulation, (Smillions) 2-8
Table 2-8: Total Economic Output and Employment Effects, (Smillions) 2-8
Table 2-9: Summary of Small Business Cost and Impact Analysis for C&D Rule Options 2-10
Table 2-10: Total Government Compliance and Administrative Costs (Smillions) 2-10
Table 2-11: Impacts of Regulatory Option Compliance and Administrative Costs on State and Local Governments
(Smillions) 2-11
Table 2-12 Total National Benefits by Benefit Category (million 2008$) 2-12
Table 2-13: Comparison of Social Costs and Benefits (Smillions) 2-13
Table 3-1: Industry Definitions for C&D Industry Profile 3-4
Table 3-2: Comparison of Major Data Sources 3-5
Table 3-3: Number of Establishments in the C&D Industry, 1992, 1997, and 2002, Economic Census Data 3-9
Table 3-4: Number of Establishments in the C&D Industry, 1992, 1997, and 2002, Economic Census Data 3-9
Table 3-5: Value of Construction (in $1000's) and Number of Establishments with Payrolls, 2002 3-17
Table 3-6: Number of Establishments with Payrolls in the C&D Industry, by Employment Size Class, 2002 ...3-19
Table 3-7: Number of Employees in Establishments with Payrolls in the C&D Industry, by Employment Size
Class, 2002 3-20
Table 3-8: Value of Construction with Payrolls in the C&D Industry, by Employment Size Class (in $1000's),
2002 3-21
Table 3-9: Number of Establishments in the C&D Industry, by Annual Revenue, 2002 3-22
Table 3-10: Number of Employees in the C&D Industry, by Annual Revenue, 2002 3-23
Table 3-11: Value of Construction in the C&D Industry, by Annual Revenue (in $1000's), 2002 3-24
Table 3-12: Number of Employees in the C&D Industry, Establishments With Payrolls, in 2002 3-25
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Table 3-13: Payrolls and Benefits for Employees in the Construction & Development Industry (in $1000's), 2002
3-27
Table 3-14: Percent of Establishments by Percent Specialization by Assigned Type of Construction, 2002 3-29
Table 3-15: Number of Establishments in the C&D Industry with Payrolls, by Legal Form of Organization, 2002
3-30
Table 3-16: Firms and Establishments by Employment Size, 2002 (SBA Data) 3-32
Table 3-17: Employees by Employment Size of Firm, 2002 (SBA Data) 3-33
Table 3-18: Annual Payroll by Employment Size of Firm, 2002 (SBA Data) (in $1000's) 3-34
Table 3-19: Firms and Establishments by Receipt Size, 2002 (SBA Data) 3-35
Table 3-20: Employees by Receipt Size of Firm, 2002 (SBA Data) 3-36
Table 3-21: Annual Payroll by Receipt Size of Firm, 2002 (SBA Data) (in $1000's) 3-37
Table 3-22: Number of Firms Above and Below SBA Small Business Thresholds, 2002 3-39
Table 3-23: Number of Establishments Above and Below SBA Small Business Thresholds, 2002 3-40
Table 3-24: Housing starts, Actual and Forecasts (in Millions of Starts) 3-50
Table 3-25: Value of Construction, Actual and Forecasts (in 2008 Billions of Dollars) 3-51
Table 3-26: Non-Residential Value of Construction Growth, Compared Forecasts 3-51
Table 4-1: Acreage Intensity, Residential Sector (Smillions, 2008 dollars) 4-4
Table 4-2: Acreage Intensity, Non-Residential Sector (Smillions, 2008 dollars) 4-5
Table 4-3: Acreage Intensity, Transportation Sector (Smillions, 2008 dollars) 4-6
Table 4-4: Summary of Acreage Intensity Regression Analysis 4-6
Table 4-5: Range of Constant Acreage Intensity Values (acreage per Smillion, 2008 dollars) 4-7
Table 4-6: Reported and Trend-Based Value of Construction, by C&D Sector ($2008) 4-8
Table 4-7: Estimate of Baseline-Year, 2008, Acreage 4-10
Table 4-8: Acreage Allocation Factors, by State and Aggregate Sector 4-12
Table 4-9: Acreage Allocation Factors, by NAICS Sector 4-13
Table 4-10: C&D Industry Model Project Size and Duration Categories 4-14
Table 4-11: New York Project Acreage Distribution 4-16
Table 4-12: South Carolina Project Acreage Distribution 4-17
Table 4-13: South Dakota Project Acreage Distribution 4-18
Table 4-14: California Project Acreage Distribution 4-19
Table 4-15: NOI Distribution Assignments, by State 4-20
Table 4-16: National-Level Project Distribution, 2008-Trend Baseline Year (number of projects) 4-22
Table 4-17: All Establishments within the C&D Industry (2002 data) 4-23
Table 4-18: Sectors and Establishments in the C&D Industry Included in this Analysis (2002 data) 4-25
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Table 4-19: Baseline Firm Level Data by Revenue Range andNAICS Sector 4-27
Table 4-20: Reconciliation of 1997 and 2002 Revenue Ranges (Smillions) 4-30
Table 4-21: Baseline Firm Level Data by Revenue Range andNAICS Sector 4-30
Table 4-22: Cost of Capital for C&D Industry Effluent Guidelines Analyses 4-38
Table 4-23: Summary of Key Parameters that Define the General and Adverse Business Conditions Cases 4-38
Table 4-24: Model Firms: Pre-Tax Income/Total Assets 4-41
Table 4-25: Model Firms: EBIT/Interest 4-41
Table 4-26: Model Firms: Net Income Margin 4-42
Table 4-27: Calculations in the IRS Corporate Source Book Datasetto Compare to RMA Ratios 4-43
Table 4-28: RMA eStatement Studies and IRS Corporate Source Book Years Compared 4-43
Table 4-29: Summary Results of Comparison of Financial Metrics from IRS Corporate Source Book and RMA
(median quartile) eStatement Studies 4-44
Table 6-1: Summary of Concepts in Developing Distributions of Financial Performance Measures and Calculating
Performance Relative to Impact Thresholds 6-22
Table 6-2: Average Duration of Additional Financing forln-Scope Projects (years) 6-25
Table 6-3: Summary of Cost and Economic Impact Analysis for Final Rule Options 6-30
Table 6-4: Number and Percent of Firm/Establishment Entries and Exits 6-32
Table 6-5: Compliance Outlay as a Percent of Total Assets3 6-33
Table 7-1: Projected Change in Value of Construction, Relative to Activity Base at 2008 7-1
Table 7-2: Anticipated State CGP Renewal 7-4
Table 7-3: Cumulative Cost and Economic Impacts for the Final Rule, 2010 - 2014 7-6
Table 7-4: Incremental Cost and Economic Impacts for the Final Rule, 2010 - 2014 7-7
Table 7-5: Total Value of Construction Activity and Cost, by Year (millions, 2008$) 7-7
Table 8-1: Baseline New Single-Family Home Prices (2007$) 8-5
Table 8-2: Terms for 30-Year Conventional Fixed-Rate Mortgage 8-6
Table 8-3: National Results from the MSA-Level Affordability Median New Home Price Analysis - Price and
Household Affordability Effects (2008$) - based on Owner-Occupied Households that Recently Purchased a
New, Option In-Scope, Homed 8-15
Table 8-4: National Results from the MSA-Level Affordability Median New Home Price Analysis - Change in
Monthly Mortgage Payment (2008$) 8-15
Table 8-5: National-Level Change in Down-Payment Required to Offset Effect of the Regulation for the Median
Home Price (2008$) 8-16
Table 8-6: National Results from the MSA-Level Affordability Lower Quartile New Home Price Analysis - Price
and Household Affordability Effects (2008$) - based on Owner Occupied Households that Recently
Purchased aNew, Option In-Scope, Homed 8-20
Table 8-7: National Results from the MSA-Level Affordability Lower Quartile New Home Price Analysis -
Change in Monthly Mortgage Payment (2008$) 8-21
November 23, 2009 ix
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Table 8-8: National-Level Change in Down-Payment Required to Offset Effect of the Regulation for the Lower
Quartile Home Price (2008$) 8-21
Table 8-9: National Results from the MSA-Level Affordability Lowest New Home Price Analysis ($100,000) -
Price and Household Affordability Effects - based on Owner Occupied Households that Recently Purchased
a New, Option In-Scope, Homed 8-23
Table 8-10: National Results from the MSA-Level Affordability Lowest New Home Price Analysis ($100,000) -
Change in Monthly Mortgage Payment (2008$) 8-23
Table 8-11: National-Level Change in Down-Payment Required to Offset Effect of the Regulation for the Lowest
Home Price ($100,000) (2008$) 8-24
Table 8-12: National Results from the MSA-Level Affordability Lowest New Home Price Analysis ($50,000) -
Price and Household Affordability Effects (2008$) - based on Owner Occupied Households that Recently
Purchased aNew, Option In-Scope, Homed 8-25
Table 8-13: National Results from the MSA-Level Affordability Lowest New Home Price Analysis ($50,000) -
Change in Monthly Mortgage Payment (2008$) 8-25
Table 8-14: National-Level Change in Down-Payment Required to Offset Effect of the Regulation for the Lowest
Home Price ($50,000) (2008$) 8-26
Table 9-1: Total Annual Social Cost of the Final Regulation, ($millions) 9-12
Table 10-1: Total Economic Output and Employment Effects, ($millions) 10-2
Table 11-1: Annualized Reductions in Dredging and Costs Under Option 1 11-4
Table 11-2: Annualized Reductions in Dredging and Costs Under Option 2 11-4
Table 11-3: Annualized Reductions in Dredging and Costs Under Option 3 11-5
Table 11-4: Annualized Reductions in Dredging and Costs Under Option 4 11-5
Table 11-5: Reduction in Reservoir Dredging and Costs Under Option 1 11-7
Table 11-6: Reduction in Reservoir Dredging and Costs Under Option 2 11-7
Table 11-7: Reduction in Reservoir Dredging and Costs Under Option 3 11-8
Table 11-8: Reduction in Reservoir Dredging and Costs Under Option 4 11-8
Table 11-9: Reduction in Drinking Water Treatment Costs Under Option 1 11-10
Table 11-10: Reduction in Drinking Water Treatment Costs Under Option 2 11-10
Table 11-11: Reduction in Drinking Water Treatment Costs Under Option 3 11-10
Table 11-12: Reduction in Drinking Water Treatment Costs Under Option 4 11-11
Table 11-13: Estimated Water Quality Improvements Under Option 1 11-13
Table 11-14: Estimated Water Quality Improvements Under Option 2 11-14
Table 11-15: Estimated Water Quality Improvements Under Option 3 11-15
Table 11-16: Estimated Water Quality Improvements Under Option 4 11-16
Table 11-17 :Average Household Willingness to Pay3 for Water Quality Improvement by Region (2008$).... 11-17
Table 11-18:Regional Willingness to Pay for Water Quality Improvement (Millions 2008$) 11-19
Table 11-19 Total National Benefits by Benefit Category (million 2008$) 11-21
x November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Table 11 -20 Total National Benefits Under Option 1 by EPA Region (million 2008$) 11 -22
Table 11-21: Total National Benefits Under Option 2 by EPA Region (million 2008$) 11-22
Table 11-22: Total National Benefits Under Option 3 by EPA Region (million 2008$) 11-22
Table 11-23: Total National Benefits Under Option 4 by EPA Region (million 2008$) 11-23
Table 12-1: Comparison of Social Costs and the Monetized Portion of Benefits ($millions) 12-3
Table 13-1: Total Number of Small and Large Firms in the C&D Industry 13-3
Table 13-2: Summary of Small Business Cost and Impact Analysis for C&D Rule Options 13-5
Table 14-1: Number of DMR-Months per Project, by Duration Category 14-2
Table 14-2: Average Annual State Government Administrative Burden ($million) 14-3
Table 14-3: Total Compliance Costs3 ($millions) 14-4
Table 14-4: Total Acreage Incurring Cost3 14-4
Table 14-5: Total Government Compliance and Administrative Costs ($millions) 14-5
Table 14-6: Impacts of Regulatory Option Compliance and Administrative Costs on State and Local Government
Baseline Revenues ($millions) 14-5
Table 14-7: Impacts of Regulatory Option Compliance and Administrative Costs on Small Government Units
($millions) 14-6
Table A-l: Calculation and Use of Adjustments Applied to 2007 RMA-Reported Values to Develop "Adverse
Business Conditions" Case Financial Statement Values for Use in Firm Impact Analysis A-4
Table A-2: Revenue Weighted Adjustment Factors Applied to RMA-Reported Values from 2007 A-5
Table A-3: Actual and Estimated Trend Values for the Non-Residential Construction Sector (2006 $Millions).A-9
Table A-4: Actual and Estimated Trend Values for the Non-Building Construction Sector (2006 $Millions)...A-10
Table A-5: Average Growth, Estimated Trend, and the Typical Deviation in Below Trend Years A-11
Table A-6: Value of Construction Basis for Estiamting Adverse-Case Level of C&D Activity A-11
Table A-7: Summary of Analysis for Final Rule Options - Adverse Business Conditions Analysis A-13
Table B-l: Option 1 Results by Firm Revenue Size Range and Estimated Total for All Firms inNAICS Sectors....
B-l
Table B-2: Option 1 Results by NAICS Sector Aggregated over Firm Revenue Size Ranges B-3
Table B-3: Option 2 Results by Firm Revenue Size Range and Estimated Total for All Firms in NAICS Sectors....
B-4
Table B-4: Option 2 Results by NAICS Sector Aggregated over Firm Revenue Size Ranges B-5
Table B-5: Option 3 Results by Firm Revenue Size Range and Estimated Total for All Firms in NAICS Sectors....
B-6
Table B-6: Option 3 Results by NAICS Sector Aggregated over Firm Revenue Size Ranges B-7
Table B-7: Option 4 Results by Firm Revenue Size Range and Estimated Total for All Firms in NAICS Sectors....
B-8
Table B-8: Option 4 Results by NAICS Sector Aggregated over Firm Revenue Size Ranges B-9
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Table C-l: C&D Firm Specialization, by Sector C-3
Table C-2: Summary of Cost and Economic Impact Analysis for Firm Specialization Test C-3
Table C-3: Summary of Cost and Economic Impact Analysis for the All-in Test C-4
Table C-4: Summary of Small-Firm Cost and Economic Impacts for the All-in Test C-5
Table D-l: Price Change per Median Priced Home, by State (2008$)** D-2
Table D-2: Price Change per Lower Quartile Priced Home, by State (2008$)** D-3
Table D-3: Price Change per $100k Lowest Priced Home, by State (2008$)** D-4
Table D-4: Price Change per $50k Lowest Priced Home, by State (2008$)** D-5
Table D-5: Number of Households Whose Purchasing Decision for a New Single-Family Median Priced Home
Would Be Affected by a Regulation-Induced Increase in Housing Prices, by State - based on Owner
Occupied Households that Recently Purchased a New, Option In-Scope, Home D-6
Table D-6: Number of Households Whose Purchasing Decision for a New Single-Family Lower Quartile Priced
Home Would Be Affected by a Regulation-Induced Increase in Housing Prices, by State - based on Owner
Occupied Households that Recently Purchased a New, Option In-Scope, Home D-7
Table D-7: Number of Households Whose Purchasing Decision for a New Single-Family $100k Lowest Priced
Home Would Be Affected by a Regulation-Induced Increase in Housing Prices, by State - based on Owner
Occupied Households that Recently Purchased a New, Option In-Scope, Home D-8
Table D-8: Number of Households Whose Purchasing Decision for a New Single-Family $50k Lowest Priced
Home Would Be Affected by a Regulation-Induced Increase in Housing Prices, by State - based on Owner
Occupied Households that Recently Purchased a New, Option In-Scope, Home D-9
Table E-l: Distribution of Homes by Price Range and Lot Size E-l
Table F-l: Crosswalk between 2002 NAICS and 1997 NAICS Structures F-l
Table F-2: Crosswalk between 1997 NAICS and 1992 SIC Structures F-3
Table G-l: Costs Elements for Model Project Phases G-2
Table G-2: Key Input Parameters for the Single-Family Construction Model Project G-4
Table G-3: Example Single-Family Construction Model Project Framework (1-Acre Site) G-5
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Index of Figures
Figure 3-1: Establishment Births, Deaths, and Net Change for the Construction Industry 3-10
Figure 3-2: Employment Births, Deaths, and Net Change for the Construction Industry 3-10
Figure 3-3: Establishment Births, Deaths, and Net Change for the U.S. Total 3-11
Figure 3-4: Employment Births, Deaths, and Net Change for the U.S. Total 3-12
Figure 3-5: Annual Value of Total, Private, and Public Construction from 1990 to 2008 ($2008 Dollars) 3-13
Figure 3-6: Annual Value of Private Construction from 1990 to 2008 ($2008 Dollars) 3-14
Figure 3-7: Annual Value of Public Construction from 1990 to 2008 ($2008 Dollars) 3-15
Figure 3-8: Seasonal Trends in Employment in the C&D Industry, 2002 3-26
Figure 3-9: Annual Value of Total, Private, and Public Construction and Real GDP, as Index Series 3-41
Figure 3-10: Annual Value of Private Construction and Real GDP, as Index Series 3-42
Figure 3-11: Annual Value of Public Construction and Real GDP, as Index Series 3-43
Figure 3-12: Historical Net Profit Margin, Based on Public Company Data from ValueLine 3-46
Figure 3-13: Historical Return on Total Capital, Based on Public Company Data from ValueLine 3-46
Figure 3-14: Annual Housing Starts and Real GDP, as Index Series 3-47
Figure 3-15: Annual Housing Starts from 1992 to 2005 and Quarterly Housing Starts from Ql 2006 to Ql 2009 ...
3-49
Figure 4-1: Residential Sector Value of Construction, with Trend ($2008) 4-8
Figure 4-2: Non-Residential Sector Value of Construction, with Trend ($2008) 4-9
Figure 4-3: Highway Sector Value of Construction, with Trend ($2008) 4-9
Figure 6-1: Overview of Firm and Industry Impact Analysis Framework 6-3
Figure 7-2: Projection of Aggregate Construction Value, 2009 - 2014 7-2
Figure 8-1: NAR Housing Affordability Index: Annually From 1990 - 2008; Monthly From January to July 2009
8-13
Figure 8-2: Percentage of New Single Family Homes Sold with Lot Sizes Under 7,000 Square Feet, 8-17
Figure 8-3: Fraction of Homes Purchased that are New Homes, by Income Range 8-18
Figure A-l: Non-Residential Actual and Estimated Trend Values of Construction Put in Place (2006 $Millions)....
A-6
Figure A-2: Non-Building Actual and Estimated Trend Values of Construction Put in Place (2006 $Millions)..A-6
Figure A-3: Non-Residential Actual and Average Annual Growth of Construction Put in Place A-7
Figure A-4: Non-Building Actual and Average Annual Growth of Construction Put in Place A-7
Figure E-l: Distribution of Potential Percentage Increases in New Single-Family Housing Prices (Option 4).... E-2
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Abbreviations and Acronyms
ACS - American Community Survey
AHS - American Housing Survey
AIA - American Institute of Architects
ATS - Active Treatment Systems
BAT - Best Available Technology Economically Achieveable
BEA - Bureau of Economic Analysis
BMP - Best Management Practice
C&D - Construction and Development
CAPM - Capital Asset Pricing Model
CGP - Construction General Permit
CWA-Clean Water Act
DMR - Discharge Monitoring Reports
DOL - Department of Labor
EA - Economic Analysis
EBIT - Earnings Before Interest and Taxes
ELG - Effluent Limitation Guideline
EPA - Environmental Protection Agency
FDIC - Federal Deposit Insurance Corporation
FHA - Federal Housing Administration
FHFB - Federal Housing Finance Board
FHWA - Federal Highway Administration
GDP - Gross Domestic Product
HAI - Housing Affordability Index
HUD - U.S. Department of Housing and Urban Development
III - Insurance Information Institute
IO - Input Output
MBA - Mortgage Bankers Association
MSA - Metropolitan Statistical Area
NAHB - National Association of Home Builders
NAICS - North American Industrial Classification System
NAR - National Association of Realtors
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
NBER - National Bureau of Economic Research
NOI-Notice of Intent
NPDES - National Pollutant Discharge Elimination System
NRDC - Natural Resources Defense Council
NSPS - New Source Performance Standards
NTU - Numeric Turbidity Limit
RFA - Regulatory Flexibility Act
RIMS II - Regional Input-Output Modeling System
RMA - Risk Management Association
SBA - Small Business Adminstration
SBREFA - Small Business Regulatory Enforcement Fairness Act
SIC - Standard Industrial Classification
SISNOSE - Significant Economic Impact on a Substantial Number of Small Entities
SPARROW - Spatially Referenced Regressions On Watershed Attributes
SUSB - Statistics of U.S. Businesses
SWPPP - Storm Water Pollution Prevention Plan
TDD - Technical Development Document
TN - Total Nitrogen
TP - Total Phosphorus
UMRA - Unfunded Mandates Reform Act
USGS - United States Geological Survey
VL - Value Line Investment Survey
WQI - Water Quality Index
November 23, 2009
-------
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 1: Introduction
1 Introduction to the Economic Analysis
EPA is establishing effluent limitations guidelines (ELGs) and new source performance standards (NSPS) for
stormwater discharges from the Construction and Development (C&D) industry. These guidelines and standards
would require discharges from certain construction sites to meet a numeric turbidity limit (NTU). The guidelines
and standards would also require all construction sites currently required to obtain a National Pollutant Discharge
Elimination System (NPDES) to implement a variety of best management practices (BMPs) designed to limit
erosion and control sediment discharges from construction sites. This Economic Analysis (EA) report assesses the
overall cost and impact of four regulatory options, which are described below:
> Option 1, which requires non-numeric effluent limitations for all sites, is EPA's least stringent policy
option;
> Option 2 requires active treatment systems (ATS) on sites disturbing 30 or more acres at one time and
imposes a 13 NTU turbidity standard while requiring non-numeric effluent limitations on all sites and is
similar to an option EPA proposed previously;
> Option 3, EPA's most stringent policy option, requires ATS on sites disturbing 10 or more acres at one
time, imposes a 13 NTU turbidity standard on these sites, and requires non-numeric effluent limitations
on all sites; and,
> Option 4, the option EPA has selected for the final rule, requires passive treatment systems on all sites
disturbing 10 or more acres disturbed, and establishes a numeric turbidity standard of 280 NTU (based on
passive treatment and expressed as a daily maximum value). In addition, all sites will be required to meet
non-numeric effluent limitations.
EPA estimates that Option 1 would cost approximately $180 million dollars per year, reduce sediment discharges
from construction sites by approximately 18.4 million cubic yards per year, and result in monetized benefits of
$214 million per year. EPA estimates that Option 2 would cost approximately $4.8 billion dollars per year, reduce
sediment discharges from construction sites by approximately 38.3 million cubic yards per year, and result in
monetized benefits of $360 million per year. EPA estimates that Option 3 would cost approximately $9.1 billion
dollars per year, reduce sediment discharges from construction sites by approximately 47.8 million cubic yards
per year, and result in monetized benefits of $422 million per year. EPA estimates that Option 4 would cost
approximately $960 million dollars per year, reduce sediment discharges from construction sites by
approximately 44.1 million cubic yards per year, and result in monetized benefits of $369 million per year.
This EA presents analyses and findings pertaining to:
> Baseline business performance and condition of the C&D industry sectors and firms that would be
affected by the regulation;
> Cost and economic/financial impact of the regulation to these firms and to the C&D industry as a whole;
> Potential impact on the price and affordability of new single-family housing expected to be affected by
the regulation;
> Total cost to society, accounting both for the cost of meeting compliance requirements and for potential
changes in C&D industry output and the associated loss in societal economic welfare;
> Economy wide effects, accounting for inter-industry linkages, in terms of net change in economic output
and employment;
November 23, 2009
1-1
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 1: Introduction
> Potential impact on small businesses and governments in accordance with requirements of the Regulatory
Flexibility Act (RFA) and the Unfunded Mandates Reform Act (UMRA); and,
> Comparison of total social costs and estimated benefits.
This chapter provides a general overview of the final rule economic analysis. Section 1.1 describes the
background and the purpose of the rule, highlighting requirements of the effluent limitation guidelines. Section
1.2 reviews the sectors within the C&D industry that are expected to be affected by the regulatory requirements.
Section 1.3 summarizes the analyses undertaken for assessing the costs and impacts of the regulation. Section 1.4
summarizes the approach for estimating the benefits of the regulation.
1.1 Background and Purpose of the Final Rule
The U.S. Environmental Protection Agency (EPA) is finalizing Effluent Limitation Guidelines for discharges
associated with construction and development activities under the authority of Sections 301, 304, 306, 308, 402,
and 501 of the Clean Water Act (CWA) (the Federal Water Pollution Control Act), 33 United States Code
(U.S.C.) 1311, 1314, 1316, 1318, 1342, and 1361.
Effluent Limitation Guidelines Schedule and Previous Actions Related to Construction and Development
CWA section 304(m) requires EPA to publish a plan every 2 years that consists of three elements. First, under
section 304(m)(l)(A), EPA is required to establish a schedule for the annual review and revision of existing
effluent guidelines in accordance with section 304(b). Section 304(b) applies to ELGs for direct dischargers and
requires EPA to revise such regulations as appropriate. Second, under section 304(m)(l)(B), EPA must identify
categories of sources discharging toxic or nonconventional pollutants for which EPA has not published best
available technology economically achieveable (BAT) ELGs under section 304(b)(2) or new source performance
standards under section 306. Finally, under section 304(m)(l)(C), EPA must establish a schedule for the
promulgation of BAT and New Source Performance Standards (NSPS) for the categories identified under
subparagraph (B) not later than three years after being identified in the 304(m) plan. Section 304(m) does not
apply to pretreatment standards for indirect dischargers, which EPA promulgates pursuant to sections 307(b) and
307(c) of the Act.
On October 30, 1989, Natural Resources Defense Council, Inc. (NRDC), and Public Citizen, Inc., filed an action
against EPA in which they alleged, among other things, that EPA had failed to comply with section 304(m).
Plaintiffs and EPA agreed to a settlement of that action in a consent decree entered on January 31, 1992 (Natural
Resources Defense Council et al v. Whitman, D.D. C. Civil Action No. 89-2980). The consent decree, which was
modified several times, established a schedule by which EPA is to propose and take final action for 11 point
source categories identified by name in the decree and for eight other point source categories identified only as
new or revised rules, numbered 5 through 12. EPA selected the Construction and Development (C&D) category
as the subject for new or revised rule #10. The modified decree called for the Administrator to sign a proposed
ELG for the C&D category no later than May 15, 2002, and to take final action on that proposal no later than
March 31, 2004. A settlement agreement between the parties, signed on June 28, 2000, required that EPA develop
regulatory options applicable to discharges from construction, development and redevelopment, covering site
sizes included in the Phase I and Phase IINPDES storm water rules (i.e., 1 acre or greater). EPA is required to
develop options including numeric effluent limitations for sedimentation and turbidity; control of construction site
pollutants other than sedimentation and turbidity (e.g., discarded building materials, concrete truck washout,
trash); best management practices (BMPs) for controlling post-construction runoff; BMPs for construction sites;
and requirements to design storm water controls to maintain pre-development runoff conditions where
practicable.
1-2 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 1: Introduction
EPA identified the C&D point source category in its CWA section 304(m) plan in 2000 as an industrial point
source category for which EPA intended to conduct rulemaking (65 FR at 53008 and 53011, August 31, 2000).
On June 24, 2002, EPA published a proposed rule that contained several options for the control of stormwater
discharges from construction sites, including ELGs and NSPSs. (67 FR 42644; June 24, 2002). On April 26, 2004,
EPA chose to rely on the range of existing programs, regulations, and initiatives that already existed at the federal,
state and local level and withdrew the proposed EPGs and NSPSs (69 FR 22472; April 26, 2004).
On October 6, 2004, NRDC and Waterkeeper Alliance, as well as the States of New York and Connecticut filed a
motion against EPA alleging that EPA failed to promulgate ELGs and NSPSs as required by the Clean Water Act.
On December 1, 2006 the district court, in Natural Resources Defense Council, et al. v. U.S. Environmental
Protection Agency, etal, C.D. Cal. 2006, Case No. CV 04-8307-GHK (RCx), held that CWA section 304(m),
read together with CWA section 304(b), imposes on EPA a mandatory duty to promulgate effluent limitations
guidelines and new source performance standards for industrial point source categories named in a CWA section
304(m) plan. The court ordered EPA to publish proposed regulations in the Federal Register by December 1,
2008 and to promulgate ELGs and NSPSs for the C&D category as soon as practicable, but no later than
December 1, 2009. This final rule addresses the court order.
NPDES Phase I and II Storm Water Rules
As authorized by the CWA, the National Pollutant Discharge Elimination System (NPDES) permit program was
established to control water pollution by regulating point sources that discharge pollutants into waters of the
United States. The Phase I and II storm water rules established the construction category as a point source for
discharges. Storm water runoff from construction activities can have a significant impact on water quality. The
NPDES storm water program requires operators of construction sites to apply for either a general permit or an
individual permit under the NPDES Phase I and II storm water rules. Phase I of EPA's storm water program was
promulgated in 1990 under the CWA and addresses, among other things, discharges from construction activities
disturbing 5 acres or more of land. Phase II of the NPDES storm water program, promulgated in 1999, expands
the Phase I Rule by addressing storm water discharges from small construction sites disturbing between 1 and 5
acres. In addition, operators of small construction sites are also required to develop and implement a storm water
pollution prevention plan (SWPPP), which includes implementation of the appropriate erosion and sediment
control BMPs. The BMP selection and design are at the discretion of permittees (in conformance with applicable
state or local requirements). Moreover, construction activities disturbing less than 1 acre are also included in
Phase II of the NPDES storm water program if they are part of a larger common plan of development or sale with
a planned disturbance of greater than or equal to 1 acre and less than 5 acres, or if they are designated by the
NPDES permitting authority.
Most states are authorized to implement the storm water NPDES permitting program. However, EPA remains the
permitting authority in a few states, territories, and on most land in Indian Country. For construction (and other
land disturbing activities) in areas where EPA is the permitting authority, operators must meet the requirements of
the EPA Construction General Permit (CGP).
1.2 Industries and Activity Affected by the Final Regulation
Table 1-1 presents the C&D industry sectors that are expected to be affected by the regulation. These industries
are reported in the current North American Industrial Classification System (NAICS) framework. A detailed
characterization of the industry sectors and of those sectors included within this EA is provided in the Economic
Profile of the Construction and Development Industry (Chapter 3).
November 23, 2009 1-3
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 1: Introduction
Table 1-1: Industries Potentially Affected by the Final Rulemaking
NAICS
Code
236
2361
236115
236116
236117
2362
236210
236220
237
2371
237110
237120
237130
2372
237210
2373
237310
2379
237990
238
Sector Name
Sector Description
Construction of buildings
Residential building construction
Mew Single-Family
Housing Construction
^except Operative
Builders)
Mew Multifamily
Housing Construction
^except Operative
Builders)
Mew Housing Operative
Builders
General contractor establishments primarily responsible for the entire construction of new single-family housing, such
as single-family detached houses and town houses or row houses where each housing unit is either separated from its
neighbors by a ground-to-roof wall or has no housing units constructed above or below. This industry includes
general contractors responsible for the on-site assembly of modular and prefabricated houses. Single-family housing
design-build firms and single-family construction management firms acting as general contractors are included in this
industry.
General contractor establishments responsible for the construction of new multifamily residential housing units (e.g.,
ligh-rise, garden, and town house apartments and condominiums where each unit is not separated from its neighbors
3y a ground-to-roof wall). Multifamily design-build firms and multifamily housing construction management firms
acting as general contractors are included in this industry.
Operative builders primarily responsible for the entire construction of new houses and other residential buildings,
single-family and multifamily, on their own account for sale. Operative builders are also known as speculative or
merchant builders.
Monresidential building construction
Industrial Building
Construction
Commercial and
Institutional Building
Construction
Establishments primarily responsible for the construction (including new work, additions, alterations, maintenance,
and repairs) of industrial buildings (except warehouses). The construction of selected additional structures, whose
jroduction processes are similar to those for industrial buildings (e.g., incinerators, cement plants, blast furnaces, and
similar nonbuilding structures), is included in this industry. Also included in this industry are industrial building
general contractors, industrial building operative builders, industrial building design-build firms, and industrial
Building construction management firms.
Establishments primarily responsible for the construction (including new work, additions, alterations, maintenance,
and repairs) of commercial and institutional buildings and related structures, such as stadiums, grain elevators, and
indoor swimming pools. This industry includes establishments responsible for the on-site assembly of modular or
jrefabricated commercial and institutional buildings. Included in this industry are commercial and institutional
Building general contractors, commercial and institutional building operative builders, commercial and institutional
Building design-build firms, and commercial and institutional building project construction management firms.
Heavy and civil engineering construction
Utility system construction
Water and Sewer Line
and Related Structures
Construction
Oil and Gas Pipeline and
Related Structures
Construction
Power and
Communication Line
and Related Structures
Construction
Establishments primarily engaged in the construction of water and sewer lines, mains, pumping stations, treatment
jlants, and storage tanks. The work performed may include new work, reconstruction, rehabilitation, and repairs.
Specialty trade contractors are included in this group if they are engaged in activities primarily related to water and
sewer line and related structures construction. All structures (including buildings) that are integral parts of water and
sewer networks (e.g., storage tanks, pumping stations, water treatment plants, and sewage treatment plants) are
included in this industry.
Establishments primarily engaged in the construction of oil and gas lines, mains, refineries, and storage tanks. The
work performed may include new work, reconstruction, rehabilitation, and repairs. Specialty trade contractors are
included in this group if they are engaged in activities primarily related to oil and gas pipeline and related structures
construction. All structures (including buildings) that are integral parts of oil and gas networks (e.g., storage tanks,
pumping stations, and refineries) are included in this industry.
Establishments primarily engaged in the construction of power lines and towers, power plants, and radio, television,
and telecommunications transmitting/receiving towers. The work performed may include new work, reconstruction,
rehabilitation, and repairs. Specialty trade contractors are included in this group if they are engaged in activities
jrimarily related to power and communication line and related structures construction. All structures (including
Buildings) that are integral parts of power and communication networks (e.g., transmitting towers, substations, and
power plants) are included.
Land Subdivision
Land Subdivision
Establishments primarily engaged in servicing land and subdividing real property into lots, for subsequent sale to
Builders. Servicing of land may include excavation work for the installation of roads and utility lines. The extent of
work may vary from project to project. Land subdivision precedes building activity and the subsequent building is
often residential, but may also be commercial tracts and industrial parks. These establishments may do all the work
themselves or subcontract the work to others. Establishments that perform only the legal subdivision of land are not
included in this industry.
Highway, Street, and Bridge Construction
Highway, Street, and
Bridge Construction
Establishments primarily engaged in the construction of highways (including elevated), streets, roads, airport
runways, public sidewalks, or bridges. The work performed may include new work, reconstruction, rehabilitation, and
repairs. Specialty trade contractors are included in this group if they are engaged in activities primarily related to
lighway, street, and bridge construction (e.g., installing guardrails on highways).
Other Heavy and Civil Engineering Construction
Other Heavy and Civil
Engineering
Construction
Establishments primarily engaged in heavy and engineering construction projects (excluding highway, street, bridge,
and distribution line construction). The work performed may include new work, reconstruction, rehabilitation, and
repairs. Specialty trade contractors are included in this group if they are engaged in activities primarily related to
engineering construction projects (excluding highway, street, bridge, distribution line, oil and gas structure, and
utilities building and structure construction). Construction projects involving water resources (e.g., dredging and land
drainage), development of marine facilities, and projects involving open space improvement (e.g., parks and trails) are
included in this industry.
Specialty Trade Contractors
1-4
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 1: Introduction
Table 1-1: Industries Potentially Affected by the Final Rulemaking
NAICS
Code
2389
238910
Sector Name
Sector Description
Other Specialty Trade Contractors
Site preparation
contractors
Establishments primarily engaged in site preparation activities, such as excavating and grading,
demolition of buildings and other structures, septic system installation, and house moving. Earth moving
and land clearing for all types of sites (e.g., building, nonbuilding, mining) is included in this industry.
Establishments primarily engaged in construction equipment rental with operator (except cranes) are also
included.
Source: U.S. Census Bureau's Economic Census (2005a)
EPA anticipates that some businesses and activities in the Heavy Construction sector (NAICS 237) will be
affected by the Construction rule. However, with the exception of NAICS 237310 (Highway, street, and bridge
construction), data are not available to support an assessment of the number and character of projects performed
by NAICS 237 sector businesses that would be subject to compliance requirements and incur compliance costs.
For this reason, of the sectors in NAICS 237, only NAICS 237310 (Highway, street, and bridge construction) is
considered in the cost and impact analysis for the Construction rule. In addition, the establishments included
under NAICS 238910 (Site preparation contractors) are expected to be involved in land disturbance. However,
since the establishments in this sector are not expected to be the NPDES permitees this sector was therefore
excluded from this regulatory analysis. For ease, EPA describes the regulated sector by three main subsectors,
residential, non-residential and transportation.
1.3 Overview of Approach for Assessing the Economic Effects of the Final Rule
For each of the regulatory options, EPA estimated total affected acreage and compliance cost from an engineering
assessment of compliance requirements and construction activity that is likely to be affected by the specific
requirements of a regulatory option. The costs were broken out by state, general industry sector (i.e., residential,
non-residential, and transportation), project size, and project duration. To analyze the costs and impacts of the
final C&D industry regulation, EPA first identified and described the baseline condition of the economic entities
expected to be subject to the regulation. EPA assessed the incremental changes in the baseline conditions of the
affected entities and industries incurring compliance costs. Chapter 3, Economic Profile of the Construction and
Development Industry identifies and characterizes the establishments, firms, employees, and revenue by the
specific industry segments at the establishment- and firm-level. The profile also presents recent industry trends,
industry characteristics, industry dynamics and an industry forecast. This information is important for establishing
and understanding C&D industry analysis baseline, which is detailed in Chapter 4, Developing the Analysis
Baseline.
EPA used a number of methods to assess the economic impacts of the regulatory options on C&D businesses and
consumers at the project-level, firm- and industry-level, regional-level, and at the state- and national-level. EPA
undertook five main analyses to examine the costs and impacts of the final rule. Additional analyses describing
small business impacts and government-level impacts are also included within this EA. Most of these analyses,
including the primary Firm- and Industry-Level Analysis and Housing Affordability Analysis, are based on
assumptions that reflect the long-term steady-state condition of the industry and the level of compliance activity
subject to the final regulation. Because of the current economic downturn in the C&D industry and the U.S.
economy generally, this level of activity exceeds the activity actually occurring in 2008 and anticipated for the
near future. In view of the current economic downturn, EPA also undertook an Adverse Business Conditions case
analysis and a. Projection of Cost and Impacts analysis. Both of these analyses diverge from the long-term steady-
state model and instead examine the rule's effects under approximately current and near-term future conditions,
respectively. EPA judges the Project of Cost and Impacts to be of particular significance because it provides
detailed insight into the rule's likely effects as the industry begins to resume growth. Brief summaries of the five
November 23, 2009 1-5
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 1: Introduction
analyses conducted by EPA are below. More detailed descriptions of the methodologies for each of these analyses
can be found in their respective chapters.
> Chapter 6 -Analysis of Firm- and Industry-Level Economic Impacts. Assessment of the cost and
economic/financial impact of regulatory requirements on C&D industry firms, and the potential industry-
level effects in terms of numbers of firms that may be adversely affected, potential employment at risk,
and total costs to the C&D industry for regulation compliance;
> Chapter 7 -Projection of Cost and Impacts. Analysis that simulates the rule's phase-in over the period
2010-2014 and projects the estimated total cost out to the year 2025. This analysis accounts for the
expected phase-in of compliance over the first five years as states renew their Construction General
Permits, the expected phase-in of the rule's requirements during that period, and estimated levels of C&D
activity for the years 2010 - 2014;
> Chapter 8 -Analysis of Single-Family Housing Affordability Impacts. An assessment of housing
affordability, where impacts are measured in terms of the expected change in price for median- and
lower-quartile priced new single-family homes and the associated number of prospective home buyers
that may experience an affordability effect due to the price change;
> Chapter 9 -Analysis of Social Cost. An analysis of the costs of the rule from the viewpoint of society as
a whole. The social cost of the rule includes the total resource costs accounting for C&D market effects,
the social welfare loss to society arising from the change in each market's output level, and administrative
costs to implement the regulation; and,
> Chapter 10 - Analysis of Economy- Wide Output and Employment Impacts. An input-output multiplier
analysis that considers total economy effects - in terms of output and employment - based on the total
change in demand for society's resources arising from (1) compliance outlays, and (2) the reduction in
C&D industry output. The analysis also estimates the net change in demand for society's resources arising
from these two effect mechanisms.
1.4 Overview of Approach for Assessing the Benefits of the Final Rule
Chapter 11 - Benefits Assessment Methodology and Results presents EPA's analysis of benefits for the final
regulation. EPA analyzed four categories of quantifiable and monetizeable benefits from the final C&D
regulation:
> Benefits to Navigation. Navigable waterways are often dredged to maintain their navigable depth and
width. Reduced sediment settling in navigable channels is expected to reduce the frequency and therefore
cost of dredging in these channels, as frequency and cost are related to the amount of sediment
accumulated over time and therefore needed to be dredged;
> Benefits to Water Storage. Water storage facilities, commonly called reservoirs, may also be dredged in
order to regain capacity lost to sediment build-up. Reduced sediment settling in reservoirs is also expected
to reduce the frequency and cost of dredging in reservoirs that are dredged;
> Benefits to Drinking Water Treatment. Drinking water must be treated for sediment in turbidity, among
other things, and treatment costs are related to the sediment and turbidity levels of the influent water.
Reducing sediment and subsequently the turbidity that must be treated by drinking water treatment plants
reduces the amount of chemicals needed for treatment, and also the amount of sludge generated from this
treatment that must be disposed; and,
> Water Quality Benefits. Reducing sediment levels in waterways has the general effect of improving water
quality, as suspended sediment is one of the determinants of water quality. Increased water quality
1-6 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 1: Introduction
increases both the use and non-use value of waterbodies. EPA quantified the increased use value using
willingness-to-pay estimates based on a meta-analysis of existing willingness-to-pay studies for improved
water quality.
The analysis methodology and findings for these benefit categories are presented in Chapter 11. The total benefit
resulting from the reduced sediment and turbidity levels in U.S. waters induced by this regulation is estimated as
the sum of the four mutually exclusive categories of monetary benefits.
November 23, 2009 1-7
-------
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter!: Summary of Results
2 Summary of Results from the Economic Analysis
This chapter presents a concise summary of key analysis results. Complete details about the methodologies
supporting these analyses can be found in their respective chapters.
2.1 Firm- and Industry-Level Effects
The estimated levels of cost, affected acreage, and resulting firm and industry impacts reported in Table 2-1 vary
substantially over the four primary regulatory options analyzed. Please refer to Chapter 6 for complete details
regarding these results and the supporting analysis methodology.
> For Option 7, the least costly of the four options, EPA estimates total annual costs of $176 million. A
total of 30,508 firms are estimated to incur compliance costs under this option. Out of these 30,500 firms,
none are estimated to incur costs exceeding 1 or 3 percent of revenue, while 31 firms are estimated to
incur financial stress. These 31 firms represent 0.1 percent of all firms incurring cost, and essentially zero
percent of all firms in the affected industry sectors. A total of 30 firms are estimated to experience
negative business value1 as a result of regulatory requirements. Some of the firms estimated to incur
financial stress may also be estimated to experience negative business value, and as a result, these two
measures of financial impact may not be additive.
> For Option 2, EPA estimates total annual costs of $4,866 million. Out of the 30,500 firms estimated to
incur costs, 4,717 are estimated to incur costs exceeding 1 percent of revenue, and 2,399 are estimated to
incur costs exceeding 3 percent of revenue. The 4,717 firms incurring cost exceeding 1 percent of revenue
represent about 15.5 percent of the firms that are estimated to incur costs, 5.8 percent of in-scope firms
(i.e. firms that perform sufficient quantity and character of projects to be directly subject to the
regulation), and less than 3 percent of all firms in the affected industry sectors. When the effect of cost
pass-through is accounted for in the cost-to-revenue analysis - i.e., costs are reduced by the amount of
estimated offsetting revenue increase - 873 firms are estimated to incur costs exceeding 1 percent of
revenue. A total of 1,181 firms are estimated to incur financial stress as a result of regulatory
requirements. A total of 430 firms are estimated to experience negative business value as a result of
regulatory requirements. Some of the firms estimated to incur financial stress may also be estimated to
experience negative business value, and as a result, these two measures of financial impact are not
additive.
> For Option 3, the most costly option, EPA estimates total annual costs of $9,090 million. Out of these
30,500 firms estimated to incur costs, 14,021 are estimated to incur costs exceeding 1 percent of revenue,
and 9,126 are estimated to incur costs exceeding 3 percent of revenue. The 14,021 firms with cost greater
than 1 percent of revenue represent 46 percent of firms estimated to incur costs, 17 percent of in-scope
firms, and 7.5 percent of all firms in the affected industry sectors. The 9,126 firms incurring cost greater
than 3 percent of revenue represent 30 percent of firms estimated to incur costs and 11 percent of in-scope
firms. When the effect of cost pass-through is accounted for in the cost-to-revenue analysis - i.e., costs
are reduced by the amount of estimated offsetting revenue increase - 3.573 firms are estimated to incur
(net) costs exceeding 1 percent of revenue. A total of 5,398 firms are estimated to incur financial stress as
a result of regulatory requirements. These 5,398 firms represent 17.7 percent of all firms incurring cost,
The equity value of the business as a going-concern, based on discounting of the business' free cash flow from operations at the
business' estimated cost of capital, and subtracting the value of liabilities recorded on the balance sheet.
November 23, 2009
2-1
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter!: Summary of Results
6.6 percent of in-scope firms, and 2.8 percent of all firms in the affected industry sectors. A total of 1,254
firms are estimated to experience negative business value as a result of regulatory requirements. Some of
the firms estimated to incur financial stress may also be estimated to experience negative business value,
and as a result, these two measures of financial impact are not additive.
For Option 4, EPA estimates total costs of $953 million. Out of the 30,500 firms estimated to incur costs,
276 are estimated to incur costs exceeding 1 percent of revenue, and zero are estimated to incur costs
exceeding 3 percent of revenue. The 276 firms incurring cost exceeding 1 percent of revenue represent
about 0.9 percent of the firms that are estimated to incur costs, 0.3 percent of in-scope firms, and about
0.1 percent of all firms in the affected industry sectors. When the effect of cost pass-through is accounted
for in the cost-to-revenue analysis - i.e., costs are reduced by the amount of estimated offsetting revenue
increase - zero firms are estimated to incur (net) costs exceeding 1 percent of revenue. A total of 169
firms are estimated to incur financial stress as a result of regulatory requirements. These 169 firms
represent 0.5 percent of all firms incurring cost, 0.2 percent of in-scope firms, and less than 0.1 percent of
all firms in the affected industry sectors. A total of 147 firms are estimated to experience negative
business value as a result of regulatory requirements. Some of the firms estimated to incur financial stress
may also be estimated to experience negative business value, and as a result, these two measures of
financial impact may not be additive.
Table 2-1 : Summary of Cost and Economic Impact Analysis for Final Rule Options
Impact Analysis Concept _ | Option 1 | Option 2 | Option 3
Option 4
Resource Cost of Compliance and Affected Acreage and Firms (before market adjustments
Total Costs (Smillions)
Total Acreage Incurring Cost
Number of Firms
All Firms
Firms In-Scope
Firms Incurring Cost
$176
852,649
187,100
81,665
30,508
$4,866
852,649
187,100
81,665
30,508
$9,090
852,649
187,100
81,665
30,508
$953
852,649
187,100
81,665
30,508
Firms with Compliance Cost Exceeding Percentages of Revenue Judged Potentially Indicative of Adverse Impact
Costs Unadjusted for Effect of Cost Pass-Through
Costs Exceeding 1% of Revenue
Costs Exceeding 3% of Revenue
Number Incurring Effect
% of All Firms
% of Firms In-Scope
Number Incurring Effect
% of All Firms
% of Firms In-Scope
0
0.0%
0.0%
0
0.0%
0.0%
4,717
2.5%
5.8%
2,399
1.3%
2.9%
14,021
7.5%
17.2%
9,126
4.9%
11.2%
276
0.1%
0.3%
0
0.0%
0.0%
Costs Adjusted for Effect of Cost Pass-Through"
Costs Exceeding 1% of Revenue
Costs Exceeding 3% of Revenue
Number Incurring Effect
% of All Firms
% of Firms In-Scope
Number Incurring Effect
% of All Firms
% of Firms In-Scope
0
0.0%
0.0%
0
0.0%
0.0%
873
0.5%
1.1%
81
0.0%
0.1%
3,573
1.9%
4.4%
225
0.1%
0.3%
0
0.0%
0.0%
0
0.0%
0.0%
Firms Estimated to Incur Financial Stress From Deterioration in Measures of Financial Performance
Firms Incurring Financial Stress
Number Incurring Effect
% of All Firms
% of Firms In-Scope
31
0.0%
0.0%
1,181
0.6%
1.4%
5,398
2.9%
6.6%
169
0.1%
0.2%
Firms whose Net Business Value Becomes Negative as a Result of Compliance (Potential Closures)
Firms with Negative Business Value
(Potential Closures)
Number Incurring Effect
% of All Firms
% of Firms In-Scope
30
0.0%
0.0%
430
0.2%
0.5%
1,254
0.7%
1.5%
147
0.1%
0.2%
a Assumes cost pass-through rate of 85% for residential sectors and 71% for non-residential and non-building sectors.
EPA Estimates
2-2
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 2: Summary of Results
2.2 Projections of Future Regulatory Cost and Economic Effects
EPA projected the cost and economic effects of the final rule through the year 2025, accounting for: (1) the
expected levels of in-scope activity during the years in which the regulation will begin to be implemented, (2) the
phase-in of the rule's requirements during the initial years following promulgation, and (3) the phase-in of rule
applicability as states renew their Construction General Permits. This projection relies primarily on a recent
forecast of total construction industry activity over the next several years developed by Global Insight. Unlike the
other cost and impact analyses described in this document, this projection analysis is presented only for the final
rule option, Option 4.
As reported in Chapter 6, Table 6-3, the primary estimate of total compliance cost of Option 4, is $953 million.
The results - cost and impacts - presented below differ from this estimate in three important ways:
> The projection analysis accounts for the anticipated activity levels in each year from 2010 - 2014;
> The projection analysis accounts for the phase-in of the rule's requirements from 2010 - 2014; and,
> The projection analysis accounts for the phase-in of compliance from 2010 - 2014 as states renew their
CGPs.
Because 2014 is the first year of full rule implementation, the cost value reported for 2014, $810 million (2008$),
reflects the near-term cost of the rule under steady state-like conditions - i.e., the rule's requirements are fully
effective to all covered site sizes, and the rule is anticipated to have been implemented over all states. EPA's
primary estimate of $953 million (from Chapter 6) differs from this value because the primary value reflects the
cost of the rule in 2008 constant dollars, at a long-term, steady-state activity level. EPA presents this cost estimate
as an appropriate basis for understanding the long-term annual costs of the rule, in constant 2008 dollars, because
it reflects EPA's estimate of the long-term, steady state activity level in the industry. As reported in Table 2-3,
this long-term, steady-state activity level and compliance cost value, as estimated in Chapter 6, would not actually
occur until the year 2020.
Table 2-2 reports the costs and impacts associated with the final rule over the period 2010 - 2014, as aggregate
industry activity increases, the requirements of the rule become applicable, and additional states come into
compliance. Table 2-2 reports the total costs and impacts over this period on a cumulative basis as additional
states come into compliance in each year following rule promulgation - i.e., the effects cannot be summed across
years.
November 23, 2009 2-3
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter!: Summary of Results
Table 2-2: Cumulative Cost and Economic Impacts for the Final Rule, 2010 - 2014
Impact Analysis Concept | 2010 | 2011 | 2012 | 2013 | 2014
Resource Cost of Compliance and Affected Acreage and Firms (before market adjustments)
Total Costs (Smillions, 2008$)
Total Acreage Incurring Cost
Number of Firms
All Firms
Firms In-Scope
Firms Incurring Cost
$8
36,212
132,701
53,078
781
$63
107,646
155,728
59,581
2,522
$204
603,875
180,028
67,571
5,826
$538
603,875
194,442
73,056
17,515
$810
729,384
200,163
75,578
20,918
Firms with Compliance Cost Exceeding Percentages of Revenue Judged Potentially Indicative of Adverse Impact
Costs Unadjusted for Effect of Cost Pass-Through
Exceeding 1% of Revenue
Exceeding 3% of Revenue
Number Incurring Effect
% of All Firms
% of Firms In-Scope
Number Incurring Effect
% of All Firms
% of Firms In-Scope
0
0.0%
0.0%
0
0.0%
0.0%
2
0.0%
0.0%
0
0.0%
0.0%
48
0.0%
0.1%
0
0.0%
0.0%
136
0.1%
0.2%
0
0.0%
0.0%
224
0.1%
0.3%
0
0.0%
0.0%
Costs Adjusted for Effect of Cost Pass-Through"
Exceeding 1% of Revenue
Exceeding 3% of Revenue
Number Incurring Effect
% of All Firms
% of Firms In-Scope
Number Incurring Effect
% of All Firms
% of Firms In-Scope
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
Firms Estimated to Incur Financial Stress From Deterioration in Measures of Financial Performance
Incurring Financial Stress
Number Incurring Effect
% of All Firms
% of Firms In-Scope
1
0.0%
0.0%
7
0.0%
0.0%
27
0.0%
0.0%
79
0.0%
0.1%
141
0.1%
0.2%
Firms whose Net Business Value Becomes Negative as a Result of Compliance (Potential Closures)
Negative Business Value
(Potential Closures)
Number Incurring Effect
% of All Firms
% of Firms In-Scope
2
0.0%
0.0%
6
0.0%
0.0%
21
0.0%
0.0%
61
0.0%
0.1%
128
0.1%
0.2%
a Assumes cost pass-through rate of 85% for residential sectors and 71% for non-residential and non-building sectors.
EPA Estimates
For the years beyond 2014, EPA extended the time series of aggregate industry construction value, cost, and
acreage to the year 2025 by assuming a uniform annual growth rate in aggregate construction value from 2015 to
2025 of 3.0% per year. This value is based on the industry's average annual growth rate of construction value -
on a constant dollar basis - from Census' Annual Value of Construction Put in Place for the most recent 15-year
period, 1994 - 2008 (Census 2009a). Table 2-3 presents the values for 2010-2014 and for the specific years 2020
and 2025, along with an estimate of total compliance cost as a percentage of total construction value. As
evidenced in the table, the total compliance costs associated with the final rule are expected to represent about
one-tenth of one percent of total construction value in the C&D industry over the long-term.
Table 2-3: Total Value of Construction Activity and Cost, by Year (millions, 2008$)
Total Value of Construction
Total Estimated Acreage
Total Compliance Cost
as a % of total value
2010
$487,534
495,930
$7.8
0.00%
2011
$554,457
561,710
$75.2
0.01%
2012
$641,041
646,022
$253.3
0.04%
2013
$699,860
703365
$5387i
ao'8%
2014
$726,669
7297894
$809.9
0.11%
2020
$866,895
870/742
$966.1
0.11%
2025
$1,004,210
1™608™667
$1,119.2
0.11%
EPA Estimates
2-4
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 2: Summary of Results
Lastly, EPA calculated the annualized cost of the final rule from 2010 - 2025, using both a 3% and 7% discount
rate. Using a 3% discount rate, the annualized cost of Option 4 is approximately $725 million. Using a 7%
discount rate, the annualized cost of Option 4 is approximately $667 million.
2.3 Single-Family Housing Affordability Effects
This analysis estimates, by Metropolitan Statistical Area (MSA), the potential change in price for newly
constructed single-family homes, and the associated number of prospective home buyers whose purchasing
decisions may be affected by the potential increase in new home prices due to compliance requirements.
The results of the analysis are produced at the MSA-level and reported at the national-level by aggregating the
total number of impacted households across all MSAs. Detailed state-level results are presented in Appendix D.
As described above, EPA performed this analysis at three home price levels: the median price, lower quartile
price, and specified lowest prices for new single-family homes, by MSA. For this analysis, EPA assumed that
compliance costs would be fully passed through to consumers in increased housing prices. This assumption
effectively contradicts the assumptions of'partial and no cost pass-through that underlie the analysis of firm and
industry-level regulatory impacts. Results from the median price analysis are summarized below.
Table 2-4 shows, by regulatory option, the estimated dollar value and percentage change in the price for a new
single-family home and the number of households in the market for a new, median price single family home
whose purchasing decision may be affected by the price change. The price increase assumes: (1) a compliance
cost based on the median lot size, 0.20 acres, for all new single-family housing as reported in the Census of
Housing and (2) that compliance costs are fully passed through as an increased price to the home purchaser.2 This
table also shows (1) the number of affected households as a percentage of the total number of home-purchasing
households that also qualify to purchase the median price home, before compliance cost effect, and (2) the
fraction and number of total households whose purchasing decision could be affected by a regulatory option,
adjusted to account for those households whose empirically observed purchase terms indicate an ability to
increase their housing payments and remain under 29% housing payment-to-income ratio. The key conclusion
from this analysis is that, for all regulatory options, the total number of households incurring an affordability
effect is small in comparison to the number of all likely single-family home buyers in any given year who can
also afford the same home. For Option 4, this percentage is less than 0.2 percent
2 The 0.20 acre lot size is the median value for new single-family housing as reported in the Census' 2008 Characteristics of New
Housing, adjusted for additional land development associated with roadways, which is not accounted for in the Census' lot size data.
November 23, 2009 Ł
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter!: Summary of Results
Table 2-4: National Results from the MSA-Level Affordability Median New Home Price Analysis - Price and
Household Affordability Effects - based on Owner Occupied Households that Recently Purchased a New,
Option In-Scope, Home
Weighted Average Baseline Median New Home Price8
National Average Price Change per New Single-
Family Homeb
Number of Households Whose Purchasing
Decision for a New Single-Family Median
Priced Home Would Be Affected by a
Regulation-Induced Increase in Housing Prices
Number of Affected Households (from above),
Adjusted to Account for Estimated Number of
Households That Have the Ability to Increase
Housing Payments and Still Remain Under 29%
Housing Payment-to-income Ratio
Price Change*5
Percent Change0
Number of Households
As % of SF home buyers
qualifying for the new,
option-in-scope, median-
priced home
As % of SF home buyers
qualifying for the
median-priced home
Number of Households
As % of SF home buyers
qualifying for the new,
option-in-scope, median-
priced home
As % of SF home buyers
qualifying for the
median-priced home
Option 1
$355,893
$59
0.02%
239
0.03%
0.01%
69
0.01%
<0.00%
Option 2
$355,893
$2,231
0.63%
9,757
1.05%
0.30%
2,992
0.32%
0.09%
Option 3
$355,893
$4,093
1.15%
17,222
1.86%
0.53%
5,259
0.57%
0.16%
Option 4
$355,893
$415
0.12%
1,667
0.18%
0.05%
480
0.05%
0.01%
a This value, the weighted average based on the number of households and home prices across MSAs, is not directly used in the analysis; it is presented here
for reference only.
b These are national average price changes estimated from the national average engineering estimate of per acre compliance cost converted to the equivalent
of compliance costs per housing unit. Price changes for MSAs are estimated individually using engineering estimates of state-level compliance costs.
c The national average percent change in home price is estimated using the national average price change and the weighted-average home price across all
MSAs.
EPA Estimates
Table 2-5 shows the effect of the estimated national average change in home prices on a typical monthly payment
by comparing the baseline and post-compliance monthly payments for each option. For example, the median
home price analysis shows increases in monthly payments of $1 for Option 7, $16 for Option 2, $29 for Option 3,
and $3 for Option 4. In each case, the percentage increase in the monthly payment due to regulatory requirements
is low - for example, 0.14 percent for Option 4.
Table 2-5: National Results from the MSA-Level Affordability Median New Home Price Analysis -
Change in Monthly Mortgage Payment
Weighted Average Baseline Monthly Mortgage Payment3
Weighted Average New Monthly Mortgage
Payment"
Monthly Payment
Percent Change
Option 1
$1,953
$1,954
0.02%
Option 2
$1,953
$1,969
0.80%
Option 3
$1,953
$1,982
1.45%
Option 4
$1,953
$1,956
0.14%
a These values are weighted by the number of households within each state.
EPA Estimates
The marginal affordability effects for likely buyers of newly constructed, single-family homes - in this case, a
median price home - as illustrated in Table 2-4 and Table 2-5, do not mean that these households would be unable
to afford a single-family home, or even not be able afford the exact same new single-family home. Any
potentially affected home buyer has a number of ways to mitigate any price increase due to the regulation, such as
purchasing an existing home. See Section 8.5, at page 8-11, for a description of all of these options.
Another option, referred to as the purchase deferment option, is when the purchaser delays the home purchase
long enough to save the requisite increase in the down-payment. Depending on a household's income and the
amount of time over which the household saves the additional funds, the impact on a given household's
disposable income will vary. For example, for any given amount to be saved, the fraction of income that would
2-6
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter!: Summary of Results
have to be set-aside over a 3-month period is twice the fraction of income set-aside if savings are accrued over a
six-month deferment period.3
Table 2-6, below, presents the fraction of household income required to be saved, to offset the effect of the
regulation on the monthly mortgage payment via an increase in the initial down-payment. The table shows the
savings over 3, 6, and 12 month periods. In each case, the income used in the calculation is the income at which
the prospective home buyer would just be able to purchase the home at the baseline price under conventional
financing criteria. The results show, for example, that under Option 4, a household would need to set-aside 0.9%
of its income over a 6-month period to offset the regulation's effect on the mortgage payment. The fraction of
income required to be saved decreases,yor any savings time period, for households that earn income in excess of
this minimum income requirement. Therefore, the required increases in down payment in this table are overstated
to the extent that the income of households interested in purchasing the median price home exceeds the minimum
income threshold value.
Table 2-6: National-Level Change in Down-Payment Required to Offset Effect of the Regulation for the
Median Home Price
Income necessary to pay baseline mortgage PITI4
Required increase in down payment to offset regulation price
effect
Baseline
$97,695
$0
Option 1
$60
Option 2
$2,234
Option 3
$4,098
Option 4
$416
Percent of income required to be saved to accumulate marginal increase in down payment over:
12 months
6 months
3 months
0.0%
0.0%
0.0%
0.1%
0.1%
0.2%
2.3%
4.6%
9.1%
4.2%
8.4%
16.8%
0.4%
0.9%
1.7%
EPA Estimates
2.4 Social Cost of the Final Rule
The total social cost of the regulation is comprised of (1) the quantity-adjusted resource cost of compliance, (2)
the additional welfare loss to society due to the construction market effect of the regulation, and (3) government
administrative costs for reviewing and processing discharge monitoring reports (DMR). Note that the government
administrative costs are also reported in Table 2-10 as part of the UMRA analysis. The results of the social cost
analysis are presented in Table 2-7.
For the Option 4, the total social cost is approximately $959 million with the total dead weight loss under $1
million (approximately $150,000). For comparision, other regulatory options considered have estimated social
costs of $176 million, $4.86 billion, and $9.08 billion, respectively, for Options 1, 2, and 3.
With no allowance for interest earned on the savings during the accumulation period.
Principal, Interest, Taxes, and Insurance
November 23, 2009
2-7
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter!: Summary of Results
Table 2-7: Total Social Cost of the Final Regulation, ($millions)
Total Costs, Adjusted for Quantity Effect
Total Costs, Unadjusted for Quantity Effect
Change in Costs Due to Quantity Effect
Additional Social Welfare Loss
Government Administrative Cost for DMR Processing
Total Social Cost of the Regulation
Total Acreage Incurring Cost
Option 1
$176
$176
$0.01
$0.0
$0.0
$176
852,615
Option 2
$4,856
$4,866
$10
$5.0
$2.2
$4,863
851,253
Option 3
$9,059
$9,090
$31
$15.5
$6.2
$9,081
850,249
Option 4
$952
$953
$0.29
$0.15
$6.2
$959
852,418
EPA Estimates
2.5 Economy-Wide Output and Employment Effects of the Final Rule
The analysis of total output and employment effects is intended to account for inter-industry linkages in the
national economy by estimating the magnitude of output and employment changes derived from both the resource
cost of compliance, the direct change (contraction) in C&D industry output, and the output and employment
effects resulting from administrative costs associated with activities performed by Federal, State, and Local
governments (government costs are described in Chapter 14). EPA used the Input-Output Modeling System
(RIMS) multipliers from the Bureau of Economic Analysis (BEA) to estimate the total economic effects of the
regulation on the overall U.S. economy. The results are presented in Table 2-8.
It is important to emphasize that the total output and employment effects, whether derived from resource cost
outlays or the change in C&D industry output, are not costs in addition to the social cost of the rule. The reported
output and employment effects are manifestations of the rule's social cost.
Table 2-8: Total Economic Output and Employment Effects, ($millions)
Option 1
Option 2 | Option 3
Option 4
Output Effects
Total Change in Economic Output Arising from Compliance Cost Outlays
Change in C&D Industry Output
Total Change in Economic Output from Reduced C&D Industry Output
Total Change in Economic Output Arising from Government Cost
Total Effect on Total Economic Output
$529
($39)
($127)
$0
$401
$14,608
($1,621)
($5,241)
$7
$9,373
$27,253
($2,786)
($9,009)
$19
$18,263
$2,865
($269)
($869)
$19
$2,015
Employment Effects
Total Change in Employment Arising from Compliance Cost Outlays (jobs)
Direct Employment Effect from Reduced C&D Industry Output (jobs)
Total Change in Employment from Reduced C&D Industry Output (jobs)
Total Change in Employment Arising from Government Cost Gobs)
Total Effect on Total Employment (jobs)
3,296
(83)
(988)
0
2,309
91,071
(3,370)
(40,612)
60
50,519
169,908
(5,802)
(69,810)
167
100,266
17,861
(560)
(6,734)
167
11,295
EPA Estimates
2.6 Regulatory Flexibility Analysis (RFA)
The RFA provides that EPA generally define small businesses according to the size standards established by
SBA. Based on SBA's size criteria, EPA estimates that a total of 187,079 firms are in the C&D industry sectors of
concern for this regulation. Of this total, EPA estimates that approximately 182,545 firms, or about 98 percent,
are defined as small businesses.
Although a large percentage of C&D industry businesses are defined as small business, many of these firms are
not likely to complete projects that fall within the coverage size thresholds of the regulatory options considered in
this analysis. EPA assessed whether small businesses would likely perform projects of sufficient size to be within
2-8
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 2: Summary of Results
the scope of the C&D regulation using concepts described in Chapter 6 for the firm- and industry-level analysis.
This assessment was based on comparing firm annual revenue to the expected annual average return per acre from
projects. EPA considers firms that are capable of completing the theoretically easiest of the 144 model project-
types (i.e., a 1-acre project over a 3-year duration) to be within the potential scope of a C&D regulation. This
capability assessment is performed for each model firm category, and is a function of not only the project size and
duration, but also the model firm revenue, acreage intensity, and estimated number of projects ongoing at any one
time for each model firm. EPA estimates that a much smaller number of small businesses - approximately 77,115
firms - are capable of performing in-scope projects than the total of small businesses (approximately 182,600) in
the total C&D industry.
The impacts of the final regulatory option on small businesses are summarized below:
> For Option 4, EPA estimates that approximately 27,420 small businesses may incur costs, representing
about 15 percent of all estimated small businesses in the affected C&D sectors and 36 percent of those
small businesses estimated capable of performing the minimal model project (in terms of size and
duration) within the scope of the final regulation. EPA estimates that none of these small businesses incur
costs exceeding 1 or 3 percent of revenue when the expected increased revenue offset to compliance costs
is accounted for in the cost-to-revenue comparison. Without accounting for this cost-pass-through effect,
EPA estimates that 230 small firms will incur costs exceeding 1 percent of revenue, but no small firms are
expected to incur costs exceeding 3 percent of revenue. In these 27,420 firms, EPA estimates that 135 will
potentially incur financial stress as a result of the regulation and 122 would potentially incur negative net
business value - an indicator of potential closure. Some of the firms estimated to incur financial stress
may also be estimated to experience negative business value, and as a result, these two measures of
financial impact are not additive. The number of small businesses estimated to incur financial stress or
potential closure, represent approximately 0.07 percent of the total small businesses in the C&D sectors
and about 0.2 percent of those potentially in-scope small businesses.
Overall, EPA estimates the small business impacts of the regulation are not substantial on the basis of the slight
percentages of total small businesses and estimated small businesses that would potentially be adversely affected
by the regulation. Although EPA estimates that Option 4 may cause approximately up to 230 firms to incur costs
exceeding 1 percent of revenue, EPA does not judge this impact to be so substantial or so significant as to warrant
a SISNOSE finding. The number of affected firms represents a small percentage of all small businesses (0.1
percent) and all small in-scope businesses (0.3 percent) in the C&D industry sectors of concern. The estimated
effects relative to the 3 percent of revenue threshold is zero firms. Thus, EPA does not judge the number of
adversely affected small businesses to be substantial. Moreover, if the expected pass-through of these compliance
costs is accounted for in the cost-to-revenue analysis, then the number of adversely affected firms falls to zero
under both cost-to-revenue impact thresholds. On this basis, EPA further concludes that the overall adverse
impact is not significant.
November 23, 2009 2-9
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter!: Summary of Results
Table 2-9: Summary of Small Business Cost and Impact Analysis for C&D Rule Options
Impact Analysis Concept
Option 1 | Option 2 | Option 3 | Option 4
Resource Cost of Compliance and Affected Acreage and Firms
Total Costs in Small Businesses (Smillions)
Total Small Business Activity Acreage Incurring Cost
Number of Small Firms
All Small Firms
Small Firms In-Scope
Small Firms Incurring Cost
$74
332,981
182,560
77,115
27,420
$1,498
332,981
182,560
77,115
27,420
$3,827
332,981
182,560
77,115
27,420
$403
332,981
182,560
77,115
27,420
Small Firms with Compliance Cost Exceeding Percentages of Revenue Judged Potentially Indicative of Adverse Impact
Costs Unadjusted for Effect of Cost Pass-Through
Costs Exceeding 1% of Revenue
Costs Exceeding 3% of Revenue
Number Incurring Effect
% of All Small Firms
% of Small Firms In-Scope
Number Incurring Effect
% of All Small Firms
% of Small Firms In-Scope
0
0.0%
0.0%
0
0.0%
0.0%
3,454
1.9%
4.5%
1,843
1.0%
2.4%
11,889
6.5%
15.4%
8,106
4.4%
10.5%
230
0.1%
0.3%
0
0.0%
0.0%
Costs Adjusted for Effect of Cost Pass-Through"
Costs Exceeding 1% of Revenue
Costs Exceeding 3% of Revenue
Number Incurring Effect
% of All Small Firms
% of Small Firms In-Scope
Number Incurring Effect
% of All Small Firms
% of Small Firms In-Scope
0
0.0%
0.0%
0
0.0%
0.0%
593
0.3%
0.8%
60
0.0%
0.1%
3,008
1.6%
3.9%
187
0.1%
0.2%
0
0.0%
0.0%
0
0.0%
0.0%
Small Firms Estimated to Incur Financial Stress From Deterioration in Measures of Financial Performance
Small Firms Incurring Financial Stress
Number Incurring Effect
% of All Small Firms
% of Small Firms In-Scope
24
0.0%
0.0%
1,024
0.6%
1.3%
5,112
2.8%
6.6%
135
0.1%
0.2%
Small Firms whose Net Business Value Becomes Negative as a Result of Compliance (Potential Closures)
Small Firms with Negative Business Value
Because of Regulation (Potential Closures)
Number Incurring Effect
% of All Small Firms
% of Small Firms In-Scope
25
0.0%
0.0%
301
0.2%
0.4%
1,007
0.6%
1.3%
122
0.1%
0.2%
a Assumes cost pass-through rate of 85% for residential sectors and 71% for non-residential and non-building sectors.
EPA Estimates
2.7 Unfunded Mandates Reform Act Analysis (UMRA)
Table 2-10 reports total compliance and administrative costs estimated to be incurred by Federal, State and Local
government entities.
Table 2-10: Total Government Compliance and Administrative Costs ($millions)
Option 1
Option 2
Option 3
Option 4
Compliance Costs
Federal
Statea
Locala
$3.8
$8.1
$46.2
$87.1
$178.1
$1,022.3
$166.9
$323.0
$1,854.0
$17.7
$35.3
$202.4
Administrative Costs
State
$0.0
$2.2
$6.2
$6.2
Total Costs
Federal
Statea
Local3
$3.8
$8.1
$46.2
$87.1
$180.3
$1,022.3
$166.9
$329.2
$1,854.0
$17.7
$41.5
$202.4
a State and Local compliance costs were split-out from the State and Local total based on the proportion of total project value in state and local
governments from Reed Construction Data.
Source: Reed (2008), U.S. Census Bureau's Government Organization (2002), EPA Estimates
Table 2-11 reports the findings from comparing the total compliance and administrative costs with three baseline
measures: total government revenue, capital outlay, and capital outlay for construction only. Estimated impacts on
2-10
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter!: Summary of Results
small government entities are reported within Chapter 14: Assessing the C&D Regulatory Options in Accordance
with Unfunded Mandates Reform Act (UMRA) Requirements.
Table 2-11: Impacts of Regulatory Option Compliance and Administrative Costs on State and Local
Governments ($millions)
Option 1
Option 2
Option 3
Option 4
State Governments Impact Analysis Concepts
Total Revenues
Total Costs as % of Total Revenues
Capital Outlay
Total Costs as % of Total Capital Outlay
Construction Outlay Only
Total Costs as % of Total Construction Outlay
1,097,829
0.00%
89,919
0.01%
71,035
0.01%
1,097,829
0.02%
89,919
0.20%
71,035
0.25%
1,097,829
0.03%
89,919
0.37%
71,035
0.46%
1,097,829
0.00%
89,919
0.05%
71,035
0.06%
Local Governments Impact Analysis Concepts
Total Revenues
Total Costs as % of Total Revenues
Capital Outlay
Total Costs as % of Total Capital Outlay
Construction Outlay Only
Total Costs as % of Total Construction Outlay
1,083,129
0.00%
142,209
0.03%
107,588
0.04%
1,083,129
0.09%
142,209
0.72%
107,588
0.95%
1,083,129
0.17%
142,209
1.30%
107,588
1.72%
1,083,129
0.02%
142,209
0.14%
107,588
0.19%
a State and Local compliance costs were split-out from the State and Local total based on the proportion of total project value in state and local
governments from Reed Construction Data.
Source: Reed (2008), U.S. Census Bureau's Compendium of Government Finances (2005c), U.S. Census Bureau's Government
Organization (2002), EPA Estimates
2.8 Benefits of the Final Rule
EPA estimated the total benefits under each post-compliance regulatory scenario by summing the benefits
estimated for each of four monetized categories. Table 2-12 presents low, midpoint, and high estimates of benefits
under each policy option, consisting of benefits to navigation, water storage, drinking water treatment, and WTP.
Table 2-12 presents benefits for navigable waterway and reservoir dredging calculated using both 3 and 7 percent
discount rates. Because the discount rate only applies to two of the four monetized benefits categories, which
represent at most 5 percent of total benefits, varying it has little effect on the total benefits estimate. The
remaining discussion presents the benefits estimates assuming a 3 percent discount rate; the associated tables
present results for both discount rates. EPA calculated benefits for drinking water treatment and WTP for water
quality improvements using a single-year timeframe, which did not require discounting or annualizing. All
benefits presented reflect annual values.
Total national benefits vary significantly among the three regulatory options. Under Option 1, the estimated
benefits range from approximately $59.0 million to approximately $434.3 million, with a midpoint estimate of
$214.1 million. Estimated avoided costs range from $3.3 million to $4.1 million, with a midpoint of $3.8 million,
and WTP for water quality improvements varies between $55.8 and $430.2 million at the 5 and 95 percent
confidence intervals, with a mean estimate of $210.3 million.
For Option 2, the estimated benefits range from $100.5 million to $727.4 million, with a midpoint estimate of
$360.1 million. The estimated WTP for water quality improvements from reduced sediment discharges from
construction sites under Option 2 ranges from $94.2 to $719.7 million, with a mean value of $352.9 million.
Estimated cost savings range from $6.3 million to $7.7 million per year, with a midpoint estimate of $7.2 million.
Under Option 3, total benefits are estimated to be between $118.0 and $852.2 million, with a midpoint estimate of
$422.3 million. The avoided costs are estimated to be between $7.7 and $9.4 million per year, with a midpoint
November 23, 2009
2-11
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter!: Summary of Results
estimate of $8.9 million. WTP for water quality improvements under Option 3 ranges between $110.4 million and
$842.8 million for the 10th and 90th percentile values, with a mean value of $413.4 million.
Under Option 4, the estimated benefits range from $104.3 million to $742.7 million, with a midpoint estimate of
$368.9 million. Benefits estimated based on household WTP for surface water quality improvements account for
93, 98, and 99 percent of total benefits from the regulation in the low, mid, and high estimates, respectively. The
estimated WTP for water quality improvements from reduced sediment discharges from construction sites under
Option 4 ranges from $97.4 to $734.3 million, with a mean value of $361.0 million. The estimated cost savings to
industry and government through reduced costs of navigable waterway maintenance, reservoir dredging, and
drinking water treatment range from $6.8 million to $8.3 million per year, with a midpoint estimate of $7.9
million. Under Option 4, avoided cost benefits account for 7, 2, and 1 percent of total benefits in the low, mid, and
high estimates, respectively. Because this option requires passive treatment at sites with 10 or more acres of land
disturbed and establishes a numeric effluent limit, its benefits are more than double those of Option 1, which does
not establish numeric criteria for sediment discharge. It also produces more benefits than Option 2, which requires
active treatment of sediment but on fewer sites. Benefits under Option 4 are nearly as high as those under Option
3, which would require active sediment treatment on the same sites where Option 4 requires passive treatment, the
latter being less burdensome.
Table 2-12 Total National Benefits by Benefit Category (million 2008$)
Benefit Category
3% Discount Rate
Low Mid High
7% Discount Rate
Low Mid
High
Option 1
Navigation
Water Storage"
Drinking Watera
Avoided Costs
WTP for Water Quality"
Total"
$1.0
$1.3
$1.3 $1.4
$1.0
$1.2
$3.3 $3.8
$55.8
$59.0
$210.3
$214.1
$1.3
$1.5
$1.3
$4.1
$430.2
$434.3
$1.0
$1.1
$1.0
$3.1
$55.8
$58.8
$1.2
$1.3
$1.2 $1.4
$1.2
$1.3
$3.7 $4.0
$210.3
$213.9
$430.2
$434.2
Option 2
Navigation
Water Storage"
Drinking Water"
Avoided Costs
WTP for Water Quality"
Total"
$2.1
$2.6
$2.7 $2.9
$1.4
$6.3
$1.8
$7.2
$94.2 $352.9
$100.5
$360.1
$2.8
$3.0
$1.9
$7.7
$719.7
$727.4
$2.1 | $2.5
$2.7
$2.2 $2.6 $3.0
$1.4 | $1.8
$5.8 $6.9
$1.9
$7.5
$94.2 $352.9 $719.7
$99.9 | $359.8
$727.2
Option 3
Navigation
Water Storage"
Drinking Water"
Avoided Costs
WTP for Water Quality"
Total"
$2.7
$3.3
$3.3
$3.6
$1.7 $2.1
$7.7
$8.9
$110.4 $413.4
$118.0
$422.3
$3.4
$3.8
$2.1
$9.4
$842.8
$852.2
$2.6
$2.8
$1.7
$7.0
$110.4
$117.4
$3.2
$3.2
$3.4
$3.7
$2.1 $2.1
$8.4
$9.2
$413.4 $842.8
$421.8
$852.0
Option 4
Navigation
Water Storage"
Drinking Water"
Avoided Costs
WTP for Water Quality "
Total"
$2.4
$2.9
$3.0 $3.2
$1.5
$1.8
$6.8 $7.9
$97.4
$104.3
$361.0
$368.9
$3.0
$3.4
$1.9
$8.3
$734.3
$742.7
$2.3
$2.5
$1.5
$6.3
$97.4
$103.7
$2.8
$3.0
$2.9 $3.3
$1.8
$1.9
$7.5 $8.2
$361.0
$368.5
$734.3
$742.5
a These savings were calculated for a one-year timeframe and that did not require discounting, and are equal under both discount rates
b Totals may not equal sum of categories due to rounding
EPA Estimates
2-12
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter!: Summary of Results
2.9 Comparison of Total Social Cost and Monetized Benefits
The elements of social cost and monetized benefits and the net monetized benefits are presented in Table 2-13.
Anticipated social costs are greater than the monetized benefits for all options, except Option 1 - although Option
1 benefits are substantially less than any of the other three options. It is important to emphasize once again that
Chapter 11 discusses several other classes of benefits that could not be monetized but are likely to provide real
social benefits, and therefore, the estimate of monetized benefits is not as complete an estimate as that of total
social cost.
Total social costs include:
> The quantity-adjusted resource cost of compliance to the private sector and to governments;
> The additional social welfare loss due to construction market effects; and,
> Government administrative costs for reviewing and processing discharge monitoring reports (DMR) and
other start-up costs.
The reduction of sediment and other pollutants entering surface waters from construction sites as a result of the
C&D regulation will have a wide range of market and nonmarket benefits, as described in Chapter 11. As noted
previously in Chapter 11 and emphasized here, EPA's estimate of total monetized benefits does not represent the
full-range and magnitude of benefits expected from this rule because certain categories of benefits are not able to
be monetized.
Total estimated monetized benefits include:
> Benefits to navigation;
> Benefits to water storage;
> Benefits to drinking water treatment; and,
> Willingness-to-pay for water quality improvements.
Table 2-13: Comparison of Social Costs and Benefits ($millions)
Option 1
Option 2
Option 3
Option 4
Social Costs
Resource Cost of Compliance
Government Administrative Cost
Additional Social Welfare Loss
Total Social Cost of the Regulation
$176
$0.0
$0.0
$176
$4,856
$2.2
$5.0
$4,863
$9,059
$6.2
$15.5
$9,081
$952
$6.2
$0.15
$959
Monetized Benefits3
Benefits to Navigation
Benefits to Water Storage
Benefits to Drinking Water Treatment
Avoided Cost
Water Quality Benefits
Total Monetized Benefitsb
Net Benefit (Benefits minus Cost)
$1.3
$1.4
$1.2
$3.8
$210.3
$214.1
$38
$2.6
$2.9
$1.8
$7.2
$352.9
$360.1
-$4,503
$3.3
$3.6
$2.1
$8.9
$413.4
$422.3
-$8,659
$2.9
$3.2
$1.8
$7.9
$361.0
$368.9
-$590
Based on a 3% social discount rate, (see Chapter 11).
Totals may not sum due to rounding
Source: EPA Estimates
November 23, 2009
2-13
-------
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 3: Industry Profile
3 Economic Profile of the Construction and Development Industry
3.1 Introduction to the C&D Industry Profile
The Construction and Development (C&D) industry plays an integral role in the nation's economy, contributing
approximately five percent of Gross Domestic Product. Furthermore, approximately 10 percent of the nation's
nearly 7 million total business establishments are in the C&D industry, demonstrating the dominance of small
firms in this industry. The number of paid employees in the C&D industry accounts for 6.6 percent of total U.S.
employment (U.S. Census Bureau, 2005a). Establishments in this industry are involved in a wide variety of
activities, including land development and subdivision, homebuilding, remodeling, construction of nonresidential
buildings and other structures, and heavy construction work (including roadways and bridges). Establishments are
also involved in a myriad of special trades, such as plumbing, roofing, electrical, excavation, and demolition
work. Some of these activities result in land disturbance, which can cause erosion and transport soil and sediment
in stormwater runoff. The regulatory options presented in this economic analysis report address these concerns.
Several characteristics of the C&D industry affect the structure of this economic analysis:
> Residential construction represents a large percentage of construction industry activity. Approximately 50
percent of the establishments included within the following analysis are residential contractors. In
addition, approximately 32 percent of the total value of construction comes from residential construction.
Therefore, individuals (e.g., homebuyers) are often the direct customers of the C&D industry. With
residential housing representing a substantial share of total C&D industry activity, it is important to
understand the potential effect of the C&D regulation on housing prices and housing affordability.
> Developers and builders work under a range of relationships in performing construction services. For
example, developers may undertake all site improvements and sell completed lots directly to builders, or
act as builders themselves and remain onsite to build out the development, or some combination of the
two. Thus, both developers and builders may be the parties that are directly subject to the C&D
regulation's compliance requirements.
> The C&D industry includes a very large number of small businesses. Therefore, EPA carefully considered
the impacts on small businesses in accordance with RFA requirements in developing the options
considered for this regulatory proposal and in choosing the option for proposal. As reported in Section
3.3.3 of this chapter, EPA estimates that 95 percent or more of the firms in the C&D industry are small
businesses according to Small Business Administration criteria.
> C&D activities are undertaken in markets in which business conditions vary substantially both over time
and space. Furthermore, these regional variations in business conditions can persist for several years
because of the immobile and long-lived character of the C&D industry's output product. Some factors
affecting business conditions in C&D markets are national in character - e.g., interest rates and overall
performance of the national economy - while other factors are more local in character - e.g., differences
in regional economic and population growth patterns, differences in performance of sectors that are
regionally concentrated, and the character of the supply/demand balance in a given local market. The
highly local and varying character of C&D markets means that the economic analysis for the C&D
regulation must account for these variations in market conditions, both over time and across local
markets.
November 23, 2009
3-1
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 3: Industry Profile
> Under the standard C&D industry definitions, the industry includes a large number of establishments
primarily engaged in remodeling activities and special trades (e.g., plumbing, electrical). These
establishments, however, are less likely to be involved in land-disturbing activities and thus are not likely
to be subject the C&D regulation's requirements. Chapter 4 describes in more detail the breakout of the
entities within the C&D industry that would either not engage in land-disturbing activities or would not
be an NPDES permittee or co-permittee. Since these entities are not likely to be affected by this
regulation, they will not be included in the cost and economic impact analysis for the C&D rule.
> The C&D regulation will apply only to activities that occur on land in the United States. Accordingly,
competition from production of C&D industry products in international markets is not important for
analyzing the impacts of this rule. If international firms engage in C&D production activities on U.S.
land, they will be subject to the C&D regulation in the same way as U.S. firms and can gain no
competitive advantage from a different level of regulation in their home countries. Similarly, any
requirements applicable to U.S. firms in their domestic operations will not apply to their production
activities in other countries. As a result, the C&D regulation will not affect U.S. firms' competitiveness in
supplying their products in foreign countries.
> Since late 2006, residential construction has experienced a slowdown in housing starts: 2005 was a peak
year for residential construction but the sector subsequently experienced a substantial contraction in
activity due to decreased housing affordability and over-building. The residential construction sector
appears now to be recovering from this sharp contraction, with housing starts and new home sales having
hit bottom in mid to early 2009 (Global Insight, July 2009). On the other hand, while nonresidential
construction remained on a positive growth trend during the housing downfall, this sector is currently
experiencing a decrease in activity due to the weak economy, overbuilding of the lodging and retail
sectors, and tightened credit practices (AIA, 2009). The nonresidential sector is expected to turn around in
late 2010, when the building excesses have fallen and the U.S. economy is more stable (Global Insight,
August 2009). Overall, the construction industry is expected to experience relatively flat growth in 2010,
with a 1.6 percent increase or 1 percent decrease in total construction spending according to Reed and
Global Insight, respectively (Reed, August 2009d; Global Insight, July 2009).
3.1.1 Defining the C&D Industry
The C&D industry, as defined for this rule, is comprised of three main industry groups.
1. Construction of buildings
• Residential: single-family, multifamily, remodelers, and operative construction
• Non-Residential: industrial and commercial/institutional building construction
2. Heavy and civil engineering construction
3. Specialty trade contractors: excavation contractors, wrecking and demolition contractors, and all other
heavy construction.
Of these three industry groups, only the first two are likely to engage in land-disturbing activities and could be an
NPDES permittee or co-permittee, and thus be within the scope of the final C&D rule. Furthermore, within the
building construction category, residential remodelers are not included as a category that would be likely to
engage in land-disturbing activities. EPA is concerned with stormwater runoff from construction sites, which
carries sediment (and potentially metals and nutrients) into receiving waters, impairing water quality. These
activities include site clearing or site preparation activities, such as tree removal, excavation, blasting, scraping,
grading, etc. These activities can destabilize soils and create conditions that allow stormwater to accumulate and
flow across the site. This increase in stormwater flow can cause erosion and lead to the transport of soil particles
3-2 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 3: Industry Profile
and attached pollutants, which eventually can be conveyed offsite and discharged into receiving waters. Both the
increased flow and associated pollutant and sediment loads that result from land-disturbing activities can
negatively impact the biological, physical, and chemical characteristics of the receiving waters.
EPA believes that many establishments in North American Industry Classification System (NAICS) 236
(Construction of Buildings) and NAICS 237 (Heavy and Civil Engineering Construction) are likely to engage in
such activities on a regular basis. However, as described above and within Chapter 4, although establishments
within selected five-digit industries that are part of NAICS 238 (Specialty Trade Contractors) could engage in
land-disturbing activities5, they are generally contracted by the NPDES permit holder and therefore will not be
directly affected by the final regulation. Table 3-1 lists the industry groups whose activities will likely be within
the scope of the regulation. Table 3-1 lists these industry groups according to the 2002 NAICS framework and
with the correspondence to the previous 1997 NAICS framework. As described below, changes in the NAICS
framework definitions between 1997 and 2002 affect the analysis of industry data over time and the ability to
merge data from separate sources.
5 Namely, NAICS 23593 (Excavation Contractors), 23594 (Wrecking and Demolition Contractors), and NAICS 23499 (All Other
Heavy Construction: Construction Equipment Rental with Operator and Right-Of-Way Clearing and Line Slashing, Blasting, and
Trenching Contractors) (all 1997 classifications).
November 23, 2009 3-3
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 3: Industry Profile
Table 3-1: Industry Definitions for C&D Industry Profile
2002 NAICS Description
Relevant 1997 NAICS
236
Construction of buildings
2361
Residential building construction
236115
New single-family general contractors
233210 Single-family housing construction (general contractors)
236116
New multifamily general contractors
233220 Multifamily housing construction (general contractors)
236117
New housing operative builders
233210 Single-family housing construction (operative builders)
233220 Multifamily housing construction (operative builders)
2362
Nonresidential building construction
236210
Industrial building construction
233310 Manufacturing and industrial building construction
(Other manufacturing and industrial building construction)
234930 Industrial nonbuilding structure construction
(Other industrial nonbuilding construction)
234990 All other heavy construction (waste disposal plant)
236220 Commercial and institutional building
construction
233220 Multifamily housing construction (barrack and dormitory)
233310 Manufacturing and industrial building construction
(grain elevators, dry cleaning plants, and manufacturing and
industrial warehouses construction)
233320 Commercial and institutional building construction
235990 All other special trade contractors (indoor swimming pool)
237
Heavy and civil engineering construction
2371
Utility system construction
237110 Water and sewer line and related structures
construction
234910 Water, sewer, and pipeline construction (water and sewer line,
mains, and related structures (including pumping stations, etc.)
construction
234990 All other heavy construction (sewage and water treatment plants
and irrigation systems construction
235810 Water well drilling contractors
237120 Oil and gas pipeline and related
structures construction
213112 Support activities for oil and gas operations (partial)
234910 Water, sewer, and pipeline construction (Oil and gas pipelines,
mains, and related structures (including oil storage))
234930 Industrial nonbuilding structure construction
237130 Power and communication line and related
structures construction
234920 Power and communication transmission line construction
234930 Industrial nonbuilding structure construction (power generation
plants and transformer stations, except hydroelectric)
2372
Land subdivision
237210
Land subdivision
233110 Land subdivision
2373
Highway, street, and bridge construction
237310
Highway, street, and bridge construction
234110 Highway and street construction
234120 Bridge and tunnel construction (bridge construction)
235210 Painting and wall covering contractors (highway and traffic line
painting contractors)
2379
Other heavy and civil engineering
Construction
237990 Other heavy and civil engineering
Construction
234120 Bridge and tunnel construction (tunnel construction)
234990 All other heavy construction (all other heavy and civil engineering
construction
235990 All other special trade contractors (anchored earth retention)
Source: U.S. Census Bureau (2007a)
As shown in Table 3-1, each 2002 NAICS industry includes one or more industry groups defined under the former
1997 NAICS industry codes. For the 2002 Economic Census, the Census Bureau redefined the NAICS code
structure for certain C&D industry segments, making direct comparisons between the 2002 and 1997 Economic
Census data not straightforward. Furthermore, in the 1997 Economic Census, the Census Bureau switched from
reporting data on a Standard Industrial Classification (SIC) basis to a NAICS basis, adding to the difficulty of
comparing data from 2002 and 1997 with that from the 1992 and earlier Economic Census-reporting periods.
Within this economic profile, the objective is to provide data at the most detailed level possible, while still
maintaining the ability to provide meaningful comparisons between 2002 and earlier Economic Census periods.
3-4
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 3: Industry Profile
With this goal in mind, EPA identified and characterized the specific industry segments that meet the criteria of
performing land development and disturbance activities that are within the scope of the final regulation and that
will be subject to regulatory requirements based on the NPDES permitting process. The presentation in this
chapter and in Chapter 4 of this regulatory analysis attempts to achieve consistency of data over the three
reporting frameworks covering the C&D industry data over this time frame. In some instances, the adjustments to
support comparisons involve estimations and reclassifications that are likely to contain an unknown degree of
error.
As a result of these adjustments, the NAICS segments covered in this regulatory analysis include:
> NAICS 236 - Construction of buildings (all subsectors except residential remodelers)
> NAICS 237310 - Heavy and civil engineering construction6
3.1.2 Key Data Sources
This profile uses several data sources to characterize the C&D industry. The primary data source is the 2002
Economic Census, conducted every five years by the U.S. Census Bureau. EPA would have preferred to rely on
data from a more recent year than 2002; however, the 2002 data remain the most current Economic Census data at
the time of this writing, as the 2007 data were only beginning to be released and comprehensive data was not
available. The U.S. Small Business Administration (SBA) and Census Bureau also provide important information
in Statistics of U.S. Business (SUSB). SUSB provides firm-level data that is particularly important for the firm
and industry impact assessment and for the small entity analysis (the Economic Census data is reported at the
level of the construction establishment, not the firm). Table 3-2, below, compares the Economic Census and SBA
data to further clarify the differences and identify how each data source is used in this regulatory analysis. To a
large degree, this chapter relies on data from the 2002 Economic Census to profile the C&D industry, since that
source provides a greater level of detail on industry characteristics.
Table 3-2: Comparison
Level of Detail
Source of Data
of Major Data Sources
Economic Census
Establishment8
Survey (sent to approximately 130,000
establishments from a universe of 650,000)
SBA
Firmb and establishment
SUSB report, which relies on administrative records data
How the Data are Applied in Industry-level analysis to determine the Firm- and industry-level analysis, and also for
this Analysis number of potentially affected establishments determining the number of potentially affected firms
considered "small" by SBA size standards
a The Census Bureau defines an establishment as "a relatively permanent office, or other place of business, where the usual business activities related to
construction are conducted" (U.S. Census Bureau, 2005a).
b The Small Business Administration defines a firm as "the aggregation of all establishments owned by a parent company (within a geographic location
and/or industry) that have some annual payroll." (U.S. SBA, 2004). Therefore, one firm could comprise several establishments.
3.1.3 Key Insights into the Current and Future State of the C&D Industry
Overall, the Construction and Development industry has shown a substantial increase in the number of
establishments and employees over the past 10 years. Although some segments of the industry are experiencing
substantial economic weakness during the near term - due to weakness in residential housing markets, difficult
credit markets, and weakness in the general economy - total economic activity and economic/financial
EPA anticipates that some businesses and activities in the Heavy Construction sector (NAICS 237) will be affected by the C&D rule.
However, with the exception of NAICS 237310 (Highway, street, and bridge construction), data are not available to support an
assessment of the number and character of projects performed by NAICS 237 sector businesses that would be subject to compliance
requirements and incur compliance costs. For this reason, of the sectors in NAICS 237, only NAICS 237310 (Highway, street, and
bridge construction) is considered in the cost and impact analysis for the C&D rule.
November 23, 2009 3-5
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 3: Industry Profile
performance in the industry is projected to remain strong over the longer term. Department of Labor projections
indicate the industry will add approximately 1 million new construction jobs between 2002 and 2012 (U.S.
Department of Labor, 2006).
SBA data on births and deaths of establishments and employment also show that the number of establishments
and employees has generally grown over the past 10 years. At the same time, the industry has experienced periods
of economic weakness, with year-to-year losses in establishments in 2001/2002, employees in 1999/2000, and in
both establishments and employees in 2000/2001. This period of sector weakness reflects the overall weakness of
the U.S. economy in the period, leading up to and through the short recession of 2002. More recently
(2006/2008), the housing-related segments of the C&D industry are in a period of substantial business weakness,
resulting in large part from an aggressive pace of new construction, fueled in part by low interest rates and "easy
credit" from 2003 to 2007, followed by housing supply growth outpacing demand growth in a substantial number
of U.S. markets. The current weakness accelerated during 2007 as the result of a tightening in residential
financing terms and the deterioration of credit markets and the general economy in 2008. The consequent slow-
down in residential construction caused a substantial weakening of business performance for C&D businesses
whose activity is concentrated in the residential market.
Regionally, the decline in the housing market was most evident in the Southwest, Florida, and some areas in the
Northeast. In California, Florida, Nevada, Arizona and Massachusetts, large home price increases were a major
factor underlying a surge of new and existing home inventory; the inventory surge was followed by price
declines. Florida and Nevada also experienced the largest decrease in new housing starts from 2005 to 2007,
dropping approximately 58 and 47 percent, respectively. Currently, the residential market is now experiencing a
return to positive growth with housing starts and new home sales both increasing over the recent months. Global
Insight projects positive growth in spending, starts, and sales for 2010, with housing starts reaching their long
term trend of approximately 1.7 million starts in 2013/2014.
During the slowdown in residential construction, non-residential construction had continued to achieve moderate
business performance and growth. This performance in non-residential construction had partially offset the
decline in the residential sector. Since the cyclical low in non-residential construction in 2003, this sector
remained relatively flat until the end of 2005 when a steady recovery began. Retail construction (generally
coinciding with residential construction trends) continued to have strong growth until mid-2007, even with
residential construction beginning to decline during 2006. The lodging sector, although very cyclical, saw a sharp
increase in growth from 2005 until mid-2007. And, in general, healthcare construction also experienced strong
growth in 2006. However, recently the nonresidential market has experienced weakness due to overbuilding, tight
credit markets, and increased vacancy rates. Following this decline, this sector is expected to return to positive
growth in late 2010 (Global Insight August 2009).
A key consideration for the analysis of the final rule concerns the extent to which any rule-related increase in
construction costs will be passed through to consumers of the C&D industry. A number of market factors will
influence the extent to which construction cost increases will be passed through to consumers at a given point in
time, in a given market segment (e.g., commercial real estate vs. residential real estate), and in a given location. In
general, elasticities of supply and demand in a market will influence the extent of cost pass-through. Many factors
contribute to the relationship between supply and demand elasticities and overall market conditions in a given
market and at a given point in time. These factors include general economic factors -for example, monetary and
credit conditions, condition of the overall economy, etc. - and factors that are more local in character -for
example, regional economic strength; extent to which a particular market has seen a substantial recent increase
in supply in a particular real estate segment, which has exceeded the underlying strength in demand, etc.
Currently, the national residential real estate housing market is recovering from a period of considerable
weakness, due, as described above, to several factors, including "over-building" in some markets through the
3-6 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 3: Industry Profile
middle of the decade, tightened credit terms after several years of loose financing, increased supply of existing
housing from foreclosures, and more recently, general economic weakness. In earlier years of the decade, the
loose credit terms supported substantially increased housing prices and expansion of housing supply. When the
issues stemming from loose credit terms began to manifest - in particular, loan defaults and foreclosures - credit
terms tightened considerably and foreclosures increased the supply of housing available for sale. The tightened
credit terms worked to reduce demand at the same time that foreclosures and over-building were substantially
increasing supply. Coupled with the general downturn in the economy, the resulting effect on the residential
construction sector was inevitably substantial.
Currently, the residential market appears overall to be stabilizing and beginning to recover - in terms of both
housing sales and pricing, and in new home construction; however, the extent of residential market improvement
varies substantially over specific regional and local markets. As noted above, markets in the Southwest, Florida
and some areas of the Northeast experienced relatively greater price and sales volume weakness. Residential
market recovery and increased home construction will likely occur later in such areas. At the same time, some
markets that experienced less growth in supply and prices (e.g., parts of the Southeast and Pacific Northwest),
experienced much less of a fall-off in prices and sales volume. Such markets will likely see an earlier up-turn in
home construction.
In those markets with greater weakness in prices and sales volume, there is a greater likelihood that near-term
increases in construction costs may be not be fully passed through to customers. In these instances, increased
construction costs may be absorbed by the owners of the undeveloped land, project developers, and the builders of
new construction. Based on recent forecasts by real estate industry analysts (e.g., Global Insight), however, the
housing sector is beginning recovery, with housing starts now rising given the reduction in the inventory of
unsold homes and increased new home sales due to recently improved housing affordability due to lower home
prices and lower cost for home financing. Thus, it is reasonable to expect that market conditions will adjust to any
changes in construction costs and that regulation-induced cost increases will become part of the "new
equilibrium" and will be substantially passed through in prices to consumers.
Similar considerations will apply to other segments of real estate markets (e.g., commercial real estate) whose
supply costs may be affected by a C&D regulation. Although the industrial/commercial segments recorded
relatively stronger business performance than the residential segment over the past few years, the industrial/
commercial segments may now be entering a downturn that could leave these segments weaker overall than the
residential segment during the initial period in which the C&D rule will be implemented. Therefore, in these
segments, the likelihood that cost increases might not be so strongly recovered in increased prices would increase.
As described in the final part of this chapter (Section 3.4: Industry Dynamics and Forecast, page 3-40), overall,
the construction industry is expected to see flat growth over the next year, due in particular to the effect of general
economic weakness on the nonresidential market, regardless of the increase in residential construction activity.
Housing starts, a good indicator of the strength of the residential sector, appear to have hit bottom in mid 2009
and have been gradually improving, although with some month-to-month irregularity. Non-residential spending,
which often lags the residential sector, is expected to see declines in private non-residential building through
2010. Furthermore, the non-building sector (which are largely publicly-funded projects) is expected to see
relatively flat growth until later in 2010, when much of the economic stimulus package goes into effect. In short,
the industry is expected to achieve relatively flat growth over the next year but positive business performance
over the longer-term, beginning around 2011. Given this outlook, EPA judges that the construction industry will
achieve a sufficient recovery to sustain the compliance costs of the C&D rule without substantial economic/
financial burden during the period in which compliance with the regulation would begin.
November 23, 2009 3-7
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 3: Industry Profile
3.1.4 Organization of the C&D Industry Profile
The purpose of this profile is to provide an overview of the C&D industry, describe its key characteristics and
structure, and analyze current and historical trends. Section 3.1 presents key findings concerning the C&D
industry and the potential economic/financial impact of the final regulation. Section 3.2 includes a summary of
recent trends regarding the industry characteristics and the industry's financial condition. Section 3.3 presents
detailed characteristics of the C&D industry, including both industry and firm-level data. Section 3.4 covers the
industry economic and financial outlook.
3.2 Recent Trends in the C&D Industry
This section reviews recent trends in the number of establishments, firms, and employees in the C&D industry
and in the value of construction by key activity segments. Overall, these data show that the industry has grown
substantially over the past 10-15 years in terms of total value of business performed. However, the data also show
that the various segments of the industry have experienced periods of weakness with brief declines in value of
business performed. These periods of weakness don't necessarily occur simultaneously in all segments of the
industry. Declines in commercial real estate occurred during the earlier years of the current decade while
residential real estate construction was growing strongly. Currently, the residential segment is experiencing
weakness while the commercial segment remains relatively strong.
3.2.1 Establishments by C&D Industry Segment
Table 3-3 and Table 3-4 present the number of C&D establishments in 1992, 1997, and 2002. Between 1992 and
1997, the number of C&D industry establishments with payroll increased 12.8 percent, from 214,435 to 241,840.
Between 1997 and 2002, the number of establishments with payroll increased an additional 8.2 percent to 261,585
(see Table 3-3 and Table 3-4). However, the modest increase in total number of establishments masks some
significant offsetting changes in establishment counts among groups within the industry as defined by NAICS.
These data are reported below in two tables that distinguish between the different 1997 and 2002 NAICS
frameworks.7 The 1997 NAICS framework reported the All Other Heavy Construction category as NAICS 23499,
and thus as a part of the NAICS 234 3-digit sector. The 2002 NAICS framework reassigned the 1997 All Other
Heavy Construction category over three different 3-digit sectors: NAICS 236 (Construction of Buildings), NAICS
237 (Heavy and Civil Engineering Construction), and NAICS 238 (Specialty Trade Contractors). To facilitate
comparisons of activity data over the period 1992-2002, Table 3-3 maintains the 1997 grouping method in
displaying the 2002 data - that is, the All Other Heavy Construction categories data within 2002 NAICS 236, 237,
and 238 were reassigned back into their 1997 classification of NAICS 234990. Table 3-4 displays the data
according to the NAICS framework definitions applicable during each reporting period - that is, for 1992 and
1997, All Other Heavy Construction remains within NAICS 234; for 2002, this sector is reported in NAICS 236
and 237. The two different classifications in these tables result in offsetting differences in the values for NAICS
237 in 2002.
This profile uses the 2002 NAICS framework. Since the 2002 NAICS classification reassigned the Specialty Trade Contractors section,
some 1997 classifications have been used to further divide this section. Appendix 2-1 at the end of this chapter provides a cross-walk to the
complete 2002 NAICS classifications for the C&D industry. The Census Bureau classifies industries according to the North American
Industry Classification System (NAICS). Under NAICS, economic activity is divided into twenty broad two-digit industry codes. One of
these is Construction (NAICS 23), which is further divided into three-, four-, five-, and six-digit levels, as described in this chapter.
3-8 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 3: Industry Profile
The summaries below are derived from the data in Table 3-3, which provides the more consistent comparison of
establishment counts by NAICS sector over the full analysis period. However, the rest of the data reporting and
analysis in this chapter will be derived from the current NAICS framework.
> The number of establishments in the Land Subdivision industry group (NAICS 2372) decreased by 7.5
percent between 1992 and 1997 and increased by 2.7 percent between 1997 and 2002.
> Between 1992 and 1997, the number of establishments in Residential and Nonresidential Construction
(NAICS 236) increased by 13.5 percent. The number of establishments increased by another 10.7 percent
between 1997 and 2002.
> The number of establishments in Heavy Construction increasedby 14.5 percent between 1992 and 1997
and continued to increase by 16.2 percent from 1997 to 2002.
Table 3-3: Number of Establishments in the C&D Industry, 1992,
2002 Data Grouped by
NAICS
236
237,
except 2372 10
237210
TOTAL
Description
Construction of Buildings, except All
other Heavy Construction8
Heavy construction, except Land
Subdivision
Land Subdivision
1992
168,407
37,180
8,848
214,435
1997, and 2002, Economic Census Data
1997 Categories
1997
191,101
42,554
8,185
241,840
2002
211,629
49,433
8,403
269,465
Percent Change
1992-1997
13.5%
14.5%
-7.5%
12.8%
Percent Change
1997-2002
10.7%
16.2%
2.7%
11.4%
a In the 2002 NAICS classification framework, All Other Heavy Construction was assigned among NAICS 236, 237, and 238. To maintain relevant
comparisons, 2002 All Other Heavy Construction data were reassigned back into NAICS 237 (Heavy Construction). Since residential remodelers are not
broken out in the 1997 and 1997 frameworks, they are included in these counts (although not presented in the proceeding analysis).
Figures do not necessarily add to totals due to rounding.
Source: U.S. Census Bureau's Economic Census (2005a)
Table 3-4: Number of Establishments in the C&D Industry, 1992,1997, and 2002, Economic Census Data
NAICS
236
237,
except 2372 10
237210
Data Grouped
Description
Construction of Buildings3
Heavy construction, except Land
Subdivision
Land Subdivision
by Corresponding Year's
1992
168,407
37,180
8,848
1997
191,101
42,554
8,185
Standards
2002
211,647
41,535
8,403
Percent Change
1992-1997
13.5%
14.5%
-7.5%
Percent Change
1997-2002
10.8%
-2.4%
2.7%
TOTAL 214,435 241,840 261,585 12.8% 8.2%
a Since residential remodelers are not broken out in the 1997 and 1997 frameworks, they are included in these counts (although not presented in the
proceeding analysis).
Figures do not necessarily add to totals due to rounding.
Source: U.S. Census Bureau's Economic Census (2005a)
3.2.2 Establishment and Employment Births and Deaths
Figure 3-1 through Figure 3-4 report year-to-year changes establishment and employment counts for the U.S
construction industry and for the U.S economy as a whole, over the period 1998-2006. These values are reported
in terms of net changes, births, and deaths of establishments. The Net Change values, determined by subtracting
total firm deaths from total firm births during the one-year time period, indicate the total gains or losses during the
time period. Comparing the net change in the construction industry to the U.S. total demonstrates that this
industry does not always follow the same pattern as the national economy. Though the construction industry has
generally experienced growth of establishments and employment over this period, the industry has shown more
variability than the total economy.
November 23, 2009 3-9
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 3: Industry Profile
Figure 3-1: Establishment Births, Deaths, and Net Change for the Construction Industry
120,000
100,000
80,000
60,000
n Net Change
• Establishment Births
O Establishment Deaths
-20,000
Source: U.S. SBA (2009)
Figure 3-2: Employment Births, Deaths, and Net Change for the Construction Industry
1,400,000
1,200,000
1,000
in Net Change
• Employment Births
D Employment Deaths
d Existing Employee Expansions
• Existing Employee Contractions
E
Note: Employment net change is calculated by subtracting employment losses in "deaths" from employment gains in "births" and adding the net change
from existing firm expansions and existing firm contractions.
Source: U.S. SBA (2009)
3-10
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 3: Industry Profile
Figure 3-3: Establishment Births, Deaths, and Net Change for the U.S. Total
900,000
),000
),000
),000
500,000
400,000
300,000
200,000
100,000
0
• Net Change
D Establishment Births
D Establishment Deaths
Source: U.S. SBA (2009)
November 23, 2009
3-11
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 3: Industry Profile
Figure 3-4: Employment Births, Deaths, and Net Change for the U.S. Total
16,000,000
14,000,000
12,000,000
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
0
-2,000,000
-4,000,000
D Employment Births
D Employment Deaths
D Existing Employee Expansions
D Existing Employee Contractions
• Net Change
4
rvN'
Source: U.S. SBA (2009)
3.2.3 Value of Construction by C&D Industry Segment
Figure 3-5 through Figure 3-7 report the value of construction in key industry segments - Total Construction,
Private Construction, and Public Construction - from 1990 to 2008.
As shown in Figure 3-5, the industry generally experienced stable growth from 1990 through 2000. More
recently, the value of total construction from 2005 to 2006 grew slightly, from $1.16 trillion to $ 1.19 trillion
($2006), an increase of 2.1 percent. However, the value of total construction from 2006 to 2008 decreased
approximately 14 percent. The Private Construction segment is considerably larger than the Public Construction
segment, accounting for approximately 80 percent of the total value of construction in recent years, and most of
the industry's growth and overall business performance.
Within the Private Construction segment (see Figure 3-6, following page), the Private Residential segment
showed the most growth over the analysis period and generally grew consistently from 1990 to the middle of the
current decade. The modest turndown of 3.1 percent in 2006 marks the beginning of the ongoing weakness in this
industry segment. This turndown accelerated in 2007 and 2008 with a nearly 50 percent additional contraction in
total value of Private Residential construction during these years. Private Non-Residential construction grew less
over this period and shows more variability in total value of activity by year. Nevertheless, the Private Non-
Residential showed growth through 2008. Overall, reflecting the turndown in the Residential Segment, the total
value of Private Construction increased by only 1.1 percent from 2005 to 2006 and decreased by 22 percent from
2006 to 2008.
The Public Construction segment has also grown substantially since 1990 (see Figure 3-7: Annual Value of
Public Construction from 1990 to 2008 ($2008 Dollars). And overall, the Public Construction segment shows less
volatility than the Private Construction segment. Over this period, only the Non-Residential segment recorded a
3-12
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 3: Industry Profile
material decline, during the period 2002-2004. The total value of public construction increased by 5.6 percent
from 2005 to 2006, and increased by 14.7 percent from 2006 to 2008.
Figure 3-5: Annual Value of Total, Private, and Public Construction from 1990 to 2008 ($2008 Dollars)
1,400,000
_ 1,200,000
1,000,000
o
(A
= 800,000
.2 600,000
o
3
O
O
•5
0)
400,000
« 200,000
re
-Total Construction
-Total Private Construction
Total Public Construction
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Source: U.S. Census Bureau (2009a)
November 23, 2009
3-13
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 3: Industry Profile
Figure 3-6: Annual Value of Private Construction from 1990 to 2008 ($2008 Dollars)
Residential Construction
Non-Residential Construction
Other Private Construction
« 100,000
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Source: U.S. Census Bureau (2009a)
3-14
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 3: Industry Profile
Figure 3-7: Annual Value of Public Construction from 1990 to 2008 ($2008 Dollars)
•iRn nnn -,
iRn nnn
In
i_
^ <\Af\ nnn
O
Q
fr
i^n nnn
m i/u,uuu
g
~ inn nnn
c
c o/\ nnn
|
** Rn nnn
c
O
O
t An nnn
9n nnn
-A- Housing and Redevelopment
— *— Non-Residential
-•—Non-Building Construction
_^«
^^L x
^_x^^^--^
•^^-^ — - ^/
^-^^^
1990 1992 1994 1996
Source: U.S. Census Bureau (2009a)
1998 2000 2002 2004 2006 2008
3.3 Establishment and Firm Characteristics in the C&D Industry
The following section defines and describes the construction industry based on establishment and firm-level data.
Based on data from the most recent Economic Census (2002), the industry includes 178,835 establishments,
2,573,215 employees, and has approximately $678 billion in value of construction. In addition, the industry is
dominated by small businesses, with approximately 93% of establishments, 45% of employees, and 31% of value
in the industry being in single-establishment firms that would be classified as a small business according to Small
Business Administration business size criteria.
EPA used two steps to define the number of C&D establishments that could be affected by the various options
that EPA considered for the C&D regulation. First, EPA identified all C&D establishments using data from the
2002 Economic Census (see Table 3-1). Second, EPA estimated the number of these establishments that will be
affected by this action. Section 3.3.1 examines industry-wide characteristics, including the number and size of
establishments. Section 3.3.2 describes firm-level data for the C&D industry. Section 3.3.3 presents the number of
small entities.
3.3.1 Establishment-Level Industry Characterization
This section presents data for all establishments within the C&D industry, based primarily on the 2002 Economic
Census. Data presented include the number, size, value of construction, employment, legal form of organization,
seasonality, payroll and benefits, and level of specialization of establishments, by principal industry sector.
November 23, 2009
3-15
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 3: Industry Profile
3.3.1.1 Number of Establishments
Economic Census indicates that the C&D industry had a total of 178,835 establishments with payrolls in 2002
(i.e., 2002 NAICS 236, 237, see Table 3-3, Table 3-4, and Table 3-5). Of these establishments, the largest
numbers are in NAICS 236 (Construction of Buildings). This subsector includes 128,897 establishments,
representing 72.7 percent of all C&D industry establishments. Within NAICS 236, three categories fall in
Residential Home Construction: 1) New Single-Family General Contractors (NAICS 236115), 2) New
Multifamily General Contractors (NAICS 236116), and 3) New Housing Operative Builders (NAICS 236117).
These three categories account for the majority of C&D industry establishments: 88,912 out of 128,897 or 69
percent. Also within NAICS 236 are two categories of Non-Residential Building Construction: 1) Industrial
Building Construction (NAICS 236210) and 2) Commercial and Institutional Building Construction (NAICS
236220). Non-residential construction accounts for the other 31 percent (39,985 establishments) within NAICS
236 (Construction of Buildings).
The other segments of the C&D industry include establishments in Heavy and Civil Engineering Construction
(NAICS 237). Heavy and Civil Engineering Construction accounts for 49,938 establishments, or 27.92 percent of
the total C&D industry. Within NAICS 237 (Heavy and Civil Engineering Construction), Land Subdivision
(NAICS 2372) accounts for 8,403 establishments, or 4.7 percent of all establishments in the C&D industry. Of the
remaining heavy and civil engineering construction establishments, 22.5 percent (11,239 establishments) are
primarily Highway, Street, and Bridge Construction contractors, while 39.6 percent (19,794 establishments) are
contractors that work on Water, Sewer, Pipeline, Communications, and Power Line projects and 21.0 percent
(10,502 establishments) are engaged in Other Types of Heavy Construction.
In addition to the establishments with payrolls, a large number of establishments - 531,952 in 20028 - reported no
paid employees and are not included in the totals in the following tables. These establishments are nonemployers,
typically self-employed individuals, which are not subject to payroll tax. Available data suggest these
establishments are very small relative to establishments with payrolls. While employer establishments in NAICS
236 and 237 had $723.3 billion in receipts for 2002, non-employer establishments had only $46.9 billion in
receipts, which represents only 6.5 percent of the receipts of employee establishments.
This figure includes establishments in NAICS 236 and 237. Data on non-employer establishments was not broken out at the 6 digit
NAICS level, thus, residential remodelers are included in this figure.
3-16 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 3: Industry Profile
Table 3-5: Value of Construction (in $1000's) and Number of Establishments with Payrolls, 2002
NAICS
236
236115
236116
237117
236210
236220
237
237110
237120
237130
237210
237310
237990
TOTAL
Description
Construction of buildings
New single-family general contractors
New multifamily general contractors
New housing operative builders
Industrial building construction
Commercial and institutional building
construction
Heavy and civil engineering construction
Water and sewer line and related structures
construction
Oil and gas pipeline and related structures
construction
Power and communication line and related
structures construction
Land subdivision
Highway, street, and bridge construction
Other heavy and civil engineering construction
Establishments
128,897
58,472
4,397
26,043
2,777
37,208
49,938
12,357
1,403
6,034
8,403
11,239
10,502
178,835
Percent of
Total
Establishments
72.08%
32.70%
2.46%
14.56%
1.55%
20.81%
27.92%
6.91%
0.78%
3.37%
4.70%
6.28%
5.87%
100%
Value of
Construction
$475,569,974
$61,781,469
$16,672,531
$139,021,424
$17,029,276
$241,065,274
$202,713,062
$32,501,442
$11,458,718
$34,810,458
$20,480,936
$81,660,219
$21,801,289
$678,283,036
Percent of
Total Value of
Construction
70.11%
9.11%
2.46%
20.50%
2.51%
35.54%
29.89%
4.79%
1.69%
5.13%
3.02%
12.04%
3.21%
100%
Figures do not necessarily add to totals due to rounding.
Source: U.S. Census Bureau's Economic Census (2005a)
November 23, 2009
3-17
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 3: Industry Profile
Number of Establishments, Employees, and the Value of Construction by Establishment Employee Size
As viewed in a number of data frameworks, C&D industry groups are dominated by small establishments.9 Table 3-6 through Table 3-8 shows the
number of establishments, employees, and the value of construction by the establishment's employee size. Table 3-9 through Table 3-11 shows the
number of establishments, employees, and the value of construction by the establishment's value of business size.
As shown in Table 3-6, the Economic Census reports that 55.1 percent of establishments with payrolls have fewer than 5 employees, 75.0 percent have
fewer than 10 employees, and 95.3 percent have fewer than 50 employees.10 Overall, less than 0.2 percent of C&D establishments with payrolls have 500
or more employees. On average, establishments in NAICS 237 (Heavy Construction) are somewhat larger than those in the other NAICS industry
groups, with a lower percentage of establishments appearing in each of the smaller establishment size classes.
9 The SBA uses size standards based on either the number of employees or annual revenue to classify firms as small. Qualifying revenue levels differ among NAICS industry groups,
and, within the C&D industries, there is a range of revenue levels, from $6.5 million for NAICS 237210 (Land Subdivision) to $31.0 million for the majority of industry groups within
NAICS 236 and 237 (U.S. SBA, 2006). A more detailed review of industry size distribution based on the SBA definitions will be presented as part of the Small Entity Impact Analysis.
10 531,952 establishments in the C&D industry report wo employees.
3-18 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter3: Industry Profile
Table 3-6: Number of Establishments with Payrolls in the C&D Industry, by Employment Size Class, 2002
NAICS Description Total
236 Construction of buildings 128,897
2361 15 New single-family housing construction 58,472
236116 New multifamily housing construction 4,397
236117 New housing operative builders 26,043
236210 Industrial building construction 2,777
236220 Commercial and institutional building 37,208
237 Heavy and civil engineering construction 49,938
237110 Water and sewer line and related 12,357
structures construction
237120 Oil and gas pipeline and related structures 1 ,403
construction
237130 Power and communication line 6,034
237210 Land subdivision 8,403
2373 1 0 Highway, street, and bridge construction 1 1 ,239
237990 Other heavy and civil engineering 10,502
construction
TOTAL 178,835
Establishments with
less than 5 employees
Percent of
Number Total
75,944 58.9%
41,602 71.1%
2,522 57.4%
16,439 63.1%
993 35.8%
14,388 38.7%
22,565 45.2%
5,181 41.9%
280 20.0%
1,984 32.9%
6,268 74.6%
3,071 27.3%
5,781 55.0%
98,509 55.1%
Establishments with
less than 10 employees
Percent of
Number Total
101,975 79.1%
53,171 90.9%
3,358 76.4%
21,789 83.7%
1,630 58.7%
22,027 59.2%
32,184 64.4%
7,948 64.3%
491 35.0%
3,284 54.4%
7,413 88.2%
5,211 46.4%
7,837 74.6%
134,159 75.0%
Establishments with
less than 50 employees
Percent of
Number Total
124,845 96.9%
58,211 99.6%
4,259 96.9%
25,267 97.0%
2,505 90.2%
34,603 93.0%
45,616 91.3%
11,538 93.4%
1,093 77.9%
5,269 87.3%
8,281 98.5%
9,360 83.3%
10,075 95.9%
170,461 95.3%
Establishments with less
than 100 employees
Percent of
Number Total
127,242 98.7%
58,387 99.9%
4,351 99.0%
25,697 98.7%
2,633 94.8%
36,174 97.2%
47,890 95.9%
12,047 97.5%
1,230 87.7%
5,668 93.9%
8,346 99.3%
10,330 91.9%
10,269 97.8%
175,132 97.9%
Establishments with
less than 500 employees
Percent of
Number Total
128,756 99.9%
58,468 100.0%
4,395 100.0%
26,028 99.9%
2,750 99.0%
37,115 99.8%
49,714 99.6%
12,338 99.8%
1,377 98.1%
5,973 99.0%
8,394 99.9%
11,163 99.3%
10,469 99.7%
178,470 99.8%
Figures do not necessarily add to totals due to rounding.
Source: U.S. Census Bureau's Economic Census (2005a)
The total number of employees in establishments (Table 3-7, following page) by employee-size follows a similar trend by sector. Again, heavy
construction stands out as having many more employees within the establishments employing over 100 people (54.3%). As expected, a much smaller
fraction of total employees are within the category of establishments with fewer than 5 employees. Within this category, the percentage of total
establishments is nearly 7 times greater than the percentage of total employees.
November 23, 2009
3-19
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter3: Industry Profile
Table 3-7: Number of Employees in Establishments with Payrolls in the C&D Industry, by Employment Size Class, 2002
NAICS Description Total
236 Construction of buildings 1,367,558
236115 New single-family housing 273,055
construction
236116 New multifamily housing 44,384
construction
236117 New housing operative 240,292
builders
236210 Industrial building 93,931
construction
236220 Commercial and institutional 715,896
building
237 Heavy and civil engineering 1,205,657
construction
237110 Water and sewer line and 204,085
related structures
237120 Oil and gas pipeline and 93,176
related structures
237130 Power and communication 253,506
line construction
237210 Land subdivision 66,105
237310 Highway, street, and bridge 434,714
construction
237990 Other heavy and civil 1 54,071
engineering construction
TOTAL 2,573,215
Employees in
Establishments with less
than 5 employees
Percent
Number of Total
161,401 11.8%
86,849 31.8%
5,144 11.6%
34,724 14.5%
2,180 2.3%
32,504 4.5%
47,549 3.9%
11,137 5.5%
705 0.8%
4,499 1.8%
11,938 18.1%
7,179 1.7%
12,091 7.8%
208,950 8.1%
Employees in
Establishments with less
than 10 employees
Percent
Number of Total
327,476 23.9%
158,886 58.2%
10,570 23.8%
69,153 28.8%
6,389 6.8%
82,478 11.5%
109,098 9.0%
29,139 14.3%
1,958 2.1%
12,728 5.0%
18,806 28.4%
21,068 4.8%
25,399 16.5%
436,574 17.0%
Employees in
Establishments with less
than 50 employees
Percent of
Number Total
764,482 55.9%
243,330 89.1%
28,219 63.6%
134,177 55.8%
24,075 25.6%
334,681 46.7%
394,141 32.7%
105,768 51.8%
16,074 17.3%
53,995 21.3%
34,322 51.9%
114,986 26.5%
68,996 44.8%
1,158,623 45.0%
Employees in
Establishments with less
than 100 employees
Percent of
Number Total
929,168 67.9%
255,031 93.4%
34,796 78.4%
164,370 68.4%
32,803 34.9%
442,168 61.8%
550, 841 45.7%
140,451 68.8%
25,733 27.6%
81,611 32.2%
38,779 58.7%
182,236 41.9%
82,031 53.2%
1,480,009 57.5%
Employees in
Establishments with less
than 500 employees
Percent of
Number Total
1,201,566 87.9%
268,688 98.4%
39,930 90.0%
226,476 94.3%
44,457 47.3%
622,015 86.9%
866,997 71.9%
191,235 93.7%
42,130 45.2%
142,851 56.4%
44,636 67.5%
341,856 78.6%
104,289 67.7%
2,068,563 80.4%
Figures do not necessarily add to totals due to rounding.
Source: U.S. Census Bureau's Economic Census (2005a)
Table 3-8 reports the value of construction by establishment size. The value of construction, by establishment size, correlates closely with employment
by establishment size. Again, a larger relative share of total business value occurs in the larger employment size categories.
3-20
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter3: Industry Profile
Table 3-8: Value of Construction with Payrolls in the C&D Industry, by Employment Size Class (in $1 OOP's), 2002
NAICS Description Total
236 Construction of buildings $475,569,974
236115 New single-family $61,781,469
housing construction
236116 New multifamily housing $16,672,531
construction
236117 New housing operative $139,021,424
builders
236210 Industrial building $17,029,276
construction
236220 Commercial and $241,065,274
institutional building
23 7 Heavy and civil $202, 71 3, 062
engineering construction
237110 Water and sewer line and $32,501,442
related structures
237120 Oil and gas pipeline and $11,458,718
related structures
237130 Power and $34,810,458
communication line
237210 Land subdivision $20,480,936
237310 Highway, street, and $81,660,219
bridge construction
237990 Other heavy and civil $21,801,289
engineering construction
TOTAL $678,283,036
Value of Construction in
Establishments with less
than 5 employees
Percent of
Number Total
$45,736,358 9.6%
$21,793,366 35.3%
$1,276,547 7.7%
$15,732,340 11.3%
$426,963 2.5%
$6,507,142 2.7%
$8,432,679 4.2%
$1,415,430 4.4%
$76,428 0.7%
$366,360 1.1%
$4,349,376 21.2%
$879,611 1.1%
$1,345,474 6.2%
$54,169,037 8.0%
Value of Construction in
Establishments with less
than 10 employees
Percent of
Number Total
$88, 65 7,258 18.6%
$36,478,924 59.0%
$2,648,533 15.9%
$30,325,999 21.8%
$1,265,910 7.4%
$17,937,892 7.4%
$17,156,991 8.5%
$3,595,293 11.1%
$204,478 1.8%
$1,230,831 3.5%
$6,323,548 30.9%
$2,797,973 3.4%
$3,004,868 13.8%
$105,814,249 15.6%
Value of Construction in
Establishments with less
than 50 employees
Percent of
Number Total
$223,103,464 46.9%
$54,625,158 88.4%
$8,928,221 53.6%
$63,876,017 45.9%
$4,889,191 28.7%
$90,784,877 37.7%
$60,702,284 29.9%
$14,980,586 46.1%
$1,604,355 14.0%
$5,825,476 16.7%
$10,484,766 51.2%
$18,876,026 23.1%
$8,931,075 41.0%
$283,805,748 41.8%
Value of Construction in
Establishments with less
than 100 employees
Percent of
Number Total
$292,038,213 61.4%
$57,788,631 93.5%
$12,223,500 73.3%
$84,221,767 60.6%
$6,677,073 39.2%
$131,127,242 54.4%
$88,527,335 43.7%
$21,346,472 65.7%
$2,758,431 24.1%
$9,003,657 25.9%
$11,693,997 57.1%
$32,669,113 40.0%
$11,055,665 50.7%
$380,565,548 56.1%
Value of Construction in
Establishments with less
than 500 employees
Percent of
Number Total
$422,537,863 88.8%
$59,911,206 97.0%
$14,748,503 88.5%
$131,771,816 94.8%
$9,591,627 56.3%
$206,514,711 85.7%
$146,439,254 72.2%
$30,887,395 95.0%
$4,934,845 43.1%
$16,326,786 46.9%
$12,583,532 61.4%
$66,818,535 81.8%
$14,888,161 68.3%
$568,977,117 83.9%
Figures do not necessarily add to totals due to rounding.
Source: U.S. Census Bureau's Economic Census (2005a)
Number of Establishments, Employees, and the Value of Construction by Establishment Revenue Size
The dominance of small establishments in the C&D industry is also apparent when analyzed on the basis of revenue size class. In 2002, 27.4 percent of
establishments with payrolls had annual revenue below $250,000, 44.8 percent had annual revenue below $500,000, 61.6 percent had annual revenue
below $1.0 million, 88.0 percent had annual revenue below $5.0 million, and 93.6 percent had annual revenue below $10 million. These data are shown
in Table 3-9, following page. Only 11,463 establishments, representing 6.4 percent of the total, had annual revenue in excess of $10.0 million.
November 23, 2009
3-21
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter3: Industry Profile
Table 3-9: Number of Establishments in the C&D Industry, by Annual Revenue, 2002
NAICS Description Total
236 Construction of buildings 128,897
236 1 1 5 New single-family housing 58,472
construction
236116 New multifamily housing 4,397
construction
236117 New housing operative builders 26,043
2 3 62 1 0 Industrial building construction 2,777
236220 Commercial and institutional 37,208
building
237 Heavy and civil engineering 49,938
construction
237110 Water and sewer line and 12,357
related structures construction
237120 Oil and gas pipeline and related 1 ,403
structures construction
237130 Power and communication line 6,034
construction
237210 Land subdivision 8,403
237310 Highway, street, and bridge 11,239
construction
237990 Other heavy and civil 10,502
engineering construction
TOTAL 178,835
Establishments with
less than $250,000 in
Annual Revenue
Percent of
Number Total
34,668 26.9%
20,804 35.6%
1,260 28.7%
4,675 18.0%
514 18.5%
7,415 19.9%
14,303 28.6%
3,258 26.4%
222 15.8%
1,630 27.0%
3,111 37.0%
2,171 19.3%
3,911 37.2%
48,971 27.4%
Establishments with
less than $500,000 in
Annual Revenue
Percent of
Number Total
57,606 44.7%
33,524 57.3%
2,135 48.6%
8,889 34.1%
880 31.7%
12,178 32.7%
22,440 44.9%
5,530 44.8%
431 30.7%
2,618 43.4%
4,573 54.4%
3,321 29.5%
5,967 56.8%
80,046 44.8%
Establishments with less
than $1 million in
Annual Revenue
Percent of
Number Total
79,703 61.8%
44,581 76.2%
2,779 63.2%
13,134 50.4%
1,336 48.1%
17,873 48.0%
30,387 60.8%
7,781 63.0%
590 42.1%
3,467 57.5%
5,824 69.3%
45988 44.4%
7,737 73.7%
110,090 61.6%
Establishments with less
than $5 million in Annual
Revenue
Percent of
Number Total
114,220 88.6%
56,520 96.7%
3,798 86.4%
22,163 85.1%
2,265 81.6%
29,474 79.2%
43,146 86.4%
10,879 88.0%
1,071 76.3%
5,221 86.5%
7,851 93.4%
8,304 73.9%
9,820 93.5%
157,366 88.0%
Establishments with less
than $10 million in
Annual Revenue
Percent of
Number Total
121,163 94.0%
57,759 98.8%
4,050 92.1%
24,032 92.3%
2,529 91.1%
32,793 88.1%
46,209 92.5%
11,612 94.0%
1,211 86.3%
5,586 92.6%
8,216 97.8%
9,425 83.9%
10,159 96.7%
167,372 93.6%
Figures do not necessarily add to totals due to rounding.
Source: U.S. Census Bureau's Economic Census (2005a)
3-22
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter3: Industry Profile
As shown in Table 3-10, only 3.6 percent of all employees fall into establishments with less than $250,000 in value of business done as compared to 45
percent of employees within establishments of less than $10 million.
Table 3-10: Number of Employees in the C&D Industry, by Annual Revenue, 2002
NAICS Description Total
236 Construction of buildings 1,367,558
236115 New single-family housing 273,055
construction
236116 New multifamily housing 44,384
construction
236117 New housing operative 240,292
builders
236210 Industrial building 93,931
construction
236220 Commercial and institutional 715,896
building
237 Heavy and civil engineering 1,205,657
construction
237110 Water and sewer line and 204,085
related structures construction
237120 Oil and gas pipeline and 93,176
related structures construction
237130 Power and communication 253,506
line construction
237210 Land subdivision 66,105
237310 Highway, street, and bridge 434,714
construction
237990 Other heavy and civil 154,071
engineering construction
TOTAL 2,573,215
Employees in
Establishments with
less than $250,000
in Annual Revenue
Percent of
Number Total
66,711 4.9%
41,087 15.0%
2,007 4.5%
8,005 3.3%
900 1.0%
14,712 2.1%
26,902 2.2%
5,845 2.9%
639 0.7%
3,446 1.4%
5,048 7.6%
5,064 1.2%
6,860 4.5%
93,613 3.6%
Employees in
Establishments with
less than $500,000 in
Annual Revenue
Percent of
Number Total
143,061 10.5%
82,279 30.1%
4,829 10.9%
19,808 8.2%
2,754 2.9%
33,391 4.7%
60,247 5.0%
14,829 7.3%
2,167 2.3%
8,794 3.5%
9,451 14.3%
9,926 2.3%
15,080 9.8%
203,308 7.9%
Employees in
Establishments with
less than $1 million
in Annual Revenue
Percent of
Number Total
248,686 18.2%
130,806 47.9%
8,281 18.7%
35,505 14.8%
5,616 6.0%
68,478 9.6%
116,618 9.7%
30,803 15.1%
4,094 4.4%
16,244 6.4%
14,929 22.6%
23,783 5.5%
26,765 17.4%
365,304 14.2%
Employees in
Establishments with
less than $5 million in
Annual Revenue
Percent of
Number Total
558,077 40.8%
218,945 80.2%
18,722 42.2%
88,115 36.7%
19,250 20.5%
213,045 29.8%
330,299 27.4%
84,204 41.3%
16,824 18.1%
55,625 21.9%
29,519 44.7%
82,299 18.9%
61,828 40.1%
888,376 34.5%
Employees in
Establishments with
less than $10 million
in Annual Revenue
Percent of
Number Total
698,363 51.1%
239,650 87.8%
23,750 53.5%
110,784 46.1%
28,330 30.2%
295,849 41.3%
459,594 38.1%
112,761 55.3%
25,803 27.7%
79,383 31.3%
36,333 55.0%
128,475 29.6%
76,839 49.9%
1,157,957 45.0%
Figures do not necessarily add to totals due to rounding.
Source: U.S. Census Bureau's Economic Census (2005a)
November 23, 2009
3-23
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter3: Industry Profile
As shown in Table 3-11, the total value of construction by establishment revenue class follows the same profile as seen in the previous tables, with a very
high percentage of total construction value occurring in the higher revenue class establishments. Over half of the total value of annual revenue in the
C&D sectors is generated in establishments with at least $10 million, although these establishments represent fewer than 7 percent of total establishments
in this industry.
Table 3-11: Value of Construction in the C&D Industry, by Annual Revenue (in $1000's), 2002
NAICS Description Total
236 Construction of buildings $475,569,974
236115 New single-family $61,781,469
housing construction
236116 Newmultifamily $16,672,531
housing construction
236117 New housing operative $139,021,424
builders
236210 Industrial building $17,029,276
construction
236220 Commercial and $241,065,274
institutional building
237 Heavy and civil $202,713,062
engineering construction
237110 Water and sewer line $32,50 1 ,442
and related structures
237120 Oil and gas pipeline and $11,458,718
related structures
237130 Power and $34,810,458
communication line
237210 Land subdivision $20,480,936
237310 Highway, street, and $81,660,219
bridge construction
237990 Other heavy and civil $21,801,289
engineering
TOTAL $678,283,036
Value of Construction in
Establishments with less
than $250,000 in Annual
Revenue
Percent
Number of Total
$4,525,301 1.0%
$2,708,376 4.4%
$140,521 0.8%
$635,721 0.5%
$60,605 0.4%
$980,078 0.4%
$1,728,506 0.9%
$422,643 1.3%
$34,501 0.3%
$191,227 0.5%
$318,156 1.6%
$301,951 0.4%
$460,028 2.1%
$6,253,807 0.9%
Value of Construction in
Establishments with less
than $500,000 in Annual
Revenue
Percent
Number of Total
$12,756,624 2.7%
$7,257,487 11.7%
$450,834 2.7%
$2,163,061 1.6%
$198,854 1.2%
$2,686,388 1.1%
$4,630,104 2.3%
$1,225,288 3.8%
$113,835 1.0%
$534,643 1.5%
$857,673 4.2%
$708,561 0.9%
$1,190,104 5.5%
$17,386,728 2.6%
Value of Construction in
Establishments with less
than $1 million in Annual
Revenue
Percent
Number of Total
$28,315,588 6.0%
$14,980,754 24.2%
$895,825 5.4%
$5,185,010 3.7%
$535,534 3.1%
$6,718,465 2.8%
$10,217,938 5.0%
$2,820,890 8.7%
$231,607 2.0%
$1,143,503 3.3%
$1,725,426 8.4%
$1,877,940 2.3%
$2,418,572 11.1%
$38,533,526 5.7%
Value of Construction in
Establishments with less
than $5 million in Annual
Revenue
Percent
Number of Total
$103,668,145 21.8%
$39,031,735 63.2%
$3,250,934 19.5%
$25,109,207 18.1%
$2,492,871 14.6%
$33,783,398 14.0%
$38,714,981 19.1%
$9,743,281 30.0%
$1,347,896 11.8%
$5,102,546 14.7%
$6,057,496 29.6%
$9,724,026 11.9%
$6,739,736 30.9%
$142,383,126 21.0%
Value of Construction in
Establishments with less than
$10 million in Annual
Revenue
Percent
Number of Total
$150,810,613 31.7%
$47,236,528 76.5%
$4,942,393 29.6%
$37,512,292 27.0%
$4,349,956 25.5%
$56,769,444 23.5%
$59,688,164 29.4%
$14,780,221 45.5%
$2,325,083 20.3%
$7,604,600 21.8%
$8,467,937 41.3%
$17,419,028 21.3%
$9,091,295 41.7%
$210,498,777 31.0%
Figures do not necessarily add to totals due to rounding.
Source: U.S. Census Bureau's Economic Census (2005a)
3-24
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 3: Industry Profile
3.3.1.2 Number of Employees
The construction industry employs a substantial percentage of the total U.S. workforce. With approximately 2.6
million employees in 2002, the construction industry accounts for nearly 2.4 percent of the entire workforce (the
total amount of employees is nearly 109 million). Total payroll (approximately $98.6 billion) is roughly the same
percentage of the total U.S. payroll (approximately $3.7 trillion): 2.6 percent.
In 2002, establishments with payrolls in the C&D industry employed nearly 2.6 million people. Table 3-12 shows
the distribution of employment by NAICS industry group. Combined, NAICS 236115, 236220, and 237310
accounts for over 50 percent of total employment. NAICS 236115 (New Single Family Housing Construction)
accounts for 273,055 employees (10.6 percent of the total), NAICS 236220 (Commercial and Institutional
Building Construction) accounts for 715,896 employees (27.8 percent of the total), and NAICS 237310 (Highway,
Street, and Bridge Construction) accounts for 434,714 employees, or 16.9 percent of the total.
Table 3-12: Number of Employees in the C&D Industry, Establishments
NAICS Description
236 Construction of buildings
236 1 1 5 New single-family housing construction (except operative builders)
2361 16 New multifamily housing construction (except operative builders)
236117 New housing operative builders
2 3 62 1 0 Industrial building construction
236220 Commercial and institutional building construction
23 7 Heavy and civil engineering construction
237110 Water and sewer line and related structures construction
237120 Oil and gas pipeline and related structures construction
237130 Power and communication line and related structures construction
237210 Land subdivision
2373 1 0 Highway, street, and bridge construction
237990 Other heavy and civil engineering construction
TOTAL
With Payrolls,
Number of
Employees
1,367,558
273,055
44,384
240,292
93,931
715,896
1,205,657
204,085
93,176
253,506
66,105
434,714
154,071
2,573,215
in 2002
Percent
of Total
53.2%
10.6%
1.7%
9.3%
3.7%
27.8%
46.9%
7.9%
3.6%
9.9%
2.6%
16.9%
6.0%
100.0%
Figures do not necessarily add to totals due to rounding.
Source: U.S. Census Bureau 's Economic Census (2005a)
Construction is a seasonal activity in many parts of the country, and employment data from the industry reflect
this fact. Figure 3-8: Seasonal Trends in Employment in the C&D Industry, 2002, following page, shows monthly
employment data for select months for all NAICS groups in the C&D industry. Total employment of construction
workers was lowest in March, at 1.67 million, and highest in August at 1.79 million.
November 23, 2009 3-25
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 3: Industry Profile
Figure 3-8: Seasonal Trends in Employment in the C&D Industry, 2002
Residential Building Construction
March
May August November
Land Subdivision
A
= 20
E
LU 5
March
May August November
Non-Residential Building Construction
_560
at
= 550
<=>
-MO
c:
-
•^520
^510
500
March
May August November
Other Heavy and civil engineering construction
March
May August November
Source: U.S. Census Bureau's Economic Census (2005a)
3.3.1.3 Payroll and Benefits
In 2002, the payrolls of all C&D industry groups totaled $98.6 billion. Of this number, $60.5 billion (61.3
percent) went to construction workers and $38.1 billion (38.7 percent) went to other employees.11 In addition, the
C&D industry incurred $13.2 billion in legally-required fringe benefit expenditures and $9.1 billion in voluntary
fringe benefits expenditures, for a total of $22.3 billion in fringe benefits.12 Table 3-13, following page, shows
detailed data on payrolls and benefits for each of the C&D industry groups.
1' Construction workers include all workers, through the working supervisor level, directly engaged in construction operations, such as
painters, carpenters, plumbers, and electricians. Included are journeymen, mechanics, apprentices, laborers, truck drivers and helpers,
equipment operators, and onsite recordkeepers and security guards. Other employees include employees in executive, purchasing,
accounting, personnel, professional, technical and routine office functions.
12 Legally required contributions include Social Security contributions, unemployment compensation, workman's compensation, and state
temporary disability payments. Voluntary expenditures include life insurance premiums, pension plans, insurance premiums on hospital and
medical plans, welfare plans, and union negotiated benefits.
3-26
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter3: Industry Profile
Table 3-13: Payrolls and Benefits for Employees in the Construction & Development Industry (in $1000's), 2002
NAICS Description
236 Construction of buildings
236 1 1 5 New single-family general contractors
236116 New multifamily general contractors
236117 New housing operative builders
236210 Industrial building construction
236220 Commercial building construction
237 Heavy and civil engineering construction
2371 10 Water and sewer system construction
237120 Oil and gas pipeline construction
237130 Power and communication line and related
structures construction
237210 Land subdivision
237310 Highway and street construction
237990 Other heavy construction
TOTAL
Payrolls8
Total
$53,488,317
$8,262,607
$1,730,843
$10,458,127
$3,826,648
$29,210,092
$45,150,943
$7,380,999
$3,984,827
$10,600,799
$2,396,086
$15,790,835
$4,997,397
$98,639,260
Other Employees'1
$24,932,421
$3,780,204
$796,071
$6,371,039
$1,291,899
$12,693,208
$13,206,331
$2,069,415
$812,781
$2,857,301
$1,696,602
$4,303,472
$1,466,760
$38,138,752
Construction
Worker0
$28,555,896
$4,482,403
$934,772
$4,087,088
$2,534,749
$16,516,884
$31,944,640
$5,311,584
$3,172,045
$7,743,498
$699,484
$11,487,363
$3,530,666
$60,500,536
Frin
Legally Required
Expenditures'1
$6,816,864
$1,020,034
$228,283
$1,075,153
$516,264
$3,977,130
$6,429,632
$1,036,078
$599,899
$1,430,879
$282,350
$2,377,271
$703,155
$13,246,496
ge Benefits (All Employees)
Voluntary
Expenditures'
$4,091,629
$312,491
$116,543
$467,494
$348,233
$2,846,868
$4,961,491
$716,572
$429,186
$1,199,280
$124,644
$1,966,930
$524,879
$9,053,120
Total Fringe
Benefits'
$10,908,493
$1,332,525
$344,826
$1,542,647
$864,497
$6,823,998
$11,391,123
$1,752,650
$1,029,085
$2,630,159
$406,993
$4,344,201
$1,228,035
$22,299,616
a The payroll figures include the gross earnings paid in the calendar year 2002 to all employees on the payrolls of construction establishments. They include all forms of compensation, such as salaries, wages,
commissions, bonuses, vacation allowances, and sick leave pay, prior to such deductions as employees' Social Security contribution, withholding taxes, group insurance, union dues, and savings bonds.
b Other employees include employees in executive, purchasing, accounting, personnel, professional, technical and routine office functions.
c Construction workers include all workers, through the working supervisor level, directly engaged in construction operations, such as painters, carpenters, plumbers, and electricians. Included are journeymen,
mechanics, apprentices, laborers, truck drivers and helpers, equipment operators, and onsite record keepers and security guards.
''Legally required contributions include Social Security contributions, unemployment compensation, workman's compensation, and state temporary disability payments.
e Voluntary expenditures include life insurance premiums, pension plans, insurance premiums on hospital and medical plans, welfare plans, and union negotiated benefits.
f Total fringe benefits represent the expenditures made by the employer during 2002 for both legally required and voluntary fringe benefit programs for employees.
Figures do not necessarily add to totals due to rounding.
Source: U.S. Census Bureau's Economic Census (2005a)
3.3.1.4 Specialization
A construction establishment is classified within a type of construction according to the percentage of the construction work performed by that
establishment. When 51 percent or more of the construction work done by the establishment falls within a specific type of construction, the establishment
is considered specialized. Specialization data provide insight into the percentage of firms that perform work outside their firm's classification.
Establishments report their degree of specialization to the Economic Census, based on the percentage of revenue earned from each type of construction
work. For example, approximately 44.1 percent of establishments within NAICS 236115 (New Single-Family Housing Construction) perform 100
percent of their work within New Single-Family Housing Construction, 8.1 percent perform 80-99 percent of their work within New Single-Family
Housing Construction, and 6.6 percent perform 51-79 percent of their work within New Single-Family Housing Construction.
As is the case with two other NAICS divisions (236117 and 236118), a large percentage of the establishments within New Single-Family Housing
Construction did not report their degree of specialization. This could mean that this information was simply not provided to the Census or that these
November 23, 2009 3-27
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 3: Industry Profile
establishments in this sector often do not perform 51 percent or more of their work within one specified type of construction. Regardless, within every
type of construction, most establishments reported that they were 51 percent or more specialized within the specified type of construction.
Since most establishments in any of the relevant segments reported that they were 51 percent or more specialized, for the economic analyses presented
later in this document, it is reasonable to establish model firms according to the assumption that these firms perform all or nearly all business within their
classified category. Thus, the assumption is made that these firms perform 100 percent of their business within their classified category. To the extent
that a firm performs work in other types of construction that would not be affected by the regulation (such as those classified as New Single-Family
Housing Contractors that also perform work as Residential Remodelers), the assignment of compliance costs to all business performed by the firm may
overstate the potential impact of the regulation on firms in those segments as part of the firm- and industry-level impact assessment.
3-28 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter3: Industry Profile
Table 3-14: Percent of Establishments by Percent Specialization by Assigned Type of Construction, 2002
NAICS
236115
236116
236117
236210
236220
237110
237120
237130
237210
237310
237990
Description
New single-family housing construction
New multifamily housing construction
New housing operative builders
Industrial building construction
Commercial and institutional building construction
Water and sewer line and related structures construction
Oil and gas pipeline and related structures construction
Power and communication line and related structures
construction
Land subdivision
Highway, street, and bridge construction
Other heavy and civil engineering construction
Percent of Total Establishments
100%
Specialized
44.1%
47.1%
54.2%
41.0%
30.9%
44.3%
73.8%
86.3%
70.8%
45.5%
53.4%
80-99%
Specialized
8.1%
14.6%
6.1%
19.1%
14.1%
7.4%
12.0%
6.6%
3.6%
19.6%
10.2%
51-79%
Specialized
6.6%
36.6%
5.3%
31.3%
28.3%
20.3%
13.9%
7.1%
5.5%
27.9%
12.7%
Percent of Total Value of Construction
100% Specialized
52.3%
35.3%
0.0%
28.9%
15.5%
0.0%
51.0%
67.7%
70.8%
0.0%
43.9%
of Establishments
80-99% Specialized 51-79% Specialized
12.5%
16.7%
14.4%
5.7%
10.3%
7.1%
23.1%
13.5%
2.0%
12.3%
8.4%
3.7%
26.6%
9.1%
0.0%
17.1%
12.1%
14.2%
10.4%
5.7%
20.9%
12.5%
Source: U.S. Census Bureau's Economic Census (2005a)
November 23, 2009
3-29
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter3: Industry Profile
3.3.1.5 Legal Form of Organization
The Economic Census also reports construction establishments according to how they are organized legally, using the following classification scheme:
(a) corporations, (b) proprietorships, (c) partnerships, and (d) other. In 2002, of establishments with payrolls, a total of 130,253(72.8 percent of the total,
only of establishments with payrolls - as distinguished from total establishments) were organized as corporations (see Table 3-15). A further 33,184
(18.5 percent) were organized as proprietorships, while 13,642 (7.6 percent) operated as partnerships and 1,838 (1.0 percent) operated under some other
legal form of organization.
Table 3-15: Number of Establishments in the C&D Industry with Payrolls, by Legal Form of Organization, 2002
NAICS Description
236 Construction of buildings
236 1 1 5 New single-family housing
construction
236116 New multifamily housing
construction
236117 New housing operative builders
2 3 62 1 0 Industrial building construction
236220 Commercial and institutional
building
23 7 Heavy and civil engineering
construction
237110 Water and sewer line and related
structures construction
237120 Oil and gas pipeline and related
structures construction
237130 Power and communication line
construction
237210 Land subdivision
2373 1 0 Highway, street, and bridge
construction
237990 Other heavy and civil
engineering construction
TOTAL
Corporations
Percent
Number of Total
92,436 71.6%
36,968 63.2%
3,332 76.2%
19,856 76.2%
2,298 82.1%
29,982 80.2%
37,817 75.9%
9,101 73.4%
1,155 81.5%
4,825 80.5%
6,217 73.6%
9,270 81.7%
7,249 70.9%
130,253 72.8%
Proprietorships
Percent
Number of Total
26,084 20.2%
17,004 29.1%
552 12.6%
3,338 12.8%
328 11.7%
4,862 13.0%
7,100 14.2%
2,475 20.0%
116 8.2%
709 11.8%
503 6.0%
1,245 11.0%
2,052 20.1%
33,184 18.5%
Partnerships
Percent
Number of Total
9,405 7.3%
3,839 6.6%
447 10.2%
2,684 10.3%
164 5.9%
2,271 6.1%
4,237 8.5%
721 5.8%
141 9.9%
417 7.0%
1,554 18.4%
675 5.9%
729 7.1%
13,642 7.6%
Other
Percent
Number of Total
1,168 0.9%
677 1.2%
40 0.9%
168 0.6%
8 0.3%
275 0.7%
670 1.3%
98 0.8%
5 0.4%
43 0.7%
169 2.0%
158 1.4%
197 1.9%
1,838 1.0%
Total
Percent
Number of Total
129,098 100.0%
58,489 100.0%
4,372 100.0%
26,047 100.0%
2,799 100.0%
37,391 100.0%
49,830 100.0%
12,396 100.0%
1,418 100.0%
5,995 100.0%
8,444 100.0%
11,349 100.0%
10,228 100.0%
178,928 100.0%
Figures do not necessarily add to totals due to rounding.
Source: U.S. Census Bureau's Economic Census (2005a)
November 23, 2009
3-30
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 3: Industry Profile
3.3.2 Firm-Level Industry Characterization
The SBA Office of Advocacy works with the Census Bureau to produce firm-level data for U.S. industries.
Currently, data on firms by employment size and receipt size for 2002 are available; as described previously,
these data are reported in the 1997 NAICS framework.
The SBA data are based primarily on administrative records and are not directly linked to data collected for the
Economic Census. As a result, data reported by SBA may differ from that reported by the Economic Census.13
The SBA data, however, are the only firm-level data available for C&D industry groups, so EPA included them in
this analysis. These data are important in the firm and industry-level impact analysis and the small entity analysis,
both of which are focused at the firm, instead of establishment, level.14
3.3.2.1 Number of Firms, Employees, and Annual Payroll by Employment Size of Firm
Table 3-16 through Table 3-18 present the number of firms, establishments, employees, and annual payroll totals
for firms with payroll by employee size in the C&D industry in 2002, as reported by SBA.15 Both the SBA data
by employees and receipts are for the year 2002 but the NAICS sector classifications are based on the 1997
framework definitions. SBA did not report 2002 revenue and employment size class data in the 2002 NAICS format.
Thus, the number of establishments reported here will differ from the number reported in previous tables due to the
different sources used. Most notably, residential remodelers were not broken out in the 1997 NAICS framework.
Thus, the number of firms, establishments, employees, and payroll is an overstatement. In the 2002 Economic
Census data, residential remodelers account for 82,750 establishments.
Table 3-16, following page, presents the number of firms and establishments by employment size. These data
indicate that nearly all firms operate a single establishment and have fewer than 20 employees. Of the 263,317
C&D firms listed within Table 3-16, approximately 98.8 percent operate only one establishment. Furthermore,
91.7 percent have fewer than 20 employees and less than 1 percent of firms have more than 500 employees
(similar to Table 3-6). In 2002, there were 38,739 firms in heavy construction, which operated 39,949
establishments. Almost 97 percent of the heavy construction firms operate a single establishment, and
approximately 80 percent of these firms have fewer than 20 employees.
13 The SBA data, for example, provide estimates of the number of establishments operated by C&D firms. These establishment
counts, however, do not match those reported in the Economic Census. This inconsistency is partially due to differences in
coverage (the SBA data include administrative establishments while the Economic Census does not) as well as differences in
data collection methods.
14 For clarification, an establishment is defined as "a relatively permanent office or other place of business where the usual business
activities related to construction are conducted" (U.S. Census Bureau, 2005). A firm refers to the aggregation of all
establishments owned by one company; one firm, therefore, could consist of several establishments.
15 "The data excludes non-employer businesses, thus excluding many self-employed individuals (employment is measured in March, so
firms starting after March, firms closing before March, and seasonal firms can have zero employment)." (U.S. SBA, 2004)
November 23, 2009 3-31
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter3: Industry Profile
Table 3-16: Firms and Establishments by Employment Size, 2002 (SBA Data)
Description
Building, developing, & general
contracting
Land subdivision & land
development
Single-family housing construction
Multifamily housing construction
Mfg & industrial building
construction
Commercial & institutional
building construction
Heavy construction
Highway & street construction
Bridge & tunnel construction
Water, sewer, & pipeline
construction
Power & communication
transmission line construction
Industrial nonbuilding structure
construction
All other heavy construction
TOTAL
Percent of Total
Firms
Total
224,578
13,860
160,917
9,007
2,342
38,452
38,739
10,507
792
10,520
4,077
470
12,373
263,317
100%
0
Employees
40,136
2,804
31,607
1,557
477
3,691
5,579
1,478
83
868
488
56
2,606
45,715
17.4%
<20
Employees
210,588
12,935
156,527
8,208
1,858
31,060
30,976
7,874
490
8,141
3,246
285
10,940
241,564
91.7%
<500
Employees
224,101
13,766
160,821
8,975
2,280
38,259
38,355
10,405
760
10,468
4,031
414
12,277
262,456
99.7%
500+
Employees
477
94
96
32
62
193
384
102
32
52
46
56
96
861
0.3%
Establishments
Total
226,394
14,044
161,677
9,043
2,406
39,224
39,949
10,985
833
10,652
4,325
527
12,627
266,343
100%
0
Employees
40,136
2,804
31,607
1,557
477
3,691
5,579
1,478
83
868
488
56
2,606
45,715
17.2%
<20
Employees
210,646
12,952
156,550
8,208
1,861
31,075
30,992
7,877
490
8,141
3,249
285
10,950
241,638
90.7%
<500
Employees
224,691
13,858
161,044
8,992
2,299
38,498
38,717
10,546
773
10,524
4,065
426
12,383
263,408
98.9%
500+
Employees
1,703
186
633
51
107
726
1,232
439
60
128
260
101
244
2,935
1.1%
Figures do not necessarily add to totals due to rounding.
Source: U.S. SBA (2004)
November 23, 2009
3-32
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 3: Industry Profile
Compared to the number of firms by employment size, the number of employees by employment size of firm
(Table 3-17) shows a higher percentage of employees within firms with fewer than 500 employees. Nearly 80
percent of construction employees fall in firms with fewer than 500 employees compared to 35.4 percent of
employees in firms with fewer than 20 employees.
Table 3-17: Employees by Employment Size of Firm, 2002 (SBA Data)
Employees
Description
Building, developing, & general
contracting
Land subdivision & land development
Single-family housing construction
Multifamily housing construction
Mfg & industrial building construction
Commercial & institutional building
construction
Heavy construction
Highway & street construction
Bridge & tunnel construction
Water, sewer, & pipeline construction
Power & communication transmission
line construction
Industrial nonbuilding structure
construction
All other heavy construction
TOTAL
Percent of Total
Total
1,585,717
90,669
696,886
73,965
86,859
637,338
856,312
274,144
36,671
198,821
98,465
91,921
156,290
2,442,029
100%
<20 Employees
713,062
39,087
459,873
31,447
8,396
174,259
150,925
41,231
2,945
46,770
16,991
1,354
41,634
863,987
35.4%
<500 Employees
1,352,351
77,288
637,023
65,991
33,834
538,215
588, 730
209,040
22,065
170,174
61,950
11,942
113,559
1,941,081
79.5%
500+ Employees
233,366
13,381
59,863
7,974
53,025
99,123
267, 582
65,104
14,606
28,647
36,515
79,979
42,731
500,948
20.5%
Figures do not necessarily add to totals due to rounding.
Source: U.S. SBA (2004)
Similarly, as shown in Table 3-18, compared to the number of firms by employment size, a higher percentage of
the total annual payroll falls in firms with less than 500 employees: 79.9 percent. Only 31.6 percent of the total
annual payroll falls in firms with fewer than 20 employees and only 20.1 percent in firms with greater than 500
employees.
November 23, 2009
3-33
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 3: Industry Profile
Table 3-18: Annual Payroll by Employment Size of Firm, 2002 (SBA Data) (in $1000's)
Description
Building, developing, & general
contracting
Land subdivision & land development
Single-family housing construction
Multifamily housing construction
Mfg & industrial building construction
Commercial & institutional building
construction
Heavy construction
Highway & street construction
Bridge & tunnel construction
Water, sewer, & pipeline construction
Power & communication transmission
line construction
Industrial nonbuilding structure
construction
All other heavy construction
TOTAL
Percent of Total
Annual Payroll
Total
$65,730,491
$4,100,107
$25,396,809
$3,013,295
$3,828,813
$29,391,467
$42,673,726
$13,767,501
$1,987,630
$8,785,618
$3,909,650
$7,439,651
$6,783,676
$108,404,217
100%
0 Employees
$1,501,802
$141,975
$1,033,760
$66,323
$24,182
$235,562
$476,071
$130,528
$15,070
$68,245
N/A
$157,498
$104,730
$1,977,873
1.8%
<20 Employees
$24,493,876
$1,677,639
$14,330,522
$1,118,615
$328,447
$7,038,653
$9,708,025
$2,269,776
$163,706
$1,940,101
$619,090
$3,208,334
$1,507,018
$34,201,901
31.6%
<500 Employees
$53,114,552
$3,391,406
$21,854,918
$2,599,681
$1,409,376
$23,859,171
$33,462,725
$10,723,098
$1,234,340
$7,382,229
$2,246,478
$7,173,693
$4,702,887
$86,577,277
79.9%
500+ Employees
$12,615,939
$708,701
$3,541,891
$413,614
$2,419,437
$5,532,296
$9,211,001
$3,044,403
$753,290
$1,403,389
$1,663,172
$265,958
$2,080,789
$21,826,940
20.1%
Figures do not necessarily add to totals due to rounding.
Source: U.S. SBA (2004)
3.3.2.2 Number of Firms, Employees, and Annual Payroll by Firm Receipt Size
Table 3-19 through Table 3-21 report 2002 data on the number of firms, establishments, annual payroll, receipts,
and number of employees based on revenue size class. Again, the SBA data are for the year 2002, but the data are
reported in the NAICS 1997 framework. Table 3-19, following page, shows SBA data on the number of employer
firms and establishments, in 2002, based on revenue size class and 1997 NAICS industry groupings. These data
show again that most segments of the C&D industry are dominated by small firms. Almost three-quarters (70
percent) of the firms in the target industry sectors reported under $1.0 million in revenue for 2002; 92.6 percent of
firms reported revenue lower than $5.0 million.
November 23, 2009
3-34
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter3: Industry Profile
Table 3-19: Firms and Establishments by Receipt Size, 2002 (SBA Data)
Description
Building, developing, & general
contracting
Land subdivision and Development
Single-family housing Construction
Multifamily housing Construction
Manufacturing and industrial building
construction
Commercial and institutional building
construction
Heavy construction
Highway and street construction
Bridge and tunnel construction
Water, sewer, and pipeline construction
Power and communication transmission
line construction
Industrial nonbuilding structure
construction
All other heavy construction
TOTAL
Percent of Total
Firms
Total
224,578
13,860
160,917
9,007
2,342
38,452
38, 739
10,507
792
10,520
4,077
470
12,373
263,317
100%
<$1
Million
161,023
9,954
125,011
6,063
1,354
18,641
23,185
5,085
271
5,666
2,704
221
9,238
184,208
70.0%
<$5
Million
210,748
13,035
156,409
8,290
1,964
31,050
33,182
8,185
524
8,972
3,675
339
11,487
243,930
92.6%
<$10
Million
217,230
13,463
158,773
8,581
2,107
34,306
35,581
9,108
607
9,756
3,879
364
11,867
252,811
96.0%
<$50
Million
223,097
13,707
160,555
8,907
2,252
37,676
37,999
10,208
730
10,424
4,013
405
12,219
261,096
99.2%
<$100
Million
223,793
13,756
160,730
8,956
2,272
38,079
38,304
10,359
754
10,468
4,035
418
12,270
262,097
99.5%
More than
$100
Million
785
104
187
51
70
373
435
148
38
52
42
52
103
1,220
0.5%
Establishments
Total
226, 394
14,044
161,677
9,043
2,406
39,224
39,949
10,985
833
10,652
4,325
527
12,627
266,343
100%
<$1
Million
161,030
9,955
125,014
6,063
1,354
18,644
23,186
5,085
271
5,666
2,705
221
9,238
184,216
69.2%
<$5
Million
210,801
13,045
156,428
8,291
1,966
31,071
33,211
8,187
524
8,973
3,682
343
11,502
244,012
91.6%
<$10
Million
217,356
13,488
158,818
8,584
2,115
34,351
35,638
9,117
609
9,759
3,894
369
11,890
252,994
95.0%
<$50
Million
223,421
13,763
160,686
8,917
2,263
37,792
38,199
10,268
737
10,457
4,045
411
12,281
261,620
98.2%
<$100
Million
224,340
13,836
160,925
8,968
2,289
38,322
38,604
10,448
767
10,521
4,074
431
12,363
262,944
98.7%
More than
$100
Million
2,054
208
752
75
117
902
1,345
537
66
131
251
96
264
3,399
1.3%
Figures do not necessarily add to totals due to rounding.
Source: U.S. SBA (2004)
November 23, 2009
3-35
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 3: Industry Profile
Similar to the data reported by employment size classifications, data by receipt size classifications as shown in
Table 3-20, shows a higher percentage of employees fall in the firms with the higher revenue classes. Although 70
percent of the firms fell into the revenue size class of less than $1 million, only 19.6 percent of employees fall in
this same classification. Approximately 71.9 percent of employees fall in firms with less than $50 million in
receipts.
Table 3-20: Employees by Receipt Size of Firm, 2002 (SBA Data)
Employees
Description
Building, developing, &
general contracting
Land subdivision and
Development
Single-family housing
Construction
Multifamily housing
Construction
Manufacturing and industrial
building construction
Commercial and institutional
building construction
Heavy construction
Highway and street
construction
Bridge and tunnel
construction
Water, sewer, and pipeline
construction
Power and communication
transmission line construction
Industrial nonbuilding
structure construction
All other heavy construction
TOTAL
Percent of Total
Total
1,585,717
90,669
696,886
73,965
86,859
637,338
856,312
274,144
36,671
198,821
98,465
91,921
156,290
2,442,029
100%
< $1 Million
400,687
23,871
285,905
17,655
4,352
68,904
78,309
16,044
852
22,295
12,210
886
26,022
478,996
19.6%
< $5 Million
825,818
50,508
500,867
39,583
13,713
221,147
235,250
58,009
4,380
76,111
32,437
3,641
60,672
1,061,068
43.5%
< $10 Million
970,528
59,567
547,928
46,495
18,076
298,462
323,108
88,024
6,955
105,053
43,571
5,175
74,330
1,293,636
53.0%
< $50 Million
1,233,903
74,550
612,479
59,613
31,152
456,109
522,640
171,075
16,831
161,175
59,581
11,854
102,124
1,756,543
71.9%
<$100
Million
1,309,200
79,134
630,949
63,197
33,198
502,722
587,321
198,641
21,049
173,543
64,028
15,121
114,939
1,896,521
77.7%
More than
$100 Million
276,517
11,535
65,937
10,768
53,661
134,616
268,991
75,503
15,622
25,278
34,437
76,800
41,351
545,508
22.3%
Figures do not necessarily add to totals due to rounding.
Source: U.S. SBA (2004)
Again, compared to the data by employment size classifications, according to Table 3-21, a greater amount of the
total annual payroll falls within the firms in the larger receipt size classifications. A much smaller percentage of
total annual payroll, 11.4 percent, falls within those firms with fewer than $ 1 million in receipts. Most of the
annual payroll (64.6 percent) is within those firms that have less than $50 million in receipts. As for firms with
more than $100 million in receipts, 28.3 percent of the total annual payroll falls into this size category.
3-36
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 3: Industry Profile
Table 3-21: Annual Payroll by Receipt Size of Firm, 2002 (SBA Data) (in $1000's)
Description
Building, developing, &
general contracting
Land subdivision and
Development
Single-family housing
Construction
Multifamily housing
Construction
Manufacturing and
industrial
building construction
Commercial and
institutional
building construction
Heavy construction
Highway and street
construction
Bridge and tunnel
construction
Water, sewer, and pipeline
Power and
communication
transmission line
construction
Industrial nonbuilding
structure construction
All other heavy
construction
TOTAL
Percent of Total
Annual Payroll
Total
$65, 730,491
$4,100,107
$25,396,809
$3,013,295
$3,828,813
$29,391,467
$39,321,547
$13,767,501
$1,987,630
$8,785,618
$3,909,650
$4,087,472
$6,783,676
$105,052,038
100%
< $1 Million
$9,841,223
$766,932
$6,731,744
$443,853
$110,322
$1,788,372
$2,141,039
$497,076
$27,081
$596,161
$300,671
$23,904
$696,146
$11,982,262
11.4%
< $5 Million
$25,380,538
$1,937,669
$14,439,948
$1,201,777
$438,278
$7,362,866
$8,300,356
$2,320,042
$192,793
$2,640,097
$998,753
$120,039
$2,028,632
$33,680,894
32.1%
< $10 Million
$31,902,959
$2,351,978
$16,598,807
$1,484,787
$642,612
$10,824,775
$12,394,074
$3,823,119
$326,536
$3,976,847
$1,426,230
$184,471
$2,656,871
$44,297,033
42.2%
< $50 Million
$45,338,394
$3,133,152
$19,983,582
$2,134,387
$1,222,167
$18,865,106
$22, 512,332
$8,217,132
$901,508
$6,788,390
$2,083,707
$496,099
$4,025,496
$67,850,726
64.6%
< $100 Million
$49,455,644
$3,382,706
$20,950,921
$2,353,392
$1,328,145
$21,440,480
$25,874,624
$9,730,007
$1,151,619
$7,344,222
$2,317,027
$673,946
$4,657,803
$75,330,268
71.7%
More than
$100 Million
$16,274,847
$717,401
$4,445,888
$659,903
$2,500,668
$7,950,987
$13,446,923
$4,037,494
$836,011
$1,441,396
$1,592,623
$3,413,526
$2,125,873
$29,721,770
28.3%
Figures do not necessarily add to totals due to rounding.
Source: U.S. SBA (2004)
3.3.3 Small Entity Characterization
EPA used the establishment-level Economic Census data and firm-level data from SBA to estimate the number of
entities in the C&D industry that are small businesses in accordance with SBA criteria. SBA uses size standards
based either on number of employees or on annual revenue to define small entities (13 CFR 121). For all of the
C&D industry groups, SBA's business size standards are based on annual revenue. The SBA revenue thresholds
for the C&D industry are, as follows:
> NAICS 236 (Construction of Buildings): $33.5 million
> NAICS 237 (Heavy and Civil Engineering Construction), except 2372: $33.5 million
> NAICS 2372 (Land Subdivision of NAICS 237): $7.0 million
The data sources reviewed above do not provide data according to these exact size standards. As a result, the
number of firms falling within the SBA small business classifications cannot be determined precisely from these
data sources but must be estimated, using the data-reporting range from each data source that most nearly matches
the SBA size classifications.
In using the SBA data, the data-reporting ranges most closely corresponding to the SBA thresholds are as follows:
> NAICS 236: $50 million (Overstates number of small businesses)
> NAICS 237, except 2372: $50 million (Overstates number of small businesses)
November 23, 2009
3-37
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 3: Industry Profile
> NAICS 2372: $5 million (Understates number of small businesses)
Table 3-22 and Table 3-23 present estimates of the number of entities falling within the SBA small business
criteria, based, respectively, on SBA firm-level data and on Economic Census establishment-level data. Based on
the SBA firm-level data, an estimated 260,424 C&D firms, representing approximately 99 percent of all
businesses in the C&D industry, have revenue below the corresponding SBA thresholds listed above and,
therefore could qualify as small businesses under SBA definitions. As reported in Table 3-22, this estimate of the
number of firms qualifying as a small business is likely to be an overestimate, given the relationship between the
SBA data reporting ranges and the SBA small business criteria. Furthermore, since the SBA data was reported in
the 1997 NAICS framework, these numbers include residential remodelers, which are not included within the
Economic Census data presented below. Thus, this number could be overstated by approximately 80,000 firms
since residential remodelers are not included within the EA.
As described previously, approximately 99 percent of firms operate only one establishment. Thus, looking at
the Economic Census data, which are reported for establishments instead of firms, also provides significant
insight into the presence of small entities in the C&D industry. As expected, given the large percentage of single-
establishment firms in the C&D industry, the 2002 Economic Census and SBA report very nearly the same
numbers of entities, whether establishments or firms. However, as stated previously, the number of firms within
the SBA data is overstated due to the inclusion of residential remodelers. In the same way as for the SBA data,
Economic Census data are not reported in ranges that match precisely the SBA small business criteria values.
In using the Economic Census data, the data-reporting ranges most closely corresponding to the SBA thresholds
are as follows:
> NAICS 236: $10 million (Understates number of small businesses)
> NAICS 237, except 2372: $10 million (Understates number of small businesses)
> NAICS 2372: $5 million (Understates number of small businesses)
Based on the Economic Census establishment-level data, approximately 167,007 C&D establishments,
representing approximately 93.4 percent of all establishments in the C&D industry, have revenue below the
corresponding SBA thresholds listed above. Given that nearly all C&D industry firms are single-establishment
firms, this value, by definition, cannot be substantially different from the number and percentage of small
business firms. As reported in Table 3-23, this estimate of the number of establishments potentially qualifying as
a small business is very likely an underestimate, given the relationship between the Economic Census data
reporting ranges and the SBA small business criteria.
In reviewing Table 3-22 and Table 3-23, it is important to note that the subsector definitions differ for the two
tables: the SBA-based data are reported in the 1997 NAICS sector framework; the Economic Census data are
reported in the 2002 NAICS sector framework. This difference is most evident in the comparison of the total
establishment and firm data since residential remodelers are not included within the Economic Census data
presented but are included within the SBA data presented. Residential remodelers account for an additional 82,750
establishments. The difference is also evident in the comparison of the establishment and firm data for the NAICS
2372, Land Subdivision, where the reported number of firms, 13,860, is greater than the number of establishments,
8,403.
The SBA firm-level data suggests that 99 percent of total C&D industry firms are small firms, while the
Economic Census data suggests that small firms make-up 93.4 percent of total establishments. As explained
above, EPA considers the SBA data to slightly overestimate the percentage of small entities and the Census data
to slightly underestimate the actual percentage. The conclusion that can be made from both estimates is that the
C&D industry is dominated by small entities. Small firms, as defined according to SBA criteria, very likely
represent more than 95 percent of all firms in the relevant C&D industry subsectors.
3-38 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 3: Industry Profile
Table 3-22: Number of Firms Above and Below SBA Small Business Thresholds, 2002
From Small Business Administration Data
SBA Revenue SBA
Threshold Reporting Range Total
NAICS Subsector (million S) (million S) Firms
Land subdivision and
Development
Single-family housing
Construction
Multifamily housing
Construction
Manufacturing and
industrial building
construction
Commercial and
institutional building
construction
Highway and street
construction
Bridge and tunnel
construction
Water, sewer, and pipeline
construction
Power and communication
transmission line
construction
Industrial nonbuilding
structure construction
All other heavy
construction
Total
$7.0
$33.5
$33.5
$33.5
$33.5
$33.5
$33.5
$33.5
$33.5
$33.5
$33.5
-
$5.0
$50.0
$50.0
$50.0
$50.0
$50.0
$50.0
$50.0
$50.0
$50.0
$50.0
-
13,860
160,917
9,007
2,342
38,452
10,507
792
10,520
4,077
470
12,373
263,317
Indicated
Small
Firms
13,035
160,555
8,907
2,252
37,676
10,208
730
10,424
4,013
405
12,219
260,424
Small Firms
as Percent
of Total
94.0%
99.8%
98.9%
96.2%
98.0%
97.2%
92.2%
99.1%
98.4%
86.2%
98.8%
98.9%
Under/Over
Estimate
Underestimate
Overestimate
Overestimate
Overestimate
Overestimate
Overestimate
Overestimate
Overestimate
Overestimate
Overestimate
Overestimate
Overestimate
For two of the C&D NAICS subsectors (236 and 237), the upper bound of the related SBA reporting range is below the SBA small business criterion. For
these subsectors, the indicated small firm counts are almost certainly an overestimate of the number of small firms. For the subsector (2372), the upper
bound of the reporting range is above the SBA small business criterion. For these subsectors, the indicated small firm counts are almost certainly an
underestimate of the number of small firms. Given that subsectors 236 and 237 (except 2372) represent over 85 percent of the total of firms in the four
subsectors, the total of the indicated small firm counts across the four subsectors is more like also an overestimate.
Note: SBA data and assignments by NAICS subsectors are based on the 1997 NAICS sector definition framework.
Figures do not necessarily add to totals due to rounding.
Source: U.S. SBA (2004) and U.S. SBA (2008)
November 23, 2009
3-39
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 3: Industry Profile
Table 3-23: Number of Establishments Above and Below SBA Small Business Thresholds, 2002
From Economic Census Data
SBA Revenue Census Indicated Small Estabs.
Threshold Reporting Range Total Small as Percent Under/Over
NAICS Subsector
2361 15: New single-family
housing construction (except
operative builders)
2361 16: New multifamily housing
construction (except operative
builders)
236117: New housing operative
builders
236210: Industrial building
construction
236220: Commercial and
institutional building construction
2371 10: Water and sewer line and
related structures construction
237120: Oil and gas pipeline and
related structures construction
2371 30: Power and
communication line and related
structures construction
237210: Land subdivision
237310: Highway, street, and
bridge construction
237990: Other heavy and civil
engineering construction
Total
(million S)
$33.5
$33.5
$33.5
$33.5
$33.5
$33.5
$33.5
$33.5
$7.0
$33.5
$33.5
-
(million S)
$10.0
$10.0
$10.0
$10.0
$10.0
$10.0
$10.0
$10.0
$5.0
$10.0
$10.0
-
Estabs.
58,472
4,397
26,043
2,777
37,208
12,357
1,403
6,034
8,403
11,239
10,502
178,835
Estabs.
57,759
4,050
24,032
2,529
32,793
11,612
1,211
5,586
7,851
9,425
10,159
167,007
of Total
98.80%
92.10%
92.30%
91.10%
88.10%
94.00%
86.30%
92.60%
93.43%
83.90%
96.70%
93.4%
Estimate
Underestimate
Underestimate
Underestimate
Underestimate
Underestimate
Underestimate
Underestimate
Underestimate
Underestimate
Underestimate
Underestimate
Underestimate
Because the upper bound of the Economic Census reporting range is below the SBA small business criterion for all of the C&D subsectors, the indicated
small establishment counts are almost certainly an underestimate of the number of small establishments, and the total of these values is therefore also likely
an underestimate.
Note: Economic Census data and assignments by NAICS subsectors are based on the 2002 NAICS sector definition framework.
Figures do not necessarily add to totals due to rounding.
Source: U.S. Census Bureau's Economic Census (2005a) and U.S. SBA (2008)
3.4 Industry Dynamics and Forecast
By a number of measures, the C&D industry has historically been a relatively volatile sector, and is subject to
wider swings of economic performance than the economy as a whole. Although the industry has been on a fairly
continuous growth trend since 1964, there have been a few interruptions within this upward movement. Within
the industry, residential construction, as compared to nonresidential and other public construction, has
experienced the most volatility of business performance.
From 1991 to 2005, the industry overall grew steadily. Single-family housing, for example, grew from an annual
level of 0.8 million housing starts in 1991 to 1.7 million housing starts in 2005, representing an average annual
growth rate of 5.5 percent. During this same period, real GDP grew by an average of 3.2 percent per year (BEA,
2009a). Since 2006, however, the construction industry has experienced a downturn, with the weakness occurring
mostly in the residential sector. To provide insight into recent industry performance and to provide a backdrop for
understanding the outlook for the industry, this section first reviews:
> Annual value of total construction, private construction, and public construction indexed to real GDP
(Section 3.4.1)
> Historical trend of key financial measures for selected public companies within these industries (Section
3.4.2)
3-40
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 3: Industry Profile
The next subsections review a combination of historical data and industry forecasts:
> Housing starts indexed to real GDP, and forecast of housing starts (Section 3.4.3)
> Value of construction by industry segment (Section 3.4.4)
The final subsection of the chapter provides a summary assessment of the outlook for the industry, as a whole.
3.4.1 Annual Value of Construction and Housing Starts Indexed to Real GDP
Figure 3-9 (Total Construction), Figure 3-10 (Private Construction), and Figure 3-11 (Public Construction)
display the annual value of construction, by segment, indexed to 100 in 1964, with GDP for the period 1964-2008
(all underlying values in constant $2008). Figure 3-14 presents annual housing starts and real GDP, again as
index series over the same analysis period. All of these figures demonstrate the greater variability of the
construction industry compared to the entire economy. Slight declines or slow-downs in the general economy, as
occurred in 1981/1982, 1991/1992, and 2001/2002, are accompanied by much larger drops in construction
industry activity (see Figure 3-9, below).
Figure 3-9: Annual Value of Total, Private, and Public Construction and Real GDP, as Index Series
GDP Index
Total Construction
Total Private Construction
Total Public Construction
1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008
Source: U.S. Census Bureau (2009a) and BEA (2009a)
November 23, 2009
3-41
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 3: Industry Profile
Private residential construction shows considerably greater volatility than the construction industry as a whole.
Before the trough in 1991, the annual profile of private residential construction varied substantially from year to
year. Only after 1991 did private residential construction see relatively continuous growth persisting for a period
of more than five years. As shown by the steeper curve segments in Figure 3-10, private residential construction
grew more rapidly than the economy, as a whole, from the mid 1990s to 2005. However, as previously discussed,
this segment began a sharp downturn in 2006, as shown in Figure 3-10.
Figure 3-10: Annual Value of Private Construction and Real GDP, as Index Series
450
400
350
•GDP Index
•Residential Construction
•Non-Residential Construction
•Other Private Construction
1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008
Source: U.S. Census Bureau (2009a) and BEA (2009a)
3-42
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 3: Industry Profile
Overall, public construction has generally been less volatile, year-to-year, than private construction. However, the
Housing and Redevelopment segment and the Non-Residential segment have shown greater volatility than the
Other Public Construction segment and greater volatility than the national economy. All three segments have
grown more slowly than the overall economy, although the Non-Residential segment grew faster than the general
economy from 1993 to 2003.
Figure 3-11: Annual Value of Public Construction and Real GDP, as Index Series
450
400
350
300
GDP Index
-*—Housing and Redevelopment
-•- Non-Residential
Non-Building Construction
1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008
Source: U.S. Census Bureau (2009a) andBEA (2009a)
3.4.2 Financial Condition and Performance
The financial performance and condition of the Construction and Development industry are important
determinants of its ability to withstand the costs of regulatory compliance without material adverse
economic/financial impact. To provide insight into the industry's financial performance and condition, and to
bring these insights as near to the present as possible, EPA reviewed two key measures of financial performance -
net profit margin and return on total capital - for public-reporting firms over the 16-year period, 1993-2008. EPA
used data from the Value Line Investment Survey (VL) to construct these data series. The general company
dataset of VL reports summary financial information for nearly all (approximately 7,000) publicly traded
companies in the United States, and thus reports information for a substantial number of firms in the C&D
industry.
The financial data summarized below repeat data items that are contained in the Risk Management Association
(RMA) financial dataset, which underlies the development of the analytic frameworks used in EPA's analysis of
November 23, 2009
3-43
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 3: Industry Profile
firm and industry impacts (see Chapters 4 and 6). However, because the VL firms are all publicly traded and thus
subject to Securities and Exchange Commission timely reporting requirements, these data come much closer to
the present than the RMA data. At the same time, however, the VL data necessarily reflect only a subset of C&D
industry firms - namely, the very large, publicly traded firms. Although these firms represent, in the aggregate, a
substantial share of the total economic activity in the C&D industry, they represent only a small share of the total
number of firms in the affected industry segments. Nevertheless, because these data are the best readily available
financial data that are reasonably current for firms in the C&D industry, EPA judges that the data have
substantial value for understanding current business performance trends in the industry.16
VL identifies and groups companies in a business content classification scheme that approximates 4-digit NAICS
classifications. These business classifications support identification of firms within the Construction and
Development industries at a level of sector detail sufficient for this analysis. The dataset is by company instead of
by aggregate groups and the business classifications are defined by practical business content instead of in a rigid
SIC or NAICS classification scheme. The VL dataset reports key accounting items that will readily support an
analysis of the trend of two key financial metrics: net profit margin and return on total capital.
As discussed above, VL organizes firms by industry groups, which, in most instances, approximate 4-digit
NAICS classifications. From review of the VL industry groups and the Construction and Development industries,
EPA selected two VL industry groups - Homebuilding and Heavy Construction - and the 44 firms within these
industry groups as candidates for this analysis.17 Following review of the firms within these industry groups, EPA
retained 37 firms for use in this analysis.18 Key considerations in selecting the firms are as follows:
> Within the industry groups, only those firms whose business operations reasonably match the profile of
business activities of the two Construction and Development industries, Building Construction and Heavy
Construction, were considered candidates for the analysis. In the industry groups, some firms included in
the VL industry groups were excluded from the analysis because they were not engaging in the activities
applicable to the scope of the Construction and Development regulation.
> EPA retained only those firms that are based in the United States.
> EPA retained only the firms for which some or all of the financial data were available during the period
1993-2008.
EPA organized the 37 firms selected for the analysis into two industry groups: the Residential Construction
industry includes 25 firms and the Non-Residential/Non-Building Construction industry includes 12 firms. The
Residential Construction industry is comprised of single-family and multifamily designers, developers,
homebuilders, and sellers. The Non-Residential/Non Building Construction industry is comprised of companies
specializing in the design, engineering, project management, and construction of non-residential buildings and
infrastructure.
To provide insight into the industry's historical financial performance and condition, EPA calculated net profit
margin and return on total capital measures as a revenue-weighted average for the firms in the respective
industries. In some instances, VL did not report a data item for some firms in one or more years in the analysis
EPA also used the VL dataset to develop adjustment factors applied to the 2007 RMA-reported values to construct "Adverse Business
Conditions Case" financial statement values that reflect more current financial condition and performance of the homebuilding
segment of the C&D industry.
EPA also selected one company, Tutor Perini Corp., from the VL Industrial Services industry not identified in either of these
segments, but identified as also being substantially involved in heavy construction activity.
The firms in the VL dataset report data for each fiscal year, 2008 being the latest. Of the 37 firms identified for this analysis, 23 report
a fiscal closing date of 12/31/2008. Ten of the remaining 14 firms report a fiscal closing date within 3 months of 12/31/2008, and one
firm reports a fiscal closing date within 6 months of 12/31/2008. VL did not report data for 2008 the remaining three firms.
3-44 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 3: Industry Profile
period; in these cases, the average values of the financial metrics were simply calculated without the firms with
missing data.19
Net profit margin is calculated as after-tax income before nonrecurring gains and losses as a percentage of sales or
revenue, and measures profitability, as reflected in the conventional accounting concept of net income. Over time,
the firms in an industry, and the industry collectively, must generate a sufficient positive profit margin if the
industry is to remain economically viable and attract capital. Year-to-year fluctuations in profit margin stem from
several factors, including: variations in aggregate economic conditions or variations in industry-specific market
conditions.
Return on total capital is calculated as annual net profit, plus one-half of annual long-term interest, divided by the
total of shareholders' equity and long-term debt (total capital). This concept measures the total productivity of the
capital deployed by a firm or industry, regardless of the financial source of the capital (i.e., equity, debt, or other
liability element). As such, the return on total capital provides insight into the profitability of a business' assets
independent of financial structure and is thus a "purer" indicator of asset profitability than return on equity. In the
same way as described for net profit margin, the firms in an industry, and the industry collectively, must generate,
over time, a sufficient return on capital if the industry is to remain economically viable and attract capital. The
factors causing short-term variation in net profit margin will also be the primary sources of short-term variation in
return on total capital.
Figure 3-12 and Figure 3-13, following pages, show trends in net profit margins and return on total capital for the
Residential and Non-Residential/Non-Building segments between 1993 and 2008. The decline in the residential
construction segment starting in 2006 as well as the relatively stronger performance in the non-residential/non-
building segment experienced since 2002, are apparent in both of these figures.
For both financial metrics, the residential construction segment shows a sharp decline in financial performance
beginning in 2006 and continuing through 2008. Clearly, the financial performance of this segment of the C&D
industry has been strongly affected by the challenges facing the housing sector and economy, generally, as
described in preceding sections. On a modestly favorable note, the decline during 2008 is not as severe note as the
decline during 2007. Regardless, the levels of financial performance achieved during these most recent years are
not indicative of the longer-trend of performance in the segment, and the segment will necessarily need to return
to historical performance levels to sustain itself as a viable industry capable of attracting capital over the longer
term. The most recent data on housing starts suggest that the segment is in the beginning stages of this business
recovery. In addition, the public market valuations of firms in the home-building segment also indicate an
improving outlook for this segment. For example, the Dow Jones U.S. Home Construction index, which reflects a
basket of U.S. firms in the homebuilding and closely related business sectors, has increased by approximately 30
percent since the beginning of 2009, and by approximately 100 percent since the overall low point in U.S. equity
markets in March 2009. This equity market performance is indicative of the public capital markets' improving
confidence in the business outlook for the homebuilding industry.
In contrast, the non-residential/non-building construction segment shows continued financial strength through
2008, with both performance metrics recording increases in 2008. The performance of this segment may weaken
during the current year, but through 2008, the overall understanding of financial performance and condition for
this segment is no different from, and in fact, stronger than that observed in the data presented earlier in this
chapter.
19 The revenue-weighted calculation of net profit margin was based on the aforementioned 37 firms. However, the revenue-weighted
calculation of return on total capital was based on 35 firms because VL did not report the data item for two firms during the 16 year
time period for this variable.
November 23, 2009 3-45
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 3: Industry Profile
Figure 3-12: Historical Net Profit Margin, Based on Public Company Data from ValueLine
15.00
10.00 -i
5.00
0.00
-5.00
c
0)
O -10.00
-15.00
-20.00
-25.00
-30.00
-35.00
•Residential Construction
Non-Residential/Non-Building Construction
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Year
Source: ValueLine, 2009
Figure 3-13: Historical Return on Total Capital, Based on Public Company Data from ValueLine
30.00
20.00
10.00
0)
O 0.00
-10.00
-20.00
-30.00
•Residential Construction
-Non-Residential/Non-Building Construction
1993 1994 1995 1996 1997 1998 1999 2000 2001
003 2004 2005 2006 2007 2008
Year
Source: ValueLine, 2009
3-46
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 3: Industry Profile
3.4.3 Housing Starts: Actual and Forecast
Annual housing starts, as an index and compared with real GDP, also illustrate the higher variability within the
residential construction industry compared to the economy as a whole (see Figure 3-14). This exhibit also shows
the fairly stable growth trend of housing starts over the past 10-15 years and the corresponding drop in housing
starts in 2006 through 2008.
Figure 3-14: Annual Housing Starts and Real GDP, as Index Series
450
400
350
300
250
200
150
100
•Housing Starts
-GDP
1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008
Year
Source: U.S. Census Bureau (2009b) and BEA (2009a)
Figure 3-15, page 3-49, reports annual housing starts from 1992 to 2005 (in the red, dashed line) and quarterly
housing starts from 2006 Q1 to 2009 Q1 (in light purple). The quarterly values have been multiplied by four to
approximate annual equivalents. The substantial fall-off in housing construction beginning in the second quarter
of 2006 and continuing through 2008 is apparent. One of the main reasons 2007 showed such a substantial decline
is a speculative run-up in house prices accompanied by a substantial acceleration in new housing supply, which
was most widespread within single-family housing. As a result, single-family housing activity declined more
substantially than multi-family housing construction activity. Standard and Poor's Industry Outlook for the
housing construction sector provides a similar assessment: since late 2006, the housing market has experienced a
downturn after nearly a decade of rising home prices and strong demand. On the other hand, S&P believes that
during the current housing downturn, "homebuilders continue to reduce lot inventories and lower outstanding
debt.. .builders are strengthening their balance sheets by boosting cash or reducing debt" (S&P, 2009). S&P
forecasts that market stability should occur by the end of 2009 when housing prices should pass their trough and
home inventories continue to decline due to the decrease of foreclosures. According to S&P, a new, stable
equilibrium of supply and demand, should be reached by 2011.
November 23, 2009
3-47
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 3: Industry Profile
Another construction industry business analysis firm, Global Insight, provides further assessments of the
construction industry (Global Insight, October 2008, July, August 2009). Due to relatively low interest rates and
aggressive credit practices, mortgage rates for home purchases remained historically low until recently. However,
in 2005, housing affordability began to decline with increasing home prices and mortgage lending rates. In
addition, an increasing volume of home sales were accomplished via non-traditional financing arrangements in
which interest rates and/or principal payments might be maintained at low levels during the early years of a loan,
with the expectation of increasing to more traditional structure levels within a few years of loan issuance. As
interest rates were marked to market and payment obligations increased under these non-traditional mortgages,
loan payment delinquencies and foreclosures began to increase. These foreclosures added to the excess supply of
homes on the market.
Beginning in mid-2005, new and existing home sales started to fall sharply. However, as demonstrated by Figure
3-15, housing starts continued to increase well into the first quarter of 2006, adding to the already large inventory
of unsold homes. Global Insight assesses that housing starts bottomed out in mid 2009 at approximately 500,000
total starts and new home sales reached their trough in early 2009 at approximately 340,000 sales. Even with
home prices rising in most parts of the country, new home sales have been rising for the fourth month in a row,
increasing 9.6 percent in July (ElBoghdady, 2009). This is due in large part to housing affordability being at
record highs: the National Association of Realtors (NAR) Housing Affordability Index (HAI) reached a record
high of 166.7 in March, 30.8 percentage points higher than a year ago20 (NAR, May 2009a). Another key factor
pointing to recovery in residential segment construction is the inventory of unsold homes. According to the
Washington Post, 271,000 new homes were for sale in July, "the lowest reading since March 1993." As the
unsold inventory declines, developers and builders will see economically attractive opportunities for new home
construction and will be more confident to commit the capital needed for these new home ventures.
Although the single-family market appears to be in recovery, the multifamily segment activity may be recovering
at a slower pace. Although this subsegment is assessed has having an activity trough, for example, by Global
Insight, the subsegment appears to be recovering more slowly than the single-family subsegment. Financing for
new multifamily housing construction remains more challenging than for new single-family construction and
sales, and this subsegment is therefore projected to recover at a slower pace than single-family construction
(Barrens, 2009). Longer term forecasts project that total housing starts will continue increasing until 2013/2014
when they are near their forecasted long-term trend of 1.7 million starts (see Table 3-24 for Global Insight's
projection of housing starts) (Global Insight July 2009, October 2008).
Although housing starts and sales have been returning to a positive growth trend, home prices are lagging behind
and are not expected to return to a positive growth trend until late 2010/early 2011 due to the high inventory
levels and the high foreclosure rate. Nonetheless, Global Insight believes that regardless of the current housing
weakness, falling home prices coupled with continued long-run demand for housing will eventually return the
housing market to a sustainable market equilibrium of increased construction and sales of new housing (Global
Insight, November 2007). Long-run demand factors - household formation, demand for second homes, and
demolitions - will also support recovery in the residential construction segment. According to Harvard
University's Joint Center for Housing Studies, the number of new homes demanded will increase due to
demographic factors such as increased immigration and the aging of the echo-boom generation and the longer life
expectancy of baby-boomers (Joint Center, 2008). Household formation growth is expected to increase to 14.4
million during 2010-2020, compared to 12.6 million during 1995-2005 (Joint Center, 2008). Demolitions are also
expected to increase due to the aging housing stock, thus supporting demand for new homes to replace older units.
20 "The Housing Affordability Index is a relative index where a value of 100 means that a family with the median income has exactly
enough income to qualify for a mortgage on median-priced existing single-family home, taking into account the relationship between
median home price, average effective interest rate for loans closed on existing homes, and median family homes. The higher the index,
the better housing affordability is for buyers" (NAR, May 2009a).
3-48 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 3: Industry Profile
In a long-term forecast for the housing construction industry published by the National Association of Home
Builders (NAHB) in 2006, NAHB forecasted that, on average, annual housing starts in the next ten years will
exceed those of the previous decade - despite the current weakness of the housing construction industry. The
NAHB publication forecasts that households trading up for larger homes will cause an upturn from 2010 to 2015
(NAHB, 2006).
Figure 3-15: Annual Housing Starts from 1992 to 2005 and Quarterly Housing Starts from Q1 2006 to Q1 2009
(in Thousands of Units)
2,5OO
2,OOO
1,5OO
1,OOO
5OO
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
1990 1992 1994 1996 1998 2000 2002 2004 2006 2007 2008 2009
Note: Quarterly figures were multiplied by four to allow for comparison among annual and quarterly housing starts.
Source: U.S. Census Bureau (2009b)
Table 3-24 reports the number of actual housing starts for 2004 through 2008, and forecasted starts by Global
Insight, Reed Construction, and Mortgage Bankers Association (MBA) for 2009 through 2014 (Reed's and
MBA's projections are only until 2011). The 12.9 percent decrease from 2005 to 2006 reflects the beginning of
the decline in housing starts after the 2005 peak and the 24.8 and 33.2 percent decrease in housing starts from
2006-2007 and 2007-2008, respectively, demonstrates the continued decline. Reed's August forecast, Global
Insight's July forecast, and MBA's August forecast all show a continuation of this trend through 2009, with
housing starts projected to decrease by 37.4 percent (Reed), 38.9 percent (Global Insight), and 36.3 percent
(MBA). According to Global Insight, due to the large decrease in inventories of unsold new homes, housing starts
and new home sales hit their trough in the early to mid part of 2009. Both single-family and multifamily starts are
expected to improve over the next two to three years, with full recovery expected in 2012/2013.
November 23, 2009
3-49
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 3: Industry Profile
Table 3-24: Housing starts, Actual and Forecasts (in Millions of Starts)
Housing Starts
Housing Starts,
year-to-year
Percent
Change
2005
2.07
2006
1.80
-12.9%
2007
1.36
-24.8%
2008
0.91
-33.2%
2009
2010
2011 2012
2013 2014
Reed Forecast
0.57J 0.71| 0.90|
-1
Global Insight Forecast
0.56| 0.87J 1.29 1.56
1.66| 1.67
MBA Forecast
0.58| 0.71
0.98
-1
Reed Forecast
-37.4%| 23.2%| 26.8%|
-1
Global Insight Forecast
-38.9%| 55.6%
-36.3%| 22.4%
49.6%| 20.8%| 6.1%| 0.4%
MBA Forecast
38.0%|
-1
Source: Actuals: U.S. Census (2009b); Forecasts: Reed Construction Data (August 2009b), Global Insight (July 2009), and
Mortgage Bankers Association (August 2009)
3.4.4 Value of Construction by C&D Industry Segment: Actual and Forecasts
Residential construction, although now appearing to be on a recovery path, has experienced a clear decline in
housing starts since early 2006 as illustrated in Figure 3-15 and Table 3-24. However, housing starts and sales
have increased since the middle of 2009. Throughout 2006 and 2007, while residential construction was
experiencing housing start declines and negative growth, non-residential construction somewhat offset this
weakness. Table 3-25, following page, lists the value of construction in constant 2008 dollars, by segment, for
previous years (from the BEA) and for forecasted years (from Global Insight). As shown in the table, residential
construction reported a relatively large decrease in construction value (-17.8 percent) from 2006 to 2007. At the
same time, non-residential construction reported a relatively large increase in construction value (12.9 percent)
from 2006 to 2007. Looking to the future, for 2010, Global Insight projected (in its July 2009 forecast) a return to
growth for the residential segment (9.5 percent) but projects weakness in the non-residential segment (-14.2
percent). The non-building sector (i.e., largely publicly-funded projects), is also expected to see flat to declining
growth through 2009 before turning up in 2010 and 2011. In short, after experiencing flat to modestly declining
performance through 2010, the overall industry is expected to achieve positive business performance beginning in
2010 and continuing longer term. Specifically, Global Insight projects a slight decline forthe construction
industry overall in 2010 (-1 percent) and, beyond 2010, expects the overall industry to perform more favorably
with projected total growth of 13.3 percent in 2011 and 12.3 percent in 2012, before returning to a more
sustainable real growth (i.e., in dollar values adjusted for inflation) of 2.8 percent, overall, in 2014 (Global
Insight, July 2009).
3-50
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 3: Industry Profile
Table 3-25: Value of Construction, Actual and Forecasts (in 2008 Billions of Dollars)
Nonresidential
Residential
Government
Total
Value
Percent Change
Value
Percent Change
Value
Percent Change
Value
Percent
Change
Actual
2005
$303.36
$719.44
$242.75
$1,265.
55
2006
$328.83
8.40%
$685.46
-4.72%
$239.44
-1.36%
$1,253.
74
-0.93%
2007
$371.39
12.94%
$567.69
17.18%
$248.62
3.83%
$1,187.
70
-5.27%
2008
$414.74
11.67%
$430.04
-24.25%
$251.32
1.08%
$1,096.1
0
-7.71%
Forecasts
2009
$340.31
-17.95%
$331.01
-23.03%
$244.22
-2.83%
$915.54
-16.47%
2010
$292.08
14.17%
$362.47
9.50%
$251.69
3.06%
$906.24
-1.02%
2011
$303.22
3.81%
$466.65
28.74%
$255.36
1.46%
$1,025.
23
13.13%
2012
$345.58
13.97%
$551.11
18.10%
$254.87
-0.19%
$1,151.
56
12.32%
2013
$385.85
11.65%
$587.35
6.57%
$256.95
0.82%
$1,230.
15
6.82%
2014
$408.87
5.96%
$595.30
1.35%
$260.01
1.19%
$1,264.
18
2.77%
Source: BEA (2008 and 2009b) and Global Insight (July 2009)
Reed Construction, a commercial construction industry data service that collects and reports information on U.S.
multifamily, commercial/institutional, and industrial construction projects, also projected recently (August 2009)
that the residential sector will begin recovery in 2009 through 2010. According to Reed, the housing turnaround
has and will be slow but due to federal assistance such as the mortgage payment forgiveness program,
foreclosures are decreasing, a key driver in the single-family housing recovery. Overall, Reed Construction
projects that residential construction will see an increase in activity of nearly 14.4 percent from 2009 to 2010.
Reed projects an increase in single-family and multifamily starts from 2009 to 2010 of 27.9 and 5.5 percent,
respectively. (Reed Construction, August 2009b).
The non-residential sector, which often lags the residential sector, has been in a period of weakness since early
2009 after starts and spending peaked in mid to late 2007 (Reed, July 2009a). This decline is attributed to
overbuilding in the retail, lodging, and higher education construction sectors, the tight credit market, overpriced
commercial real estate, and increased vacancy rates due to the weak economy (Global Insight, August 2009).
According to the NAR, commercial real estate will continue to face negative absorption, increasing vacanies for
all property types, and declining rents (NAR, August 2009b). However, this industry segment is expected to turn
around by late 2010 as (1) the U.S. economy recovers from the current recession, (2) the inventory of excess
building is eliminated, and (3) actions of the Federal Reserve improve the flow of capital into commercial lending
(NAR, August 2009c). Table 3-26, below, lists year-to-year forecasts (from July 2009) for non-residential
construction during the periods 2008/2009 and 2009/2010. Overall, the average consensus among these forecasts
is a 15.8 percent decrease for 2008/2009 and a 11.6 percent decrease for 2009/2010. Although declines are
expected for the remainder of 2009 and most of 2010, Global Insight projects a return to positive growth into
2011 (3.8 percent), as presented in Table 3-25.
Table 3-26: Non-Residential Value of Construction Growth, Compared Forecasts
Portland
McGraw-Hill Cement Moody 's
Construction Global Insight Association Economy.com FMI
Percent Change 2008-
2009 -20.6% -18.0% -26.1%
Percent Change 2009-
2010 -3.8% -14.2% -19.4%
Source: Global Insight (July 2009) and American Institute of Architects
-7.0% -14.8%
-5.2% -20.3%
(July 2009)
Reed Business
Information CONSENSUS
-4.5% -15.8%
-4.2% -11.6%
Nonbuilding construction, of which the transportation and pipelines sectors may be affected by this rule, has
generally experience flatter, less cyclical growth as compared to the building construction sectors. Nevertheless,
this sector has been affected by the recession due to decreased state and local government spending. However,
due to the federal stimulus funding, this sector is expected to see good growth in 2011, an approximately 5
November 23, 2009
3-51
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 3: Industry Profile
percent increase in spending. The increase in spending and activity effect in 2010 is limited, since the majority of
the federal stimulus spending on infrastructure projects is expected to occur in 2010 and 2011 (Reed, August
2009c; Global Insight, August 2009).
3.4.5 Overall Outlook
In summary, the construction industry overall is expected to recover from its current weakness by 2011, with the
residential construction segment beginning recovery during late 2009 and continuing through 2010. The
nonresidential segment entered a period of weakness during 2009, but is also expected to resume growth by 2011
as the economy recovers from the current recession.
Currently, the C&D rule is scheduled to be promulgated at the end of 2009. However, EPA anticipates that the
rule's requirements will become practically effective over the timeframe of 2010 through 2014, as states
incorporate the rule's requirements into their construction general permits as they come up for renewal.21 In
addition, in the final rule, EPA has delayed the effective compliance date of certain requirements.
Given the construction industry outlook and the reality that the rule's requirements will not be immediately
applicable throughout the country, EPA expects the industry will have achieved sufficient business performance
to absorb the rule's requirements without undue adverse effect.
21 Under the NPDES program, authorized states renew their general permits every five years.
3-52 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 4: Analysis Baseline
4 Developing the Analysis Baseline
In most previous effluent limitations guideline rulemakings, EPA has used its authority under §308 of the Clean
Water Act to gather data on the technologies in use and financial characteristics of firms directly from the
potentially regulated firms. This data is usually gathered via survey, and whenever there is an industry survey, the
questionnaire must first be approved by OMB under the authority of the Paperwork Reduction Act (PRA). The
PRA requirements essentially impose a minimum of nine months' time associated with the approval process prior
to fielding a survey. While work can proceed during this time, the nine months is largely in addition to the time it
takes to develop and field a survey and analyze the resulting data. Given that the district court order included
specific dates by which the proposed and final rule were to be published, the three years allotted to EPA to
complete the rulemaking effectively eliminated the option of gathering data from firms in the construction
industry by survey.
The data collected in an industry survey is used to establish the baseline conditions in the industry. A financial
analysis of the baseline often shows that some firms in the industry are in poor financial health even before the
regulation being analyzed, and if this condition is very poor, the firms may not be expected to survive even if they
face no additional costs due to the regulation. These "baseline closures," as they are often called, are set aside
from the set of firms analyzed to determine the economic impacts of the regulation. At the level of the firm,
compliance costs represent the difference between the baseline and post-regulation industry conditions, and vary
with the regulatory options considered. In technology-based regulations, the compliance costs are estimated with
a high degree of confidence, and can represent an accurate upper bound on compliance costs.22 The economic
impacts analysis is a description of how firms fare in the post-regulation world, but depends not just on the
compliance costs, but also the baseline conditions; high compliance costs at a very financially healthy firm may
leave the firm in a still healthy financial position while very low compliance costs at a financially weak firm may
result in closure of the firm.
In the absence of primary survey data, other sources of secondary data could instead be used to construct an
estimate of baseline conditions. One data source provided EPA with a rich source of information on construction
projects; this source of information was useful in developing compliance cost estimates, because compliance costs
are critically dependent on characteristics and features of the project. Another data source provided EPA with a
rich source of information on the financial health of construction firms through income statement and balance
sheet information, which was particularly important for the economic impacts analysis of Chapter 6. Two other
data sources provided information on overall activity in the construction sector of the economy, which allowed
EPA to devise a process of attributing projects to firms.
It was important for EPA to develop a relationship between project acreage and construction value in order to
project future costs and impacts. EPA calls this relationship acreage intensity, which is defined as the acres of
construction per million dollars of revenue (2008$). Acreage intensity allows EPA to construct national estimates
of affected acreage in each year from projections of future revenue in the construction industry. This national
acreage is then allocated to states, industry NAICS sectors, construction type (residential, non-residential, and
transportation) and model projects. The model project classification is a 12x12 matrix of project size (acreage) by
project duration (time of construction); the 12 ranges that define each dimension are mutually exclusive and
1 Many technology-based regulations, including effluent limitation guidelines, are written as performance standards rather than design
standards. A performance standard means a firm is free to choose any technology to comply as long as they meet the standard.
Because the costs have been analyzed for a technology known to be technically feasible, economically available, and meet the
standard, EPA is confident that it has estimated the upper bound of costs faced by firms.
November 23, 2009
4-1
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 4: Analysis Baseline
exhaustive; EPA uses the median project size in each range and the midpoint of the project duration range to
represent these projects (see Exhibits 4-1 and 6-1). The distribution of projects across cells in the model project
matrix is determined from the Notice Of Intent (NOI) data from four states which are applied to each of the
remaining 46 states and the District of Columbia (see Exhibit 4-15).
Ultimately the matrix of model projects shows projects as follows: the projects that even the smallest firms are
capable of conducting are in the NE corner of the matrix, which represents the smallest size and longest duration
projects. As projects become either larger in size (later rows) or shorter in duration (earlier columns), the firms
that remain capable of conducting those projects is a successively smaller and smaller set, until reaching the
projects in the SW corner, which only the largest of firms are capable of conducting.
The industry is in a downturn in 2008; if EPA were to base its analysis on the actual 2008 level of activity and
then project the long-term growth from that starting point, it would be tantamount to assuming that this sector
never rebounds to normal business conditions. Instead, EPA uses 19 years of value data to estimate a long-term
trend, and then uses the values predicted from that trend relationship for 2008 instead of the actual values. Then
EPA determined the underlying financial characteristics of the 42 model firms using Risk Management
Association (RMA) data.
This chapter presents the baseline specification of aggregate C&D activity, the industry segments affected by the
final rule, and the model C&D firms, all of which underlie the economic analysis of the final rule:
> Section 4.1 describes the estimated baseline quantity of aggregate acreage and number of projects
developed annually by the C&D industry.
> Section 4.2 describes how aggregate C&D activity is distributed in the baseline across states, C&D
industry segments, and ultimately, individual model project categories;
> Section 4.3 describes the initial industry baseline for C&D industry entities that are affected by the final
regulation, based on the 2002 Economic Census;
> Section 4.4 describes how the initial industry baseline was updated to reflect the anticipated structure and
composition of the C&D industry during 2008, based on the industry's long-term trend. The 2008 trend-
based specification of the C&D industry (e.g., number of firms, revenues) is used to support the General
Business Conditions analysis of firm- and industry-level impacts due to the final regulation;23
> Section 4.5 presents the baseline specification of the model C&D firms used to support the firm- and
industry-level economic analysis; and,
> Section 4.6 highlights the primary sources of uncertainty and limitations in the analysis baseline.
23 An alternative analysis, aimed at assessing impacts of the regulation on the industry during Adverse Business Conditions was also
developed, and is presented in Appendix A. This analysis reflects a baseline derived from reported industry activity in the residential
sector for 2008, as opposed to estimates of 2008 activity based on the industry's long-term trend. For the non-residential construction
and non-building sectors, EPA estimated the deviation from trend by these sectors during periods of weak business performance, and
used this deviation to reduce total activity from the actual 2008 values to derive anAdverse Business Conditions case activity value.
EPA judges the General Business Conditions to be a more accurate representation of the industry's long-run steady-state condition in
terms of quantity of activity and financial condition, whereas the Adverse Business Conditions case more accurately reflects the
current, rare condition of the industry.
4-2 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 4: Analysis Baseline
4.1 Estimating the Baseline Quantity of Acreage Developed Annually by the C&D
Industry
In any year, the cost of the C&D rule to the construction industry and society will depend on the quantity of
acreage on which in-scope construction activity is performed. Accordingly, the baseline estimate of construction
activity and acreage - and how that activity is distributed geographically and across C&D industry segments - is a
key element of the regulatory analysis baseline.
The analysis described in this section is used to estimate the quantity of acreage developed annually based on the
industry's long-term trend. Using this approach, a trend-based estimate of industry activity was generated for the
baseline analysis year, 2008. Section 4.2 describes how this aggregate measure of the 2008-trend level of C&D
industry activity was subsequently distributed across states, C&D industry segments, and model C&D industry
project categories.
EPA's approach for estimating aggregate acreage includes four primary steps:
1. Estimate acreage-intensity by C&D industry sector and year, based on acreage and construction value data
from the U.S. Census Bureau, Reed Construction, and the Federal Highway Administration;
2. Analyze acreage-intensity over time to determine whether there is a statistically significant non-zero rate of
change in acreage intensity over time;
3. Based on the results of the statistical analysis, identify or estimate acreage-intensity value(s) to support annual
estimates of developed acreage for each C&D sector; and,
4. Estimate the quantity of acreage developed during 2008, by C&D sector, based on the selected acreage
intensity values and each sector's 2008 value of construction. The estimate of 2008 value of construction is
based on each sector's long-term trend in the value of construction. Using the 2008 trend-line value better
reflects the industry's steady-state condition, whereas the actual reported 2008 value of construction reflects a
trend-outlier year, in particular for residential construction activity.
It is important to note that the acreage estimates generated in this section represent the baseline - i.e. total activity
estimates, not necessarily estimates of in-scope acreage as in-scope acreage is also a function of the regulation's
coverage definition.
4.1.1 Estimating Historical Acreage Intensity Values, by C&D Sector
EPA's estimate of aggregate acreage is based on the historical relationship between the quantity of acreage that
the industry develops annually and the revenue and/or project value generated by the industry, here called acreage
intensity, for projects in the various broad categories of construction activity. EPA relied on data from the Census
Bureau's Characteristics of New Housing and from Reed Construction to derive this relationship between project
acreage and value. Acreage intensity is measured in units of acres developed per million dollars value of activity
in the C&D industry segment.
Based on data availability and consideration of outliers, the time period for estimating acreage intensity varies for
each C&D sector:
> Residential sector: data from 1990 to 2005
> Non-residential sector: data from 2001 to 2007
> Highway (non-building) sector: data from 1990 to 2001.
November 23, 2009 4-3
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 4: Analysis Baseline
Acreage Intensity in the Residential Sector
As the basis for estimating acreage intensity in the residential construction sector, EPA first obtained the annual
value of construction from the U.S. Census Bureau's Construction Spending. To support consistent comparisons
among values from different years, these values were adjusted to constant 2008 dollars using the BEA's implicit
GDP price deflator series.
Second, EPA estimated annual acreage quantities for the residential sector based on project data from the U.S.
Census Bureau's Characteristics of New Housing and Reed Construction:
> For detached and attached single-family housing, Census data indicating the annual number of detached
and attached single-family units, by site-size range, were used to develop total acreage estimates for this
construction category. EPA first determined the average site size within each site-size range reported in
the Census data using the midpoint among the range. EPA then multiplied each range's average site size
by the number of reported units in the site-size range to estimate the total number of acres by site-size
range. Summing these sub-totals across all Census site-size ranges yields an estimate of total single-
family acreage.
> For multifamily construction, EPA combined data from Census and Reed Construction to develop
estimates of total acreage by site-size range. Specifically, the Census reports the annual number of
multifamily buildings completed by "number of units per building" ranges. Reed Construction reports
data on the number of units per building and site size for multifamily building construction. EPA used the
Reed Construction data for the period 2001-2007 to calculate an average site size per building within each
number of units per building range (see discussion of the Reed dataset in the following section).
Multiplying the number of buildings by the average site size per building within each number of units per
building range yields the total number of acres in each range. Summing the totals across all ranges yields
an estimate of the total quantity of multifamily acreage.
Sufficient data were available to obtain both construction value and acreage estimates annually in the residential
sector from 1990 - 2005. For each year, EPA summed the quantity of single- and multi-family acreage to arrive at
total acreage for the residential category. Lastly, residential acreage intensity was estimated by simply dividing
the annual quantity of residential acreage by the annual value of residential construction. Table 4-1, below,
summarizes the aggregate activity and acreage values, and resulting acreage intensity values for the residential
sector.
Table 4-1: Acreage Intensity, Residential Sector ($millions, 2008 dollars)
Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Value
$198,253
$166,095
$191,406
$209,024
$239,231
$227,807
$249,278
$254,111
$284,216
$314,294
$324,457
$334,004
$350,665
$397,708
$466,905
$520,867
Acreage
166,335
147,734
162,965
157,750
181,632
187,713
216,630
241,644
253,426
285,818
283,483
318,437
330,650
352,674
373,643
397,895
Acreage per SMillion
0.84
0.89
0.85
0.75
0.76
0.82
0.87
0.95
0.89
0.91
0.87
0.95
0.94
0.89
0.80
0.76
Source: EPA analysis
4-4
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 4: Analysis Baseline
Acreage Intensity in the Non-Residential Sector
For the non-residential sector, EPA relied on information on individual projects reported in the Reed Construction
dataset. Acreage intensity estimates were developed directly from the Reed Construction data set because Census
does not report data that can be used to estimate annual acreage values for the non-residential sector. Reed
Construction Data (Reed) is a commercial construction industry data service that collects and reports information
on multifamily, commercial/institutional, and industrial construction projects undertaken nationally. Project data
reported by Reed that are relevant to this analysis include site size, constructed square footage, and project value.
This analysis used data from Reed over the period 2001 - 2007. EPA converted all dollar data to constant 2008
dollars using the BEA's implicit GDP price deflator series. EPA used the Reed data to develop a distribution of
project-level acreage intensity, by year, for the non-residential construction sector. The median acreage-intensity
value from each year's distribution is used as the point estimate for that year.
To determine the annual median acreage intensity values, EPA analyzed approximately 13,000 commercial and
industrial project records from the Reed Construction dataset. EPA used a subset of project records, consisting of
all records between the 5th and 95th percentiles of the overall (e.g., 2001 - 2007) acreage intensity distribution in
the Reed data. Using this set of records, EPA estimated a distribution of acreage intensity values for the non-
residential sector based on the set of project-value weighted acreage intensity estimates for each year. Table 4-2,
below, lists the resulting acreage intensity values for non-residential construction.
Table 4-2: Acreage Intensity, Non-Residential Sector
($millions, 2008 dollars)
Year
2001
2002
2003
2004
2005
2006
2007
Acreage per SMillion
0.85
1.04
0.88
0.96
1.03
0.79
0.82
Source: EPA analysis
EPA used the median from the Reed dataset observations to represent the central tendency value of acreage
intensity in order to avoid the potential for distribution skewness to shift the mean away from the central tendency
of the overall distributions.
Acreage Intensity in the Highway Transportation Sector
For the highway transportation sector, EPA obtained the annual values of highway construction projects from the
Federal Highway Administration's Highway Statistics.
EPA estimated acreage from the Federal Highway Administration's Highway Statistics, using data on the number
of miles funded for new construction, highway relocation, highway reconstruction, and major widening. The
quantity of miles of new construction was converted into acres using a multiplier of 10.67 acres per mile.24
Annual acreage intensity values were then estimated based on the value of construction and quantity of developed
This figure is based on the previous 2002 C&D proposed rule analysis (EPA, 2002a). EPA assumed that the combined width of the
road surface, median, and buffers is 4 lanes and 88 feet, and therefore, one mile of new highway would represent 10.67 acres in
disturbed area.
November 23, 2009 4-5
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 4: Analysis Baseline
acreage for 1990 - 2001. Table 4-3, below, summarizes the aggregate activity and acreage values, and resulting
acreage intensity values for the transportation sector.
Table 4-3: Acreage Intensity, Transportation Sector ($millions, 2008 dollars)
Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Value
$9,618
$11,018
$11,824
$8,560
$9,189
$9,302
$6,619
$6,879
$7,110
$7,871
$6,753
$7,456
Acreage
38,697
40,270
49,159
38,311
33,708
19,688
23,505
26,790
28,169
24,263
20,796
19,342
Acreage per SMillion
4.02
3.65
4.16
4.48
3.67
2.12
3.55
3.89
3.96
3.08
3.08
2.59
Source: EPA analysis
4.1.2 Analyzing Changes in Acreage Intensity over Time
For each C&D sector, EPA performed a regression analysis on the acreage intensity data to examine whether
there is a statistically significant change in acreage intensity overtime.25 Table 4-4 summarizes the results of these
analyses. Both linear and exponential trend relationships were examined; the linear relationship provided
modestly better regression statistics. The regression analyses indicate that that the rate of change in acreage
intensity overtime for all three sectors is not statistically different from zero. Therefore, EPA assumed that
acreage intensity essentially does not change over time (on a constant dollar basis). As a result, EPA opted to
utilize a single acreage intensity value per sector to support the analysis.
Table 4-4: Summary of Acreage Intensity Regression Analysis
Summary Stat
Time Period
Observations
R Square
Slope
t-Stat
P -Value
Lower 95%
Upper 95%
Residential
1990-2005
16
0.024
0.002
0.591
0.564
-0.006
0.010
Non-Residential
2001-2007
7
0.105
-0.015
-0.765
0.479
-0.065
0.035
Highway
1990-2001
12
(1283
-oloi
-L984
0"075
-(1214
(1012
Source: EPA analysis
EPA based the aggregate C&D industry acreage estimate on the mean acreage intensity value observed overtime
for each C&D sector (from Table 4-1, Table 4-2, and Table 4-3). In estimating the mean acreage intensity values,
each year carries equal weight. Table 4-5 presents these values, along with the maximum and minimum observed
values for reference.
Table 4-1 through Table 4-3 illustrate the variability in values over time, but a clear trend is not present. Over the very long-term (not
captured in the relatively short time series available), one would expect acreage intensity to decline, reflecting the increasing scarcity
of undeveloped land over time.
4-6
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 4: Analysis Baseline
Table 4-5: Range of Constant Acreage Intensity Values (acreage per
$million, 2008 dollars)
C&D Sector
Residential
Non-Residential
Non-Building
Mean Intensity
0.86
0.91
3.52
Minimum
0.76
0.79
2.12
Maximum
0.95
1.04
4.48
Source: EPA analysis
4.1.3 Estimating the Quantity of Acreage Developed During 2008
For each C&D sector, EPA estimated the quantity of acreage that would have been developed at the 2008-trend
baseline year based on:
> An estimate of each sector's value of construction for 2008, based on the long-term trend;
> Multiplying the estimated 2008 value of construction by each of the selected acreage intensity values
produces a 2008-trend acreage estimate. EPA used the mean acreage estimate to support the economic
analysis of the final regulation; and,
> As a final adjustment, EPA recognizes that the Census and Reed project data do not account for road
development associated with a building's construction. As a result, the estimated acreage values were
adjusted to address this omission. EPA applied a multiplier to increase all acreage estimates to account for
the typical road development associated with new construction site. These multipliers (13% for
residential, and 6% for non-residential) were derived from information in the Center for Watershed
Protection's Impervious Cover and Land Use in the Chesapeake Bay Watershed (Capiella and Brown,
2001). This document provides data, by sector, on the acreage allocations among the different elements of
a lot - e.g., buildings, roads, sidewalks, open space, etc. EPA determined the percent allocation for roads
within a lot area and applied these multipliers to the acreage values. EPA assumes that the characteristics
of a lot in the Cheseapeake Bay Watershed are representative of the U.S. since the watershed is part of six
states and the District of Columbia.
Estimating 2008-Trend Based Values of Construction, by C&D Sector
Table 4-6 reports the value of construction for the residential (source: Census), non-residential (source: Census),
and transportation construction (source: FHWA) sectors, along with estimated trend values (all in constant 2008
dollars). Based on the trend analysis:
> The actual 2008 value of construction in the residential sector is considerably below the long-term growth
trend, by about 48% (whereas 2005 was far above the long-term trend, as expected);
> The value of construction in the non-residential sector during 2008 was 12% above the long-term growth
trend; and,
> The estimated value of construction in the new highway construction sector during 2008 was about 7.5%
above the long-term growth trend.
November 23, 2009 4-7
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 4: Analysis Baseline
Table 4-6: Reported and Trend-Based Value of Construction, by C&D Sector ($2008)
Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Residential
Census Value
$198,253
$166,095
$191,406
$209,024
$239,231
$227,807
$249,278
$254,111
$284,216
$314,294
$324,457
$334,004
$350,665
$397,708
$466,905
$520,867
$492,087
$361,059
$230,216
Trend Value
$189,589
$198,758
$208,370
$218,447
$229,012
$240,088
$251,699
$263,871
$276,633
$290,011
$304,037
$318,741
$334,156
$350,316
$367,258
$385,019
$403,640
$423,161
$443,626
Non-Residential
Census Value
$272,887
$229,867
$212,023
$208,519
$223,012
$251,941
$277,682
$304,629
$326,024
$335,018
$357,650
$346,794
$307,534
$308,929
$316,948
$328,178
$358,182
$410,227
$450,083
Trend Value
$223,136
$230,602
$238,318
$246,292
$254,533
$263,050
$271,852
$280,948
$290,348
$300,063
$310,104
$320,480
$331,203
$342,285
$353,738
$365,574
$377,806
$390,447
$403,512
Transportation
FHWA Value
$9,618
$11,018
$11,824
$8,560
$9,189
$9,302
$6,619
$6,879
$7,110
$7,871
$6,753
$7,456
$12,066
$11,526
$9,555
$9,436
$10,668
$9,575
$9,954*
Trend Value
$8,828
$8,848
$8,869
$8,889
$8,909
$8,930
$8,950
$8,971
$8,991
$9,012
$9,033
$9,053
$9,074
$9,095
$9,116
$9,137
$9,158
$9,179
$9,200
Source: EPA analysis
* The 2008 FHWA value was not yet released at the time of publication. EPA estimated this value based on the percentage change from
2007 to 2008 in the Census' reported value of construction spending for all highway and street construction (i.e., including both new and
existing construction activity).
Figure 4-1, Figure 4-2, and Figure 4-3, following page, show the actual values of construction, by sector, and the
estimated trend lines, with all values in 2008 dollars.
Figure 4-1: Residential Sector Value of Construction, with Trend ($2008)
$600
4-8
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 4: Analysis Baseline
Figure 4-2: Non-Residential Sector Value of Construction, with Trend ($2008)
&
00
o
8
Figure 4-3: Highway Sector Value of Construction, with Trend ($2008)
m
November 23, 2009
4-9
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 4: Analysis Baseline
Estimating the 2008-Trend Baseline Quantity of Developed Acreage
EPA calculated the baseline quantity of developed acreage used to support the economic analysis by multiplying
the selected acreage intensity values by the trend-based value of construction during 2008. Table 4-7 summarizes
the resulting values of acreage for the estimated 2008 trend-adjusted year, by C&D sector.
As reported in the table, EPA estimated that approximately 853,349 acres would have been developed by the
C&D industry during 2008 under long-term trend conditions. The actual quantity of acreage developed during
2008 is less than this quantity, due to the industry's presently adverse condition in the residential sector.26 EPA
elected to use the 2008-trend estimate as the baseline for the economic analysis to capture an activity level and
overall economic conditions that are more representative of the longer term steady state for the industry, in
particular for the residential construction sector. Note that this initial estimate of 2008-trend acreage is
subsequently revised slightly lower - to 852,649 acres - as a result of rounding that occurs in EPA's process for
distributing the aggregate acreage estimate across model project categories, and ultimately, reconciling the
implicit error in those distributions. This process is described below in Section 4.2.3.
Table 4-7: Estimate of Baseline-Year, 2008, Acreage
Time Period
2008 Mean
Source: EPA analysis
Total
853,349
Residential
431,109
Non-Residential
389,841
Highway
32,399
4.2 Distributing Baseline Acreage across States, Sectors, and Project Categories
As described above, EPA's estimate of developed acreage for the 2008-trend analysis year provides an estimate of
total acreage, but does not account for the configuration of that activity in terms of:
> The quantity of acres developed in each state, and within each state, the quantity developed in the NAICS
sectors expected to be affected by the final regulation; or,
> Within a NAICS sector, the number of acres developed in different project configurations, which can vary
due to a variety of factors, but most especially with respect to project size and duration.
This section of the analysis presents the data that EPA used as the basis for distributing the aggregate estimate of
2008 acreage across states, construction activity sectors, and project categories.
4.2.1 Distributing Acreage across States and C&D Activity Sectors
To develop the baseline profile of acreage activity by state and construction activity sector, EPA distributed the
approximately 853,000 acres in proportion to the total 2008-trend value of construction estimated to occur in each
category, according to the firm- and industry-level analysis model. Within each state and subsequent C&D
activity sector, EPA calculated the value of construction used to support the firm- and industry-level analysis by
multiplying:
> The average model firm revenue in the 2008-trend year, which varies across seven revenue ranges in each
sector (see e.g., Table 4-21), times
> The estimated number of firms in the 2008-trend year for each revenue range, by state and sector.
The alternative Adverse Business Conditions analysis case captures the current adverse conditions for the residential sector.
4-10 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 4: Analysis Baseline
Table 4-8 and Table 4-9, following pages, present the allocation factors used to distribute the national acreage
estimate across states and C&D industry sectors. Following these tables, Section 4.2.2 describes how the state-
and sector-level acreage estimates were then distributed across the model project categories defined for this
economic analysis.
November 23, 2009 4-11
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 4: Analysis Baseline
Table 4-8: Acreage Allocation Factors, by State and Aggregate Sector
State
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
NorthDakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode island
South Carolina
_____
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Total Activity
by State
1.7%
0.4%
l".6%
0.9%
9.6%
2.4%
i"."6%
0.3%
o."T%
4.9%
3".8%
0.4%
0.9%
4.2%
2.1%
i".2%
i"."o%
13%
l".3%
0"."6%
2.0%
276%
3.8%
2.2%
0.8%
2.2%
676%
678%
6'.8%
67!%
'3.2%
6'.8%
575%
'3.5%
674%
'3.8%
i'."T%
f.9%
'3.7%
674%
f.5%
674%
F.8%
676%
r.2%
673%
2.7%
2.9%
677%
F.9%
673%
Tots
Residential
36.2%
27.0%
39.9%
30.8%
33.4%
40.4%
35.7%
36.0%
8.0%
41.2%
38.6%
34.2%
44.0%
37.7%
40.9%
28.3%
29.4%
30.9%
34.2%
47.8%
36.4%
30.6%
42.5%
42.5%
24.3%
37.9%
56.7%
28.5%
26.3%
39.3%
34.3%
44.2%
34.9%
48.2%
20.2%
35.2%
37.1%
44.9%
36.1%
50.1%
42.0%
38.9%
34.8%
25.5%
44.8%
44.4%
45.2%
48.8%
39.7%
48.1%
29.1%
il Activity in Each State
Non-Residential
55.6%
60.4%
52.9%
58.7%
60.7%
53.3%
50.3%
52.5%
86.4%
51.5%
53.5%
63.2%
48.6%
51.1%
50.1%
59.8%
51.7%
58.4%
56.6%
43.9%
56.5%
59.5%
49.7%
43.9%
57.5%
54.4%
28.6%
60.3%
68.1%
50.4%
54.3%
48.4%
56.4%
41.7%
65.6%
57.0%
53.9%
44.6%
55.7%
46.4%
50.6%
38.0%
54.7%
66.0%
50.0%
51.0%
43.6%
41.0%
52.1%
43.7%
55.3%
, by Aggregate C&D Se
Transportation
8.2%
12.6%
7.2%
10.5%
5.9%
6.3%
14.0%
11.4%
5.6%
7.2%
7.9%
2.6%
7.4%
11.2%
9.1%
11.9%
18.9%
10.7%
9.2%
8.3%
7.1%
9.9%
7.9%
13.6%
18.2%
7.7%
14.7%
11.2%
5.5%
10.3%
11.4%
7.4%
8.8%
10.1%
14.2%
7.9%
9.0%
10.5%
8.1%
3.6%
7.3%
23.1%
10.5%
8.5%
5.1%
4.6%
11.2%
10.2%
8.2%
8.3%
15.6%
ctor
Total
100%
106%
106%
106%
106%
106%
106%
106%
106%
106%
106%
106%
106%
106%
106%
106%
106%
106%
106%
106%
106%
106%
106%
106%
106%
166%
106%
106%
106%
106%
106%
106%
106%
106%
106%
166%
106%
106%
106%
106%
106%
106%
166%
106%
106%
106%
106%
106%
106%
106%
106%
Source: EPA analysis
4-12
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 4: Analysis Baseline
Table 4-9: Acreage Allocation Factors, by NAICS Sector
State
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah"
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Residential
236115
28%
43%
39%
31%
41%
45%
43%
49%
65%
39%
22%
41%
39%
35%
35%
58%
53%
39%
19%
55%
38%
38%
37%
35%
35%
40%
47%
37%
31%
32%
31%
45%
36%
34%
29%
39%
37%
32%
41%
27%
38%
34%
33%
34%
37%
54%
36%
37%
35%
51%
51%
236116
13%
6%
13%
5%
10%
10%
3%
1%
16%
10%
8%
0%
2%
7%
10%
4%
2%
3%
24%
1%
13%
13%
10%
3%
6%
1%
2%
2%
6%
5%
18%
5%
16%
6%
9%
8%
4%
9%
6%
7%
3%
15%
1%
11%
3%
1%
8%
8%
5%
11%
1%
236117
59%
51%
48%
64%
49%
45%
54%
50%
19%
50%
70%
59%
59%
58%
56%
38%
45%
59%
57%
43%
49%
48%
53%
63%
59%
59%
51%
61%
63%
63%
51%
50%
48%
60%
62%
53%
59%
59%
53%
65%
59%
51%
66%
55%
60%
45%
56%
55%
61%
38%
48%
Non-Residential
236210
19%
12%
3%
12%
10%
8%
11%
0%
0%
6%
17%
1%
14%
13%
21%
12%
17%
12%
12%
11%
5%
18%
18%
3%
19%
11%
1%
19%
17%
23%
14%
16%
12%
11%
12%
22%
10%
7%
15%
1%
12%
0%
6%
17%
10%
0%
8%
3%
35%
11%
16%
236220
81%
88%
97%
88%
90%
92%
89%
100%
100%
94%
83%
99%
86%
87%
79%
88%
83%
88%
88%
89%
95%
82%
82%
97%
81%
89%
99%
81%
83%
77%
86%
84%
88%
89%
88%
78%
90%
93%
85%
99%
88%
100%
94%
83%
90%
100%
92%
97%
65%
89%
84%
Transportation
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Source: EPA analysis
November 23, 2009
4-13
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 4: Analysis Baseline
4.2.2 Distributing Acreage across Model Project Categories
Within each state and in-scope C&D industry sector, EPA distributed the 2008-trend developed acreage values
across 144 model project categories, defined by acreage size and project duration, for which compliance costs
were estimated in developing the C&D final rule. Analyzing compliance costs within this detailed project
framework supports differentiation of how the technologies and associated costs of compliance change with
project size and project duration. EPA analyzed project-level information in Notices of Intent (NOI) for selected
states, to develop the model project definitions and the basis for distributing acreage across model project
categories within each state and sector. An NOI is filed for any project requiring coverage under a NPDES permit.
A detailed description of the NOI data analysis is presented in the Technical Development Document (TDD).
Here, EPA summarizes the overall approach and key findings from this effort, and presents the allocation factors
ultimately used as the basis for distributing acreage among model project categories.
> EPA analyzed project-level data present in the NOI data from selected states (explained below), and
based on this information, defined 12 model project size ranges and 12 model project duration ranges.
These categories are presented in Table 4-10.
• To represent each model project duration range in the firm- and industry-level economic analysis,
EPA used the midpoint of the range. For projects in the three-years or more duration category, EPA
assumed that all of these projects last three years.
• To represent each model project size range in the firm- and industry-level economic analysis, EPA
used the median project size among all projects in that range in the NOI data;
Table 4-10: C&D Industry Model Project Size and Duration Categories
Model Project Duration Categories
Range (days)
0-46
47-91
92-182
183^274
275:355
366-456
457347
548-639
640-730
73T912
913-1095
1096+
Midpoint (years)3
0.1
0.2
0.3
0.6
0.8
1.1
1.3
1.6
1.8
2.3
2.7
3.0
Model Project Size Categories
Range
1-2.99
3-4.99
5-7.49
7.5-9.99
10-14.99
15-19.99
20-29.99
30-39.99
40-59.99
60-79.99
80-99.99
100+
Median
1.0
3.8
6.0
8.5
12l)
17.0
23.0
34.0
46.0
69.0
85.1
145.0
" The midpoint, in days, was rounded to the equivalent number of whole months, and then divided by twelve to
convert the midpoint of project duration into units of years.
Source: EPA analysis
Exhibit 4-1, following page, illustrates the structure and content of the model project matrix.
4-14
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 4: Analysis Baseline
Exhibit 4-1: Illustration of Model Project Matrix
§JD
et
o>
a
r:
w
•5
•JTS
s
1.0
3.8
6.0
85
19 n
23.0
34.0
46.0
69.0
85.1
145.0
Project Durations (years)
0.1 0.2 0.3 0.6 0.8 1.1 1.3 1.6 1.8 2.3 2.7 3.0
i i ill
' For each state and construction activity sector,
each cell is defined by a: -
> Number of projects and
> Total acreage
i And for each regulatory option, by an estimated j !
j compliance cost I j
; ; ;
> Next, EPA used the NOI project data from the selected states to develop a distribution of acres across the
144 model project matrix.
• Due to limitations in available NOI data, and the less comprehensive data from some states, EPA was
not able to develop a project category distribution for each individual state;
• Instead, EPA developed project category distribution for four states that had generally better quality
NOI data and that reflect diverse construction and development activity profiles across the country:
New York, South Carolina, South Dakota, and California.
• In using these distributions to allocate acreage, EPA used the residential distributions to represent all
three residential NAICS sectors (236115, 236116, and 236117), the non-residential distributions to
represent the non-residential NAICS sectors (236210 and 236220), and the transportation distribution
to represent the transportation NAICS sector (237310).
Table 4-11, Table 4-12, Table 4-13, and Table 4-14 present the final NOI acreage distributions, respectively, for
New York, South Carolina, South Dakota, and California across the 144 model project categories. The selection
of states to use in developing state-by-state project distributions is based in part on judgments about the quality
and comprehensiveness of the NOI data and the ability of these states to reflect diversity of construction activity
across states by region and construction profile. These judgments are somewhat subjective and introduce
uncertainty in the use of the distributions to represent the project development profiles for other states. Each cell
in the matrix shows the percentage of acreage in the sector that occurs in that cell of the matrix.
November 23, 2009
4-15
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 4: Analysis Baseline
Table 4-1 1 : New York Project Acreage Distribution
Project Size
(acres)
Project Duration
0-46
47-91
92 - 182
183 - 274
275 - 365
366 - 456
Category (days)
457 - 547
548 - 639
640 - 730
731 - 912
913 - 1095
1096+
Residential
1.0-2.99
3JT^99
5J0^7A9
7.5 - 9.99
WJO^lA99
15.0-19.99
2W-29799
Mo^39i99
40.0-59.99
(SOF^79L99
80.0-99.99
100+
0.14%
0.24%
0.21%
0.19%
0.13%
0.29%
0.13%
0.00%
0.49%
0.00%
0.00%
0.00%
0.11%
0.18%
0.06%
0.10%
0.14%
0.10%
0.26%
0.00%
0.00%
0.00%
0.00%
0.00%
0.43%
b".58%
034%
0.44%
0.28%
0.28%
0.44%
0.20%
0.23%
0.00%
0.00%
0.00%
0.43%
0.44%
015%
0.41%
L29%
0.65%
084%
d.37%
0.60%
d'38%
000%
0.00%
0.89%
l"."i"2%
b"."90%
0.65%
2.12%
1.10%
1.07%
1.23%
0.24%
0.37%
0.00%
0.00%
0.67%
0.96%
0.62%
0.88%
1.98%
0.68%
1.33%
1.04%
0.25%
0.36%
0.46%
0.00%
0.29%
0.73%
0.14%
0.20%
0.97%
0.87%
0.64%
0.21%
0.25%
0.74%
0.00%
0.00%
0.37%
0.57%
0.37%
0.35%
0.34%
1.09%
0.98%
0.53%
0.23%
1.19%
0.00%
0.00%
0.29%
0.66%
0.64%
0.59%
0.51%
0.83%
1.18%
0.36%
1.95%
0.46%
0.52%
2.96%
0.51%
b"."9"b%
b".66%
b"."74%
2^64%
2.39%
2.69%
2.75%
2.27%
1.55%
0.53%
0.00%
0.14%
d.4i%
'd'37%
d.49%"
d.59%
1.07%
1.35%
1.17%
2.22%
o.ob%
0.95%
1.13%
0.09%
0.56%
0.49%
0.90%
2.26"%"
1.12%
3.87%
3.06%
3.32%
2.67%
0.98%
0.67%
Non-Residential
1.0-2.99
lF^499
5.0-7.49
7.5 - 9.99
WJO^lA99
15.0-19.99
20J^29L99
30.0-39.99
40.0-59.99
(SOF^79L99
80.0-99.99
160+
0.22%
0.28%
0.33%
0.06%
0.36%
0.14%
0.23%
0.00%
0.00%
0.00%
0.00%
0.00%
0.51%
0.63%
0.28%
0.18%
0.00%
0.28%
0.16%
0.25%
0.00%
0.00%
0.00%
obb'%""'
2.01%
1.87%
1.25%
1.23%
0.88%
0.76%
0.34%
0.24%
0.31%
0.00%
0.63%
0.00%
2.43%
3"06%
L64%
f.66%
0.87%
d.56%
b".39%
085%
d.35%
0.00%
dob%
dbd%
2.29%
2.59%
2.03%
['.02%
2"."34%
i"."87%
2"."3""l"%
0.77%
0.76%
o".dd%
f.43%
0.00%
1.57%
1.76%
1.55%
l'.50%
1.77%
1.76%
0.95%
1.27%
0.65%
1.10%
0.00%
0.00%
0.68%
1.36%
1.09%
0.56%
1.63%
1.59%
1.47%
0.47%
0.69%
0.00%
0.63%
0.00%
0.50%
0.72%
0.72%
0.40%
0.86%
0.24%
1.76%
0.49%
2.10%
2.30%
0.71%
0.00%
0.30%
0.31%
0.64%
d.50%
0.62%
0.79%
1.28%
0.29%
0.00%
0.00%
0.00%
0.00%
0.37%
0.72%
0.14%
1.03%
1.20%
0.57%
1.30%
1.05%
1.20%
0.48%
0.00%
0.85%
0.16%
'd'29%
023%
0.21%
0.08%
0.25%
0.34%
o.ob%
1.05%
o.ob%
o.ob%
2"71%
0.12%
'd.25'%"
d2"7%
0.47%
0.29%
0.38%
0.39%
0.48%
0.33%
0.55%
0.00%
b"."dd%"
Transportation
1.0-2.99
lF^499'
5.0-7.49
JJ^939
WJO^lA99
15.0-19.99
m0^29i99
30.0-39.99
40J^59L99
(SOF^79L99
80.0-99.99
100+
0.29%
0.23%
0.24%
oi8%
o."6o%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.52%
0.24%
0.00%
0.19%
0.33%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
1.28%
d.5T%
0.26%
0.21%
b".24%
0.00%
0.55%
0.00%
0.00%
0.00%
0.00%
0.00%
0.65%
1.52%""
1.14%
0.73%
1.07%
0.37%
1.12%
0.00%
2.30%
0.00%
d.00%
dod%
0.72%
d.89%
0.41%
0.78%
0.75%
d.36%
d.53%
d.o'b'%
d.o'b'%
d.o'b'%
d'b'b'%
d'b'b'%
0.53%
0'.34%
0.51%
0.71%
1.75%
0.70%
1.60%
0.82%
2.36%
o'.ob%
o'.ob%
o'."bb%
0.63%
0.75%
0.56%
0.81%
0.54%
0.77%
1.54%
0.75%
2.16%
0.00%
0.00%
0.00%
0.30%
0.69%
0.37%
1.97%
1.58%
0.00%
2.04%
0.00%
0.00%
[767%
0.00%
d."oo%
0.22%
0.28%
0.00%
0.00%
0.80%
0.41%
0.97%
0.86%
1.02%
d.ob%""
d.00%
2.78%""
0.20%
0.43%
0.94%
0.20%
1.28%
1.93%
4.76%
0.67%
0.00%
['.64%
d.oo%
5".63%
0.05%
0.28%
0.32%
0.58%
0.33%
0.38%
1.44%
1.69%
o.ob%
3"Ii%
b"."b"d%"
n~6d%
0.02%
o.ii"%"
0.13%
0.19%
1.42%
0.80%
0.54%
0.00%
2.39%
0.00%
2.23%
2.29%
Source: EPA analysis
4-16
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 4: Analysis Baseline
Table 4-12: South Carolina Project Acreage Distribution
Project Size
(acres)
0-46
47-91
92 - 182
183 - 274
Project Duration
275-365 | 366-456
Category (days)
457-547 | 548-639 i 640-730
731 - 912
913 - 1095
1096+
Residential
1.0-2.99
3J^99
5jT^7A9
7.5 - 9.99
WJO^lA99
15.0-19.99
2W-29799
Mo^39i99
40.0-59.99
(SOF^79L99
80.0-99.99
160+
0.02%
0.02%
0.06%
0.03%
0.00%
0.08%
0.00%
0.13%
0.00%
0.00%
0.00%
0.00%
0.12%
0.13%
0.15%
0.14%, "
0.05%
0.06%
0.30%
0.00%
0.00%
0.00%
0.00%
0.00%
0.38%
0.44%
6772%
6790%
r.4i%
0.91%
l7"75%
]7l2%
l733%
6730%
0.39%
1.96%
0.20%
6.49%
6753%
6775%
6788%
2.07%
1790%
1758%
2742%
2.34%
6737%
2.01%
0.39% | 0.40%
67 54% i 0.72%
6761% f 0.55%
i7i"9% : 0.97%
2.18% | 1.42%
l766% ! 2.18%
2771% 1 3.37%
2795% [ 2.94%
3748% | 3.66%
f.49% " 2.69%
6774% I 1.42%
3793% 1 5.37%
0.04% | 0.02% | 0.05%
0.06% i 0.05% | 0.05%
0.10% I 0.05% \ 0.05%
0.07% ! 0.03% 1 0.15%
0.00% | 0.27% | 0.10%
0.27% I 0.00% | 6722%
0.43% i 0.28% 1 0.39%
0.45% [ 0.30% 1 0.30%
0.24% i 0.19% | 6760%
0.29% " 0.25% " 0.00%
0.00% | 0.00% | 0.00%
0.00% i 0.00% 1 1.29%
0.14%
0.24%
0.23%
0.32%
6797%
1.63%
1.99%
1.61%
2.06%
0.00%
1.41%
2.34%
0.03%
0.03%
0.02%
0.00%
6769%
0.07%
0.18%
0.14%
0.17%
0.58%
0.06%
0.00%""
0.02%
0.04%
0.00%
0.10%
6736%
0.35%
0.61%
0.42%
1.00%
0.59%
0.00%
0.87%
Non-Residential
1.0-2.99
lF^499
5.0-7.49
7.5 - 9.99
WJO^lA99
15.0-19.99
20J^29L99
30.0-39.99
40.0-59.99
(SoF^T^si
80.0-99.99
100+
0.31%
0.19%
0.18%
0.11%
0.26%
0.00%
0.09%
0.00%
0.00%
0.00%
0.00%
0.00%
0.86%
0.50%
0.29%
0.36%
0.27%
0.66%
0.43%
0.44%
0.19%
0.00%
0.00%
1.16%
2.40%
1.48%
1.05%
0.97%
1.64%
1.21%
1.25%
0.43%
1.27%
0.88%
0.00%
2.65%
1.98%
1776%
1765%
6799%
1755%
1743%
1789%
1726%
6781%
6784%
6766%
3.57%
2.23%
1.57%
1.34%
6796%
1744%
l7"54%
27l4%
i7"i"i%
6764%
6791%
6739%
5.93%
1.72%
1.48%
1.12%
1.13%
1.82%
1.31%
1.83%
0.74%
1.73%
0.26%
1.20%
1.01%
0.09%
0.29%
0.23%
0.24%
0.26%
0.09%
1.25%
0.31%
0.18%
0.58%
0.00%
0.57%
0.16%
0.07%
0.02%
0.32%
0.12%
0.30%
0.32%
0.33%
0.18%
0.58%
0.40%
0.00%
0.20%
0.13%
0.08%
6720%
6.29%
6.00%
0.52%
6.30%
6.38%
0.00%
6.00%
0.88%
0.34%
0.18%
0.34%
0.34%
0.49%
0.39%
0.51%
0.54%
1.54%
1.66%
1.56%
3.68%
0.05%
0.05%
6763%
0.04%
0.16%
0.07%
O.o6%
0.06%
0.06%
0.06%
0.06%
6750%
0.08%
6768%"
6762"%"
0.00%
0.12%
0.08%
0.00%
0.32%
0.21%
0.29%
0.83%
1749%
Transportation
1.0-2.99
lF^499'
5.0-7.49
JJ^939
WJO^lA99
15.0-19.99
2ojr29799
30.0-39.99
40J^59L99
(SoF^T^si
80.0-99.99
100+
0.10%
67i2%"
6720%
6724%
6766%
0.00%
0.00%
0.00%
6766%
0.00%
0.00%
6766%
0.75%
0.64%
0.00%
0.00%
0.00%
0.00%
0.58%
0.00%
0.00%
0.00%
0.00%
0.00%
2.30%
2738%
2.29%
r.64%
1782%
1.94%
0.00%
0.00%
6766%
0.00%
2.73%
6766%
1.95%
1.68%
1.26%
1.00%
2.33%
1.11%
1.54%
0.00%
0.00%
6766%
6766%
6766%
1.31%
2728%
2780%
l".78%
6772%
i766%
6766%
l7"88%
2756%
6766%
6766%
6766%
1.79%
l'.65%
0.18%
1.78%
1.55%
0.00%
2.70%
0.00%
0.00%
o766%
o766%
o766%
0.14%
0.21%
0.15%
0.00%
1.05%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.16%
0.00%
676o%
0.00%
0.59%
0.00%
0.00%
676o%
0.00%
676o%
0.89%
0.26%
6766%
047%
0.30%
6766%
0.00%
6766%
0.00%
6.00%
6.00%
0.00%
0.81%
67so%
0.66%
0.00%
0.00%
0.55%
0.60%
0.00%
3.14%
0.00%
0.00%
4.17%
0.00%
0.16%
0.06%
0.06%
0.35%
6766%
6766%
2762%
1732%
0.06%
2.85%
0.06%
0.00%
0.00%
0.35%
0.00%
0.36%
1.00%
0.60%
0.00%
4.71%
0.00%
0.00%
19.11%
Source: EPA analysis
November 23, 2009
4-17
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 4: Analysis Baseline
Table 4-13: South Dakota
Project Size
(acres)
Project Acreage Distribution
Project Duration
0-46
47-91
92 - 182
183 - 274
275 - 365
366 - 456
Category (days)
457 - 547
548 - 639
640 - 730
731 - 912
913 - 1095
1096+
Residential
1.0-2.99
3^1499
5jT^7A9
7.5 - 9.99
WJO^lA99
15.0-19.99
2W-29799
Mo^39i99
40.0-59.99
(SOF^79L99
80.0-99.99
160+
0.16%
6"."66%
6716%
67i5%
6757%
0.00%
0.00%
0.64%
0.73%
0.00%
0.00%
0.00%
0.09%
0.20%
0.00%
0.15%
0.38%
0.00%
0.94%
0.00%
0.00%
0.00%
0.00%
0.00%
0.18%
6".23%
6".44%
6733%
l".20%
0.91%
0.36%
1.31%
0.00%
0.00%
1.55%
0.00%
0.13%
67l"8"%
6741%
6765%
'6722"%"
6729%
6746%
6766%
f.68%
i""2"6%
i"."5i"%
2760%
0.18%
0"."5"5%
0"."5"6"%
o"."i"6%
0.67%
6733%
0"."36"%
6766%
6".'66"%
o".66'%
6766%
4763%
0.12%
0.26%
0.22%
0.18%
0.88%
0.00%
1.20%
0.55%
0.73%
0.00%
1.46%
2.19%
0.04%
0.00%
0.23%
0.16%
0.39%
0.29%
0.73%
0.56%
0.78%
0.00%
1.50%
0.00%
0.04%
0.15%
0.11%
0.45%
0.18%
0.69%
0.97%
0.00%
0.82%
0.00%
3.16%
4.20%
0.04%
0.14%
0.11%
0.00%
0.00%
6'.33%
0.00%
0.00%
6.00%
1.28%
1.46%
4.20%
0.07%
0.14%
0.00%
0.30%
6755%
0.31%
0.00%
1.83%
0.00%
0.00%
0.00%
2.46%
0.00%
0.06%
0.16%
0.29%"
6766%
0.29%"
0.75"%"
1.18%
2.46%"
1.45%
0.06%
6.75"%"
0.00%
0.14%
0.13%
0.28%
6736%
0.93%
0.00%
2.51%
3.25%
3.77%
9.19%
2.92%
Non-Residential
1.0-2.99
lF^499
5.0-7.49
7.5 - 9.99
WJO^lA99
15.0-19.99
2W-29799
30.0-39.99
40.0-59.99
(SOF^79L99
80.0-99.99
160+
0.37%
0.32%
0.11%
0.58%
0.40%
0.00%
0.80%
0.50%
0.00%
0.00%
0.00%
0.00%
0.47%
0.24%
0.40%
0.28%
1.03%
0.00%
1.55%
0.00%
0.92%
0.00%
0.00%
0.00%
1.24%
1.20%
1.41%
1.10%
2.45%
1.06%
1.14%
2.73%
0.67%
2.16%
1.39%
406%
1.10%
'i""2"'i"%"
6791%
6730%
2782%
i"."6'4"%
2"."3"'6%
2721%
f.44%
i""2"T%
6766%
r.68%
0.60%
1.05%
0.68%
6731%
l"'.2"7"%
6"."88%
i".77%
6766%
2".2"'i"%
o".'66'%
l"'.42%
6.03%
0.23%
0.25%
0.28%
O'.31%
0.94%
0.57%
1.16%
0.59%
3.13%
0.00%
0.00%
2.68%
0.12%
0.12%
0.35%
0.13%
0.18%
0.25%
0.44%
0.64%
1.53%
2.35%
0.00%
4.44%
0.12%
0.33%
0.33%
0.57%
0.92%
0.25%
0.68%
2.28%
1.60%
0.00%
0.00%
0.00%
0.15%
0.13%
0.08%
6.00%
0.20%
6.30%
0.00%
0.00%
0.00%
0.00%
0.00%
1.85%
0.12%
0.15%
0.11%
0.15%
0.17%
0.76%
0.47%
0.50%
1.63%
0.00%
0.00%
0.00%
0.04%
0.12%
6"."6"8%"
0.06%
0.25%
0.54%
0.82%
0.06%
0.06%
0.06%
0.06%
6"66%"
0.02%
6"."i3%"
ao9%
0.15%
0.39%
0.25%
0.84%
0.00%
0.68%
0.00%
0.00%
aoo%"
Transportation
1.0-2.99
lF^499'
5.0-7.49
JJ^939
WJO^lA99
15.0-19.99
m0^29i99
30.0-39.99
40J^59L99
(SOF^79L99
80.0-99.99
100+
0.16%
6"."6"8%"
678%'
674%
6766%
0.00%
1.11%
0.00%
0.00%
i"."66%
0.00%
0.00%
0.29%
0.38%
0'.72% '
0.43%
0.31%
0.25%
1.03%
0.00%
1.43%
0.00%
0.00%
0.00%
0.54%
6768%
6770%
6739%
1.40%
0.71%
1.61%
0.51%
0.62%
0.00%
0.00%
4.17%
0.31%
6729%
6734%
67T2%
6761%
67977%
i"."6"3"%
2757%
i'728%
6766%
6766%
4770%
0.09%
o"."i"2%
o"."i"i'%
o"."i"2%
o"."i"5%
6".46"%
6772%
o".66'%
6766%
i".08%
o".66%
o".66'%
0.35%
0'.23%
0.27%
0.39%
0.95%
0.00%
1.63%
0.00%
1.58%
o'."66%"
l'.23'%"
8'."6i"%"
0.17%
0.18%
0.41%
0.28%
0.60%
0.79%
1.43%
2.19%
1.57%
1.97%
0.00%
6.18%
0.10%
6"."o6%
0.11%
0.12%
0.58%
0.49%
0.39%
0.00%
1.57%
1.11%
0.00%
9.94%
0.07%
0.00%
6768%
0.00%
0.00%
0.24%
0.00%
0.00%
0.80%
6.97%
6.00%
8.83%
0.03%
6"."i3%
6766%
6"."66%
0.06%
0.00%
0.43%
1.06%
2.39%
1.12%
0.00%
4.47%
0.00%
6765%
6766%
6766%
6722%
0.06%
0.06%
0.06%
0.06%
0.06%
0.06%
0.06%
0.00%
0.06%
0.00%
0.00%
0.06%
0.23%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Source: EPA analysis
4-18
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 4: Analysis Baseline
Table 4-14: California Project Acreage Distribution
Project Size
(acres)
Project Duration
0-46
47-91
92 - 182
183 - 274
275 - 365
366 - 456
Category (days)
457 - 547
548 - 639
640 - 730
731 - 912
913 - 1095
1096+
Residential
1.0-2.99
3J^99
5jT^7A9
7.5 - 9.99
WJO^lA99
15.0-19.99
20J^29L99
Mo^39i99
40.0-59.99
(SOF^79L99
80.0-99.99
160+
0.06%
0.04%
0.05%
0.02%
0.06%
0.03%
0.10%
0.07%
0.09%
0.05%
0.00%
0.00%
0.08%
0.07%""
0.05%
0.04%
0.03%
6768"%"
0.13%
0.04%
0^05%
0.12%
6766%
0.07%""
0.25%
0.20%
0.25%
6"."l3%
6737%
0.24%
0.44%
6742%
0.48%
0.36%
0.28%
0.93%
0.39%
634%
634%
67718%
6745%
021%
6770%
636%
6765%
6732%
6741%
f.49%
0.52%
6747%
6753%
67'4"i"%
0.76%
6780%
l'.50%
6"."8"8%
f.71%
l"..24%
6777%
4".35%
0.47%
0.41%
0.43%
0.27%
0.73%
0.66%
1.15%
0.75%
1.19%
0.35%
0.55%
1.64%
0.21%
0.24%
0.27%
0.24%
0.55%
0.55%
0.99%
0.74%
0.82%
0.45%
0.34%
3.20%
0.11%
0.14%
0.28%
0.19%
0.48%
0.43%
0.99%
0.80%
1.30%
0.41%
0.39%
2.42%
0.07%
6716%
6"."i"8%
67i2%
0.39%
0.41%
0.99%
0.70%
1.06%
1.17%
0.75%
2.00%
0.10%
67T5%
67730%
6725%
6765%
0.73%
1.68%
1.17%
1.94%
1.28%
1.03%
6.35%
0.03%
67672%
67173%
6765%
6734%
0.25%
0.84%
0.92%""
1.53%
0.99%
0.67%
4.47%
0.01%
0.03%
0.10%
0.06%
6729%
0.27%
0.92%
0.35%
1.33%
1.09%
1.12%
10.09%
Non-Residential
1.0-2.99
lF^499
5.0-7.49
7.5 - 9.99
WJO^lA99
15.0-19.99
20J^29L99
30.0-39.99
40.0-59.99
(SOF^79L99
80.0-99.99
160+
0.19%
002%
0.18%
0.11%
0.03%
0.04%
0.32%
0.10%
0.00%
0.16%
0.00%
0.00%
0.37%
67728%
6731%""
0.11%
0.33%
0.16%
0.24%
0.16%
0.37%
0.15%
0.00%
0.00%
1.80%
1.50%
L43%
0.69%
1.11%
0.73%
1.06%
0.54%
0.26%
0.48%
0.23%
0.35%
2.27%
2739%
2767%
1.27%
2.60%
0.94%
1.42%
6790%
f.08%
f.08%
6722%
2"7l2%"
1.60%
2.35%
2.55%
f.50%
3.48%
l"'.76"%
3.00%
l".62%
f.97%
6769"%
0"."86%
3.95%
0.96%
1.12%
1.52%
0'.69%
2.20%
1.35%
0.95%
0.43%
1.55%
0.54%
0.24%
2.09%
0.36%
0.53%
0.62%
0.21%
0 76%
0.38%
0.60%
0.58%
1.02%
0.37%
0.22%
0.28%
0.18%
0.30%
0.34%
0.17%
041%
0.37%
0.86%
0.43%
1.14%
0.52%
0.00%
1.29%
0.07%
0.12%
0.24%
67 19%
0.54%
0.37%
0.34%
0.41%
0.22%
0.66%
0.00%
0.58%
0.07%
0.28%
67738%
0.15%
0.64%
0.62%
0.42%
0.45%
0.89%
0.55%
0.67%
2.96%
0.03%
67672%
67173%
0.06%
0.14%
0.04%
0.16%
0.17%
0.40%
0.18%
0.06%
677739%
0.03%
6767%'
6"."i2"%"
0.04%
0.18"%"
0.05%
0.06%
0.40%
0.69%
0.19%
0.24%
6765%
Transportation
1.0-2.99
lF^499'
5.0-7.49
JJ^939
WJO^lA99
15.0-19.99
m0^29i99'
30.0-39.99
40J^59L99'
(SOF^79L99
80.0-99.99
100+
0.28%
6"."i5%
0.07%
67i3%
6755%
0.00%
6734%
0.00%
6"."66%
0.00%
0.00%
0.00%
0.33%
0.55%
0.37%
0.25%
0.81%
0.45%
0.00%
0.00%
0.00%
000%
006%
066%
1.08%
f.29%
2."l5%
6751%
0".87%
2.26%
l"."78%
6".45%
6".72%
0.00%
0.00%
0.00%
0.63%
6737%
6755%
6785%
2763%
1.70%
0.76%
1.66%
0.00%
f.02%
6766%
6766%
0.33%
0.57%
1.14%
0.13%
0.85%
6'.28%
6766%
l".02%
6766%
i".06"%
6766%
4740%
0.21%
O52%
0.73%
0.39%
0.69%
0.78%
1.02%
0.00%
0.88%
1.17%
1.20%
1.69%
0.13%
0.09%
0.34%
0.24%
1.05%
0.22%
1.76%
1.64%
2.15%
0.00%
0.00%
0.00%
0.12%
R)4%
34%
0.13%
0.00%
0.00%
0.00%
0.99%
2.33%
67"oo%
0.00%
676o%
0.06%
0.10%
007%
0.25%
0.00%
0.00%
0.40%
0.57%
0.66%
6.00%
1.35%
6.26%
0.04%
671 0%
0.07%
0.00%
0.16%
1.03%
1.30%
0.94%
1.42%
1.05%
1.45%
10.09%
0.00%
0.06%
0.16%
0.06%
0.06%
6766%
6733%
6766%
6766%
0.00%
0.00%
8.12%
0.01%
0.00%
0.10%
0.00%
0.00%
0.22%
0.06'%"
0.57%
1.63%
0.00%
2.45%
3.35"%"
Source: EPA analysis
November 23, 2009
4-19
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 4: Analysis Baseline
Next, EPA assigned one of these four project distributions to represent each state, based primarily on
region, to produce an estimate of the quantity of acres developed in each state and sector, by model
project category. Table 4-15 lists the assignment of NOI distributions to each state.
Table 4-15: NOI Distribution Assignments, by State
State
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Assigned NOI Project Distribution
South Carolina
South Dakota
California
South Carolina
California
California
New York
New York
New York
South Carolina
South Carolina
New York
South Dakota
New York
New York
South Dakota
South Dakota
South Carolina
South Carolina
New York
New York
New York
New York
New York
South Carolina
South Carolina
South Dakota
South Dakota
California
New York
New York
California
New York
South Carolina
South Dakota
New York
South Carolina
California
New York
New York
South Carolina
South Dakota
South Carolina
California
California
New York
South Carolina
California
South Carolina
New York
South Dakota
4-20
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 4: Analysis Baseline
4.2.3 Final Calibration of the Model Project Distributions
As detailed in the Technical Development Document, the NOI data - and the analysis used to develop the state-
specific NOI distributions - contain a degree of error with respect to the proportion of acreage developed in each
model project category. Additional error is introduced by applying four project acreage distributions to all 50
states, and then applying each aggregate sector distribution (e.g., residential) to their corresponding NAICS
sectors. The combined effect of these sources of error resulted in instances where the quantity of acreage
estimated to be developed in a given project category was not consistent with the definition of that category. For
example, the number of acres in the l-year/85.1-acre category for a given state may have been estimated initially
as 40 acres. In this example, the number of total acres in the model project category cannot make sense because
the total number of acres is less than the equivalent of one project for this category.
The final step in the acreage distribution process was to adjust the initial distribution of acreage across model
project categories, by state and sector, such that each model project category with acreage has at least enough
acreage in that category to account for one whole project. The approach for applying these adjustments
individually by state and sector is described in the TDD for the final regulation. Below, Table 4-16 presents the
final distribution of C&D projects at the national level after these adjustments were applied, on a state-by-state
and sector-by-sector basis. The final project set represents 852,649 acres. The state-level versions of this project
data set are used to support the firm- and industry-level economic analysis (Chapter 6).
November 23, 2009 4-21
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 4: Analysis Baseline
Table 4-16: National-Level Project Distribution,
Median Project
Size (acres)
2008-Trend Baseline
Year (number of projects)
Mid-Point of Project Duration Category (years)
0.1 | 0.2
0.3
0.6
0.8
1.1 | 1.3 |
1.6 | 1.8 | 2.3 | 2.
7 i 3
Residential
1.0
Is
eTo
8.5
Tib
17.0
23~0
340
46.0
69~0
85.1
14570
124 | 147
68 I 100
44 1 28
22 1 26
23 14
18 2
1 : 28
i ! "
11 | 0
0 0
0 | 0
0 1 0
632
351
242
187
195
84
107
48
33
1
0
571
341
168
172
218
174
133
59
84
38
2
11
1,111
703
444
318
506
209
239
182
126
38
17
45
926 | 283 1
657 312
301 \ 81
309 1 52
388 139
219 95
303 1 73
143 23
114 | 11 |
54 17
36 | 0
50 15
293 | 222 | 450
213 249 397
110 169 \ 220
70 109 1 180
78 72 430
107 74 360
90 103 325
42 18 214 \
24 i 70 | 155 |
19 18 60
7 7| 43
12 37 50
98 | 57
125 177
"76 ' 109
"68 1 167
75 283
77 137
"Toi : 307
69 | 185
"TOI | 192
11 117
27 | 103
39 77
Non-Residential
1.0
3.8
IIIIIIIIlA0
8.5
12.0
17.0
IIIIIIIIl-^0
34.0
46.0
69.0
IIIIIIIsii
145.0
558 | 1359
219 | 547
150 206
55 97
77 73
13 82
38 1 59
3 ' 27
0 17
2 2
0 0
0 1 8
4910
1990
996
578
493
246
166
78
49
29
To
25
5334
2973
1368
736
660
261
264
164
65
50
1
46
4806
2643
1516
616
950
505
542
176
129
33
86
124
3276 | 940 |
1715 | 910 |
1059 513
617 165 [
741 | 347 '
419 1 203
250 | 215
126 48
150 | 57
30 | 30 |
22 11
25 10
685 | 442 | 592 |
461 | 199 | 465 |
285 240 188
152 144 274
178 . 162 291
60 i 114 i 131
208 135 142
72 \ 29 I 101
152 12 131
87 | 16 | 71 |
21 0 51
11 5 | 58 I
180 | 155
"140 | 148
89 99
49 | 96
41 71
29 39
25 34
5 ' 36
51 34
2 | 14
6" II
29 | 15
Transportation
1.0
3.8
6.0
8.5
12.0
IlZIIIZizi0
23.0
34.0
46.0
IIIIIIIIi?i0
ssTi
145.0
82 | 210
25 87
16 1 23"
7 | 15
8 1 21
0 3
5 2
0 0
0 1 1
o 1 o
0 ' 0
0 | 0
629
277
184
70
70
63
31
2
0
7
0
418
255
T'38
73
109
49
36
26
19
0
0
1
308
246
170
78
39
13
6
17
9
3
0
3
323 | 136 |
146 81
53 \ 45
78 | 33
95 | 52 |
15 21
76 40 [
6 | 16
25 1 21
9 | 10 I
3 0
4 | 1
55 | 132 | 117 |
60 34 58 |
26 01 78
89 17 | 7
43 | 17 | 36 |
2 8 64
27 14 [ 95 !
4 | 9 | 5
15 i 91 24
4 | 0 | 5
0 2 4
9| 11 | 24
7 | 0
22 7
15 \ 22
21 | 6
13 | 45
6 28
16 | 15
42 2
4 51
21 6
12 ' 28
35 30
Source: EPA analysis
4-22
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 4: Analysis Baseline
4.3 Baseline Specification of Industry Segments, Establishments, and Firms Affected
by the Final C&D Rule
As described in Chapter 3 the Construction and Development industry encompasses business operating in a range
of construction industry segments. This section outlines those industry segments that are likely to perform
activities within the scope of the regulation and that are the focus of this regulatory analysis.
Table 4-17 shows the 2002 universe of establishments in the entire C&D industry, as reported in the 2002 NAICS
framework. As described in Chapter 3, 2002 is the most recent year for which comprehensive SUSB and
Economic Census data are available. Accordingly, EPA used this data set as the basis for developing the 2008-
trend set of industry data (i.e., in Section 4.4).
In the remainder of this section, tables and information are presented at the firm level, which is the focus of the
industry impact analysis. The following section summarizes the exclusion of industry segments that are not
applicable to this regulatory analysis.
Table 4-17: All Establishments within the C&D Industry (2002 data)
2002 NAICS
236115
236116
236117
236118
236210
236220
237110
237120
237130
237210
237310
237990
238110
238120
238130
238140
238150
238160
238170
238190
238210
238220
238290
238310
238320
238330
238340
238350
238390
238910
238990
Description
Mew single-family housing construction (except operative builders)
Mew multifamily housing construction (except operative builders)
Mew housing operative builders
Residential remodelers
Industrial building construction
Commercial and institutional building construction
Water and sewer line and related structures construction
Oil and gas pipeline and related structures construction
Power and communication line and related structures construction
Land subdivision
Highway, street, and bridge construction
Other heavy and civil engineering construction
Poured concrete foundation and structure contractors
Structural steel and precast concrete contractors
Framing contractors
Masonry contractors
Glass and glazing contractors
Roofing contractors
Siding contractors
Other foundation, structure, and building exterior contractors
Electrical Contractors
Plumbing, heating, and air-conditioning contractors
Other building equipment contractors
Drywall and insulation contractors
Painting and wall covering contractors
Flooring contractors
Tile and terrazzo contractors
Finish carpentry contractors
Other building finishing contractors
Site preparation contractors
All other specialty trade contractors
Total
Establishments
58,472
4,397
26,043
82,750
2,776
37,209
12,356
1,403
6,034
8,403
11,240
10,501
27,151
4,321
14,455
25,720
5,294
23,192
6,632
2,786
62,586
87,501
6,086
19,598
38,943
12,865
8,950
35,087
3,729
30,498
33,453
710,431
Source: U.S. Census Bureau, Economic Census (2005a)
The majority of business that fall within the industry definitions outlined in Table 4-17 will not be affected by the
final regulation. A substantial number of businesses are not expected to be subject to the regulation because they
are primarily engaged in subcontracted parts of a building project, such as flooring contracts, or they are involved
in remodeling activities that will not disturb land. In this section, EPA identifies and sets aside from further
November 23, 2009
4-23
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 4: Analysis Baseline
analysis those industry segments that are not likely to perform activities that would be within the scope of the
regulation. The estimates for the remaining segments are brought together to derive estimates of the number
of firms expected to be covered by a C&D regulation on the basis of 2002 industry data.
4.3.1 Excluding Segments and Establishments That Are Not Involved in Land Disturbance
The final regulation applies only to those activities that disturb land and that are of sufficient scale to be within
the regulation's scope. Therefore, most business within the Special Trade Contractors (NAICS 238) sector will
not be affected and are excluded from this analysis. The only Special Trade Contractors segment whose activities
have the potential to result in land disturbance are those entities within NAICS 238910, Site Preparation
Contractors. The primary groups of entities within this NAICS sector are Excavation Contractors, Wrecking and
Demolition Contractors, and All Other Heavy Construction.
The other sector within the C&D industry that is not likely to perform activities that result in land disturbance is
NAICS 236118, Residential Remodelers. Based on the Economic Census definitions of the specific sectors within
NAICS 238 and all of the entities within NAICS 236118, EPA excluded these segments from this analysis.
4.3.2 Excluding Segments and Establishments That Are Not NPDES Permittees
As stated above, EPA included certain categories within NAICS 238 in the analysis - 1997 NAICS 235930
(Excavation Contractors), 235940 (Wrecking and Demolition Contractors), and 234990 (All Other Heavy
Construction), all within 2002 NAICS 238910 - because these establishments engage in land disturbing activities.
Most often, however, establishments in 2002 NAICS 238910 act as subcontractors on C&D projects and are hired
by developers or general contractors to perform specific tasks for projects where they are not the primary
developer/manager. EPA believes that these establishments will not generally appear as NPDES permittees or co-
permittees.
4.3.3 Adjustments and Exclusions Based on Data Limitations
EPA expects that businesses in NAICS 237210 (Land Subdivision) will undertake activities that are within the
scope of the C&D rule. However, data for characterizing the profile of projects performed by NAICS 237210 and
assigning compliance costs to businesses in this segment are not available and/or cannot be separated from the
activities performed by the primary construction sectors - NAICS 236115, 236116, 236210, and 236220 - that are
expected to be principally affected by the regulation. For this reason, EPA allocated the businesses and economic
activity reported for NAICS 237210 among these four primary focus sectors. Thus, EPA accounted for the impact
of the C&D rule on the NAICS 237210 sector in this regulatory analysis, but with those impacts being estimated
and accounted for in the analysis for the four principal impact sectors: NAICS 236115, 236116, 236210, and
236220.
EPA also anticipates that some businesses and activities in the Heavy Construction sector (NAICS 237) will be
affected by the C&D rule. However, with the exception of NAICS 237310 (Highway, street, and bridge
construction), data are not available to support an assessment of the number and character of projects performed
by NAICS 237 sector businesses that would be subject to compliance requirements and incur compliance costs.
For this reason, of the sectors in NAICS 237, only NAICS 237310 (Highway, street, and bridge construction) is
considered in the cost and impact analysis for the C&D rule.
4-24 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 4: Analysis Baseline
4.3.4 Number of Potentially Affected Establishments
To summarize, EPA took several steps to adjust the number of affected entities to account for regulatory coverage
and data availability. A total of 710,431 establishments are within the C&D industry, as broadly defined.
However, as stated in the two previous sections, a large number of businesses are not expected to perform
activities within the scope of this regulation and were therefore excluded from this regulatory analysis. As a result
of these exclusions, only about one-fourth of the total C&D industry establishments are expected to be affected by
the regulation and are covered in this analysis. The specific steps leading to the estimate of potentially affected
establishments are detailed within Table 4-18.
Table 4-18: Sectors and Establishments in the C&D Industry Included in this Analysis (2002 data)
2002
NAICS
236115
236116
236117
236118
236210
236220
237110
237120
237130
237210
237310
237990
238110
238120
238130
238140
238150
238160
238170
238190
238210
238220
238290
238310
238320
238330
238340
238350
238390
238910
238990
Description
STew single-family housing construction (except operative
juilders)
Slew multifamily housing construction (except operative
auilders)
Slew housing operative builders
Residential remodelers
Industrial building construction
Commercial and institutional building construction
Water and sewer line and related structures construction
Oil and gas pipeline and related structures construction
Power and communication line and related structures
construction
Land subdivision
Highway, street, and bridge construction
Other heavy and civil engineering construction
Poured concrete foundation and structure contractors
Structural steel and precast concrete contractors
Framing contractors
Masonry contractors
Glass and glazing contractors
Roofing contractors
Siding contractors
Other foundation, structure, and building exterior contractors
Electrical Contractors
Plumbing, heating, and air-conditioning contractors
Other building equipment contractors
Drywall and insulation contractors
Painting and wall covering contractors
Flooring contractors
Tile and terrazzo contractors
Finish carpentry contractors
Other building finishing contractors
Site preparation contractors
All other specialty trade contractors
Total
All Sectors
in C&D
Industry
58,472
4,397
26,043
82,750
2,776
37,209
12,356
1,403
6,034
8,403
11,240
10,501
27,151
4,321
14,455
25,720
5,294
23,192
6,632
2,786
62,586
87,501
6,086
19,598
38,943
12,865
8,950
35,087
3,729
30,498
33,453
710,431
Sectors Involved in Land Disturbance
All
58,472
4,397
26,043
-
2,776
37,209
12,356
1,403
6,034
8,403
11,240
10,501
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
30,498
-
209,332
Sectors that are NPDES Permittees
All
58,472
4,397
26,043
-
2,776
37,209
12,356
1,403
6,034
8,403
11,240
10,501
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
178,834
Sectors With
Sufficient Data for
Analysis3
58,472
4,397
26,043
-
2,776
37,209
-
-
-
8,403
11,240
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
148,540
a Before allocating entities within Land Subdivision (NAICS 237210) among the four building categories - NAICS 236115, 236116, 236210, and 236220.
Source: U.S. Census Bureau's Economic Census (2005a)
4.3.5 The Firm Universe Affected by the C&D Regulation
Since the Economic Census reports data by establishment and not at the level of the firm, EPA used SUSB data to
develop the firm-level data needed for this analysis: number of firms, employees, and receipts by revenue size.
November 23, 2009
4-25
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 4: Analysis Baseline
Further, because the 2002 SUSB data are reported in the 1997 NAICS framework, EPA used the 2002 Economic
Census data on the number of establishments, employees, and value of construction by revenue size, to
reconfigure the 2002 SUSB data within the 2002 NAICS framework, as described below:
1. The most significant difference between the 2002 and 1997 NAICS frameworks involves the framework
for reporting data on the residential construction sectors. The 1997 NAICS framework reports residential
sector data in two sectors - (1) Single-Family Housing Construction and (2) Multifamily Housing
Construction - while the 2002 NAICS framework reports residential sector data in four sectors: (1) New
Single-Family Housing Construction, (2) New Multifamily Housing Construction, (3) Residential
Remodelers, and (4) New Housing Operative Builders. To achieve consistency in its analyses using data
from both the 1997 and 2002 frameworks, EPA needed to reconfigure the 1997 framework data to align
with the 2002 framework - by excluding Residential Remodelers from the two 1997 framework sectors
and by breaking out New Housing Operative Builders as a separate sector. Specifically, EPA used
Economic Census data to disaggregate the SUSB data among the four 2002 NAICS residential
categories. EPA based this disaggregation on the Census proportions of establishments, employees, and
value within the four residential building categories as compared to the totals within residential building
construction.
2. Furthermore, to align the 2002 and 1997 NAICS frameworks, the highway, street, and bridge
construction and industrial building construction sector required combining two 1997 NAICS sectors.
The 1997 NAICS 234110 and 234120 (Highway and Street Construction, Bridge and Tunnel
Construction, respectively) were combined to align with the 2002 NAICS 237310 (Highway, Street, and
Bridge Construction). In addition, all of NAICS 233310 and part of NAICS 23493027 (Manufacturing
and Industrial Building Construction, Industrial Nonbuilding Structure Construction, respectively) were
combined to align with the 2002 NAICS 236210 (Industrial Building Construction).
3. In addition, Economic Census data were used to break down some of the SUSB revenue size ranges into
size ranges that are more relevant for reflecting differences in baseline financial performance/condition
by business size and for understanding potential economic/financial impacts by business size. The
specific revenue ranges used in this analysis are:
• $100 thousand-$1 million • $10 - $50 million
• $1 - $2.5 million • $50 - $100 million
• $2.5 - $5 million • $100 million and greater
• $5-$10 million
EPA used Economic Census proportions to break the SUSB $1 - $5 million range into $1 - $2.5 million
and $2.5 - $5 million revenue ranges.
4. As noted above, because of data limitations, EPA allocated the firm level information for NAICS 237210
(Land Subdivision) among the four building sectors according to the each sector's proportion of
establishments, employees, and value out of the total.
The percent of 1997 NAICS 234930 that was assigned to 2002 NAICS 236210 was determined by identifying the percent of
establishments, value, and employment assigned to the 2002 NAICS 236210 from the Economic Census Bridge Between 2002
NAICS and 1997 NAICS Construction.
4-26 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 4: Analysis Baseline
Because expected regulatory effect and compliance costs vary across states, it was also necessary to disaggregate
the firm data by state. Although Economic Census reports establishments, employees, and value of construction
for each sector by state, SUSB does not report firm-level information by state for specific construction sectors. As
a result, to develop firm-level data by state, for each of the relevant firm-level data items, EPA apportioned the
national level SUSB data over states based on the Economic Census' proportions by state2* EPA further applied
sector-specific national revenue range distributions - from Economic Census and SUSB, as described above - to
the state totals to develop revenue range estimates by state.
Reflecting the adjustments described above, Table 4-19 presents the universe of firms, revenue, employees, and
average firm revenue by construction sector and revenue range during 2002, which is the basis for developing the
equivalent 2008-trend industry data set.
Table 4-19: Baseline Firm Level Data by Revenue Range and NAICS Sector
Revenue Ranges
NAICS
Sector3
Range 1:
$100 thousand -
$1 million
Range 2:
$1 million -
$2.5 million
Range 3:
$2.5 million -
$5 million
Range 4:
$5 million -
$10 million
Range 5:
$10 million -
$50 million
Range 6:
$50 million -
$100 million
Range 7:
$100 million
and more
Average Revenue Values (Rounded to the Nearest Thousand)
236115
236116
236117
236210
236220
237310
$335,000
$326,000
$408,000
$315,000
$379,000
$375,000
$1,555,000
$1,635,000
$1,586,000
$1,628,000
$1,607,000
$1,602,000
$3,424,000
$3,403,000
$3,566,000
$3,559,000
$3,537,000
$3,430,000
$6,685,000
$6,876,000
$6,814,000
$6,657,000
$7,013,000
$6,928,000
$18,515,000
$18,675,000
$18,737,000
$17,653,000
$19,872,000
$20,279,000
$58,703,000
$59,211,000
$60,317,000
$50,416,000
$61,150,000
$57,507,000
$256,404,000
$258,622,000
$294,450,000
$191,930,000
$209,888,000
$162,938,000
Number of Firms
236115
236116
236117
236210
236220
237310
49,620
3,134
12,750
1,630
21,238
5,314
10,650
724
6,484
485
8,428
2,002
3,580
497
3,209
233
5,272
1,324
893
182
1,231
165
3,540
998
443
239
1,305
167
3,534
1,213
49
26
139
23
439
174
56
31
147
103
442
185
Total Revenue (in Millions of Dollars)
236115
236116
236117
236210
236220
237310
$16,647
$1,021
$5,204
$514
$8,051
$1,992
$16,559
$1,183
$10,282
$789
$13,547
$3,208
$12,258
$1,692
$11,441
$830
$18,651
$4,541
$5,973
$1,254
$8,390
$1,098
$24,823
$6,914
$8,197
$4,471
$24,452
$2,943
$70,219
$24,605
$2,867
$1,564
$8,364
$1,152
$26,824
$9,984
$14,470
$7,892
$43,384
$19,861
$92,679
$30,066
Number of Employees
236115
236116
236117
236210
236220
237310
122,637
7,838
30,066
5,213
76,752
16,751
60,751
5,727
27,823
5,627
86,069
19,935
31,345
5,255
22,489
5,681
80,276
25,168
17,605
4,305
17,892
5,288
83,313
32,310
13,306
8,550
50,773
16,427
168,179
92,130
3,796
2,439
14,417
3,374
49,960
31,511
12,797
8,223
50,143
82,718
139,859
90,343
a NAICS 236115 is New single-family housing construction (except operative builders), NAICS 236116 is New multifamily housing construction (except
operative builders), NAICS 236117 is New housing operative builders, NAICS 236210 is Industrial building construction, NAICS 236220 is Commercial
and institutional building construction, NAICS 237310 is Highway, street, and bridge construction
b Alaska and Hawaii are not included in this firm-level baseline.
Source: U.S. SBA (2004) and U.S. Census Bureau's Economic Census (2005a)
For example, according to Economic Census data, Alabama has approximately 1 percent of the 273,197 national employees within
NAICS 236115 (Single-family residential construction). Therefore, applying the 1 percent of the national SUSB employee data to
NAICS 236115, EPA determined that 2,655 employees (out of the 265,542 national total) were within NAICS 236115 in Alabama.
November 23, 2009
4-27
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 4: Analysis Baseline
4.4 Adjusting the Baseline Firm Universe to Reflect 2008-Trend Conditions
EPA's baseline specification of the level of industry activity, and of the structure and composition of the C&D
industry for the primary economic analysis, is intended to reflect the present condition of the industry assuming
long-term steady state conditions prevail. As described previously in Section 4.1, EPA used each industry
segment's estimated 2008-trend value of construction as the basis for estimating the total quantity of acreage in
the primary analysis. Similarly, the C&D firm universe underlying the primary economic analysis also needed to
reflect 2008-trend conditions.
Table 4-19 presents the 2002 C&D industry firm universe, which reflects the most recently available data from
Census and SUSB. This section describes the approach EPA used to adjust this 2002 snapshot of the C&D
industry to reflect 2008-trend conditions with respect to the number of firms, employees, total revenues, and
average firms revenues for each in-scope industry segment and model firm revenue range.
In adjusting the 2002 industry snapshot, one of EPA's objectives was to ensure that the adjusted average firm
revenue values remained within the boundaries of the fixed revenue range definitions. A simple application of
aggregate growth in total industry revenue from 2002 to 2008-trend could violate this constraint, and also would
not take into account that the change in aggregate industry revenue may be due to a combination of factors,
including changes in average revenues per firm and in the total number of firms by revenue, and shifts in the
numbers of firms across the revenue ranges. This analysis thus attempts to break down the known change in
revenues by NAICS code from 2002 to 2008-trend into these two components of change, based on their
contributions to the change in total revenues from 1997 to 2002, the two most recent years for which
comprehensive data were available and which could provide an indication of the composition of change going
forward from 2002.
The approach for adjusting the C&D firm universe is based primarily on:
> The change in total revenues, number of firms, and average revenues per firm, by sector and revenue
range, from the 1997 Economic Census to the 2002 Economic Census.
> Change in total revenues, by sector, from 2002 to 2008-trend (e.g., see Section 4.1 for 2008-trend values):
• Residential = 26.5%
• Commercial = 28.9%
• Industrial = 76.7%
• Transportation = 76.3%
> An assumption that the change in total sector revenue from 2002 to 2008 is composed of a change in the
number of firms and a change in the average revenue per firm;
> An assumption that change over time in both the total values and the components that make up these
values could be characterized by a model of constant exponential change, and
> An assumption that the relative contribution of these factors to the aggregate change between 2002 and
2008-trend revenues, by sector, is the same as the relative contributions to the aggregate change in
revenues from 1997 and 2002.
Using this overall framework of assumptions, the first step to adjust the 2002 baseline firm universe was to
compute the relative contributions of the change in the number of firms and average revenues per firm, by sector
and revenue range, between 1997 and 2002. This analysis assumed constant exponential growth of the variables,
so EPA determined the relative contributions based on the natural logarithms of the changes in the factors.
Next, assuming that the relative contributions of these factors to the aggregate change between 2002 and 2008-
trend is the same as the relative contributions to change between 1997 and 2002, EPA calculated these changes
4-28 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 4: Analysis Baseline
for each revenue range and sector and then estimated the number of firms and average revenue for the 2008-trend
year based on the estimated change in total revenue from 2002 to 2008.
This analysis involved the following steps:
> Calculating the relative contributions to change in total revenue from 1997-2002 for the number of firms
and average revenues per firm:
• Calculate the growth in average revenue and in firms from 1997 to 2002 by dividing the 2002 value
by the 1997 value
• Calculate the natural logarithm of the growth in average revenue (gA) and of the growth in firms (gF)
• Divide gA by gF to calculate the ratio (relative contribution) of change between gA and gF
> Applying these relative contributions to the change in total revenues from 2002-2008 trend
• Estimate 2008-trend total revenue based on 2002 total revenue by multiplying 2002 total revenue by
the change in revenue from 2002 to 2008-trend for each NAICS code
• Using the equations below, solve for gA and gF to estimate the growth of average revenues (gŁs) and
number of firms (gos )from 2002 to 2008-trend, for each revenue range and NAICS code:
(2)
T08 = A02 x eg™ xF02 x eg™xR
Where:
T08 = Total Revenue estimated for 2008
A02 = Average revenue for 2002
ZA
608 = Growth in average revenue from 2002 to 2008
F02 = Number of firms for 2002
ep
* °8 = Growth in number of firms from 2002 to 2008
R = ratio of growth in average revenue to growth in number of firms from 1997 to 2002
• Apply this estimated change in the number of firms and average revenue to the 2002 number of firms
and average revenue to estimate the number of firms and average revenue by revenue range and
NAICS code in 2008
November 23, 2009 4-29
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 4: Analysis Baseline
Following the above set of calculations, EPA then made additional adjustments to account for inconsistencies in
the data sources and/or limited occurrence of anomalies in applying the calculations outlined above:
> Revenue range definitions differ between the 1997 and 2002 data, and therefore EPA combined some
revenue ranges to create range definitions that could be mapped to both datasets. Estimated changes for
combined revenue ranges are used for each of the revenue ranges that the combined range includes. The
following table summarizes the synthesis of revenue ranges to account for differences between 1997 and
2002 definitions.
Table 4-20: Reconciliation of 1997 and 2002 Revenue Ranges ($millions)
1997
2002
Comb.
$0-$0.05 | $0.05-$0.1
$0-$0.1
$0-$0.1
$0.1-$0.5
$0.1-$0.5
$0.1-$0.5
$0.5-$1
$0.5-$1
$0.5-$1
$l-$3
$l-$2.5
| $3-$5
$2.5-$5
$l-$5
$5-$7.5 | $7
$5-$10
.5-$25 | $25-$100
$10-$50
$50-$100
$5-$100
$100+
$100+
$100+
> In some cases (specifically for NAICS 236117 in combined range $5-$100 million and for NAICS
237310 in combined range $l-$5 million), the ratio of growth in firms to growth in average revenue from
1997 to 2002 caused unrealistic estimations of growth for 2002 to 2008-trend. In these cases, this ratio (R
in the equation above) was set to 1.
> If the estimated average revenue for 2008-trend was outside of the revenue range (which occurs for
NAICS 236210 for 2002 range $2.5-$5 million and for NAICS 236115 for 2002 range $5-$10 million),
the average revenue value was set to either the minimum or maximum value of the revenue range,
whichever is appropriate. This can occur when the total revenue changes from 2002 to 2008-trend that
underlie the calculation of the changes in average revenue differ substantially from the observed changes
from 1997 to 2002, leading to changes in average revenue that push average revenue outside of the
revenue range.
EPA also estimated the number of employees for each sector and revenue range based on the average number of
employees per firm in each revenue range and NAICS code in 2002. This average was then multiplied by the
estimated number of firms in 2008 to estimate the number of employees in each revenue range and NAICS code.
The ultimate result of the above-described process is a data set indicating the estimated number of firms, total
revenue, and average revenue per firm by C&D sector and revenue range. Table 4-21 presents the national 2008-
trend C&D firm universe data set, which EPA used to support the firm- and industry-level economic analysis.
Based on this data set, EPA estimated that there are approximately 187,079 total firms within the affected C&D
NAICS sectors. Among this set of firms, EPA estimates that the number of firms that may be directly affected by
rule's requirements in the steady-state approximately 81,700. This sub-set of firms - indicated as the in-scope set
of firms in Chapter 6 - represents the number of firms that are capable of performing at least the minimum sized
project over the longest duration given their revenue and acreage intensity (i.e. firms that can do the "easiest"
project on their own given revenue and acreage intensity).
Table 4-21: Baseline Firm Level Data by Revenue Range and NAICS Sector
Revenue Ranges
NAICS
Sector3
Range 1:
$100 thousand -
$1 million
Range 2:
$1 million -
$2.5 million
Range 3:
$2.5 million -
$5 million
Range 4:
$5 million -
$10 million
Range 5:
$10 million -
$50 million
Range 6:
$50 million -
$100 million
Range 7:
$100 million
and more
Average Revenue Values
236115
236116
236117
236210
236220
237310
$491,237
$393,503
$543,720
$443,340
$359,899
$365,242
$1,978,937
$1,892,237
$1,812,774
$2,357,310
$1,489,122
$1,647,982
$4,358,418
$3,938,401
$4,076,286
$4,999,999
$3,277,381
$3,527,157
$9,999,999
$8,443,670
$8,999,094
$9,996,696
$7,679,540
$7,473,328
$28,155,369
$22,931,274
$24,746,340
$26,509,033
$21,761,325
$21,875,868
$89,269,838
$72,706,242
$79,662,752
$75,706,422
$66,963,867
$62,034,746
$395,706,187
$331,924,407
$194,636,254
$188,973,697
$229,734,835
$156,290,456
4-30
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 4: Analysis Baseline
Table 4-21: Baseline Firm Level Data by Revenue Range and NAICS Sector
Revenue Ranges
NAICS
Sector3
Range 1:
$100 thousand -
$1 million
Range 2:
$1 million -
$2.5 million
Range 3:
$2.5 million -
$5 million
Range 4:
$5 million -
$10 million
Range 5:
$10 million -
$50 million
Range 6:
$50 million -
$100 million
Range 7:
$100 million
and more
Number of Firms
236115
236116
236117
236210
236220
237310
51,023
3,860
14,310
2,411
33,838
4,939
12,593
929
8,480
695
13,778
1,763
4,233
638
4,196
345
8,619
1,166
899
221
1,394
228
4,896
838
438
290
1,477
230
4,887
1,018
48
32
157
32
607
146
55
35
333
218
611
174
Total Revenue (in Millions of Dollars)
236115
236116
236117
236210
236220
237310
$25,064
$1,519
$7,781
$1,069
$12,178
$1,804
$24,920
$ 1,758
$15,371
$1,639
$20,516
$2,905
$18,447
$2,514
$17,105
$1,723
$28,248
$4,112
$8,988
$1,864
$12,544
$2,279
$37,596
$6,261
$12,336
$ 6,645
$36,556
$6,110
$106,348
$22,280
$4,314
2,324
$12,505
$2,392
$40,626
$9,041
$21,776
$11,731
$64,860
$41,235
$140,364
$27,225
Number of Employees
236115
236116
236117
236210
236220
237310
126,618
9,600
33,606
7,626
122,399
15,581
72,080
7,357
36,237
8,032
140,782
17,564
37,190
6,750
29,290
8,359
131,306
22,175
17,773
5,212
20,170
7,280
115,291
27,140
13,213
10,353
57,237
22,616
232,732
77,386
3,769
2,954
16,252
4,646
69,136
26,469
12,522
9,527
1 12,942
173,686
193,633
85,343
a NAICS 236115 is New Single-Family Housing Construction (except operative builders), NAICS 236116 is New Multifamily Housing Construction
(except operative builders), NAICS 236117 is New Housing Operative Builders, NAICS 236210 is Industrial Building Construction, NAICS 236220 is
Commercial and Institutional Building Construction, NAICS 237310 is Highway, Street, and Bridge Construction
b Alaska and Hawaii are not included in this firm-level baseline.
Source: EPA analysis
4.5 Baseline Specification of Model C&D Firms
EPA based its assessment of industry impacts on an analysis of model firms that were defined for the specific
construction industry sectors and revenue ranges outlined above. This section summarizes key financial
information for the model firm baseline.
4.5.1 Defining Economic Sectors and Revenue Size Ranges for Model Firms
As described above, EPA identified six principal C&D business segments that are expected to be within the scope
of the final regulation and for which sufficient data are available to estimate compliance costs and assess potential
regulatory effects. As the basis for its firm and industry impact analysis, EPA constructed model firms for the
NAICS sectors aligning with each of these business segments:
> New Single-Family Housing Construction (except Operative Builders) (NAICS sector 236115)
> New Multifamily Housing Construction (except Operative Builders) (NAICS sector 236116)
> New Housing Operative Builders (NAICS sector 236117)
> Industrial Building Construction (NAICS sector 236210)
> Commercial and Institutional Building Construction (NAICS sector 236220)
> Highway, Street, and Bridge Construction (NAICS sector 237310).
Within each business segment, EPA further defined model firms according to business size based on seven
revenue size categories in which SUSB and Economic Census report data. As described previously, SUSB reports
business data (e.g., number of entities, revenue, and number of employees) by "firm" while Economic Census
November 23, 2009
4-31
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 4: Analysis Baseline
reports business data by "establishment." Each data source uses slightly different revenue size categories for
reporting business data. Because this analysis is focused on "firm-level" impacts, the analysis relied primarily on
SUSB as the data source for average size of business, and numbers of businesses and employees within revenue
ranges. However, Economic Census data were used to disaggregate some of the SUSB revenue size ranges into
smaller size ranges to improve understanding of the differences in baseline financial performance/condition by
business size and how economic/financial impacts might vary by business size. The revenue ranges used in the
firm-level analysis are:
> $100 thousand- $1 million > $10 - $50 million
> $1 - $2.5 million > $50 - $100 million
> $2.5 - $5 million > $100 million and greater
> $5-$10 million
4.5.2 Assigning Baseline Financial Information to Model Firms
EPA assigned baseline financial characteristics - balance sheet, income statement, and metrics of financial
performance and condition - to each of the model firms as defined by NAICS sector and revenue size range, from
financial statement information reported by Risk Management Association (RMA) in its publication, Annual
Statement Studies. The RMA data are compiled from the financial statements submitted by the borrowers and
applicants for lending to financial institutions, and are collected and reported annually. The number of statements
represented in the RMA data for a given year varies from several hundred to several thousand in the business
sectors analyzed.
The firm-level financial models are defined for both the General Business Conditions case and Adverse Business
Conditions case.
> General Business Conditions case. RMA data by sector and revenue range for the 6-year period
generally covering years 2002 through 2007 were used to define the General Business Conditions case
models. The earliest eStatement Studies year gathered from RMA is 2003-2004, representing data with
fiscal closing dates of April 1, 2002 through March 31, 2003. As reported by RMA, the number of
statements that fall within the first six months of the year period is small (an average of 17 percent across
all years and sectors) compared to the number of statements that fall within the latter six months.
Therefore, the majority of the data within the 2003-2004 eStatement Studies is from 2002, with some data
from 2001 and 2003. Since the 2008-2009 eStatement Studies are the most recent dataset, following the
same date description as above, the latest complete data year from RMA is 2007. For all of the affected
C&D sectors, this 6-year period encompasses periods of relative weakness and strength.
• For the residential construction sectors, 2002 through 2005 is a period of growth and generally good
financial performance. However, beginning in 2006, this sector has been in a period of weakness.
• For the non-residential construction sectors, 2000 to 2003 is a period of relative weakness. From 2003
to 2005, these sectors saw relatively flat performance followed by strong growth in from late 2005
into 2007.
> Adverse Business Conditions case. To develop the Adverse Business Conditions case models, EPA used
RMA data from the worst financial performance year in the 6 RMA reporting years beginning with fiscal
years ending between April 2002 and March 2003 through fiscal years ending between April 2007 and
March 2008, as indicated in the RMA data for each sector, as the initial basis of the model firm financial
statements (see Appendix A for specifications of the Adverse Business Conditions case).
• For the residential construction sectors. EPA began with data from the most recent RMA reporting
year, 2008-2009, which corresponds with RMA reporters' fiscal years ending in April 2007 through
4-32 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 4: Analysis Baseline
March 2008, as the basis of the Adverse Business Conditions case financial statements. In most
instances, the fiscal years of these reporting businesses ended at December 31, 2007. Although
calendar/fiscal year 2007 represents the worst performance year for the residential construction
sectors among the RMA-reported years and is clearly an adverse performance year for these sectors
(as documented in Chapter 3), it does not likely represent the worst business performance year of the
current downturn facing the residential construction sectors. Accordingly, EPA adjusted the RMA
statements to reflect the further deterioration in financial performance/condition for residential sector
firms from 2007 through 2008. EPA based this adjustment on the decline in key financial metrics
from 2007 through 2008 for public-reporting firms in the residential construction sectors. EPA used
data for public-reporting firms for this adjustment because no comprehensive dataset of financial
metrics for private, non public-reporting firms is available for a more recent period than the data
reported by RMA. EPA applied these adjustments to the RMA data to develop baseline financial
statements for the Adverse Business Conditions case that would better reflect the severity of the
current downturn. In all instances - by sector, revenue range, and quartile of baseline financial
performance - application of these adjustments yielded financial statements that were substantially
weaker than the unadjusted RMA statements (see Chapter 3 for information on the development of
the financial data for public-reporting firms, and see Appendix A for further details of the adjustment
and the resulting financial statements).
• For the non-residential construction and transportation sectors. EPA used data from the 2004-2005
RMA reporting year, which coincides with fiscal years ending April 2003 through March 2004 (most
often ending at December 31, 2003), as the basis of the Adverse Business Conditions case financial
statements for these model firms. Financial statement data from this RMA reporting year represent
the weakest performance/condition data among the RMA-reported years for the non-residential
construction sectors. No further adjustment was applied to these financial statements.
The revenue ranges for which RMA reports data align closely with the revenue size categories derived from
SUSB and Economic Census:
Model Firm Revenue Range
(from SUSB and Economic Census)
RMA Revenue Range Mapped to
SUSB/Economic Census Revenue Range
Less than $1 million
$1 - $2.5 million
$2.5 - $5 million
$5-$10 million
$10-$50 million
$50-$100 million
$100 million and greater
Less than $1 million
$1 - $3 million
$3 - $5 million
$5-$10 million
$10 - $25 million
$25 million and greater
$25 million and greater
RMA reports balance sheet and income statement information by revenue range for firms in each of the six
NAICS sectors for which model firms were developed. The balance sheet and income statement information is
reported as percentages for important accounting items for the average statement in each business sector and size
category:
> Balance sheet - asset percentages are reported for the following items:
Cash & Equivalents
Trade Receivables (net)
Inventory
All Other Current Assets
Total Current Assets
Fixed Assets (net)
Intangibles (net)
All Other Non-Current Assets
Total Assets.
Balance sheet - capital elements (liabilities and equity) are reported for the following items:
• Notes Payable-Short Term • Current Maturity of Long Term Debt
November 23, 2009
4-33
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 4: Analysis Baseline
• Trade Payables • Deferred Taxes
• Income Taxes Payable • All Other Non-Current Liabilities
• All Other Current Liabilities • Net Worth
• Total Current Liabilities • Total Liabilities & Net Worth.
• Long Term Debt
> Income statement - income statement/operating statement are reported for the following items:
• Net Sales • Operating Profit
• Gross Profit • All Other Expenses (net)
• Operating Expenses • Profit Before Taxes
In addition to reporting average income statement and balance sheet information, RMA also reports values for a
large number of metrics of financial structure, performance, and condition by quartile - first quartile, median, and
third quartile - as calculated from the statements in the sector and revenue size categories. Key ratios of interest
for this analysis include:
> Sales/Total Assets
> Pre-Tax Income/Total Assets
> Earnings before Interest and Taxes (EBIT)TInterest
> Total Liabilities/Tangible Net Worth.
These financial ratio values by quartile are important for developing baseline financial statements that vary by
baseline financial condition and performance. This information is also used to establish the values of financial
performance metrics (for Pre-Tax Income/Total Assets and EBIT/Interest) that are judged indicative of below-
standard performance for the business sectors and thus can provide insight into the potential for adverse financial
impact of the C&D rule by business sector and size.
4.5.2.1 Steps in Developing the Baseline Financial Statements
EPA performed the following steps to develop the baseline financial statements for the model firms:
> Use the estimated average of revenue by sector and revenue range for 2008-trend (described above) as the
baseline revenue value for firms within each business sector and revenue category. This value applies for
each of the three quartiles of baseline financial performance.
> Use RMA-reported value of Sales/Total Assets, by quartile, and SUSB-reported average of revenue by
sector and revenue range to assign a baseline dollar value of total assets and capital (liabilities and equity)
for firm-level balance sheets. This calculation yields a varying baseline total capitalization by baseline
financial performance: as expected, more weakly performing firms have lower asset productivity as
indicated by the ratio of sales to total assets and thus carry higher capitalizations for the given revenue
value.
> Use the RMA-reported values of Pre-Tax Income/Total Assets, EBIT/Interest, Total Liabilities/ Tangible
Net Worth, by quartile, to develop baseline dollar-valued income statement and balance sheet for each of
the three quartiles of baseline performance. These specific RMA-reported values are judged important as
the basis for differentiating the baseline financial statements by baseline financial performance - lower
quartile performance, median performance, and higher quartile performance - and thus providing insight
into the potential impacts of the C&D rule on firms in varying baseline financial circumstances. All else
equal, firms with weaker baseline financial circumstances would be at risk of more severe impacts than
firms with stronger baseline financial circumstances. The basis for using these specific measures to
establish financial statements by quartile is as follows:
• Pre-Tax Income/Total Assets is a key measure of the fundamental asset productivity and profit
performance of a business, and thus is an important differentiator of financial statements by baseline
4-34 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 4: Analysis Baseline
financial performance and condition. For this analysis, Pre-Tax andPre-Interest Income/Total Assets
would have provided stronger insight into basic business financial performance since the income
measure would have been before payments to debt capital and thus independent of capital structure.
However, RMA does not provide this financial measure.
• Earnings before Interest and Taxes (EBIT)/Interest indicates the extent to which pre-interest and
pre-tax income exceeds interest obligations and thus is a key measure of the ability of an enterprise to
meet its current interest obligations and as well the risk to a borrower for extending additional credit
to the enterprise. As such, EPA also judges this measure as an important differentiator of financial
statements by baseline financial performance and condition. Businesses with relatively greater debt as
a component of total capital and/or with relatively lower basic profitability will have lower
EBIT/Interest values.
• Total Liabilities/Tangible Net Worth is less closely linked to baseline financial performance and
condition and indeed is likely to be a managed element of capital structure. However, the measure is
also a direct indicator of the riskiness of a firm's capital structure - and of the risk of the capital
structure to providers of both debt and equity capital. Because firms in weaker financial
circumstances may be more likely to have higher debt as a component of total capital (e.g., as stated
in the preceding paragraph, high debt in itself can be a contributor to a low EBIT/Interest value), this
measure was also used to differentiate the baseline financial statements by performance/condition
quartile.
> In general, the median quartile reported values align closely with the values for these measures as
calculated from the average financial statement information reported in the RMA statements. However,
as expected, the RMA-reported values for the lower and upper quartiles of these metrics differ
substantially from those indicated by the average financial statements. Accordingly, the lower and upper
quartiles for the three financial measures were used to calibrate the baseline balance sheets and income
statements to represent lower and upper quartile baseline financial statements for firms by sector and
revenue range, as follows:
• The fraction of total capitalization represented by baseline equity less intangible assets was adjusted
to yield the reported value of Total Liabilities/Tangible Net Worth. The composition of the resulting
residual of total liabilities was structured in terms of the baseline composition of liabilities for the
average business by sector and revenue range. As a result, the financial statements for the lower
quartile firm models are assigned a higher debt fraction of total capital than the median and upper
quartile firms.
• Total expenses before interest and tax expense and interest expense were adjusted to yield the target
values of Pre-Tax Income/Total Assets and EBIT/Interest. This calculation yielded a baseline income
statement value for interest expense which is not broken out separately in the RMA-reported income
statements (but is implicitly available through the reporting of the EBIT/Interest value), and is needed
for the firm-level impact analysis.
> As described more specifically in Chapter 6, the analysis of baseline performance and potential impact of
the C&D rule relies in part on an assessment of the change in business value of affected firms. To develop
the baseline and post-compliance estimates of business value requires an estimate of after-tax income,
which is not reported by RMA in its income statements. To calculate after-tax income, a composite
federal/state income tax rate based on (1) the estimated federal rate applicable to pre-tax income for the
given model firm and (2) an average of state tax rates of 7.3 percent, was applied to the indicated pre-tax
income for the model firms. Where tax rates are unable to be differentiated by pre-tax income level - e.g.,
in the project analysis - a combined federal/state tax rate of 42.5 percent was used to account for tax
effects.
November 23, 2009 4-35
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 4: Analysis Baseline
4.5.2.2 Estimating Baseline Business Value for the Model Firms
The final step in developing the baseline firm financial models by sector, revenue range, and baseline
performance quartile was to develop an estimate of the baseline business value of the model firms. As noted in the
preceding paragraph, change in business value is one of the impact measures in the firm analysis. Baseline
business value is determined as follows:
> Calculate after-tax cash flow from operations available to debt and equity capital, which is the sum of
after-tax income and interest payments on a pre-tax basis (total operating cash flow to all capital).29
> Discount total operating cash flow to all capital by the estimated weighted average after-tax cost of
capital, which yields going concern value for the business on the basis of total capital - i.e., debt and
equity.
> Subtract long-term liabilities from the total capitalization value to yield going concern value to the
business' equity owners.
> Add net current assets to the net going concern value to yield total business value to the business' equity
owners, including net going concern value and net balance sheet liquidity.
In this calculation, the business is assumed to operate in a "no real growth" steady state - i.e., the firm's cash flow
is assumed static, neither increasing nor decreasing, except for the effect of inflation. As a result, a discounted
cash flow analysis using the cash flow from a single time period is appropriate for estimating the business value
of the firm.
4.5.2.3 Developing the Cost of Capital Used in Calculating the Business Value of Model Firms
The cost of capital used in the discounted cash flow calculation is based on the model firm's financial structure
(debt and equity as fractions of total capital) and further varies according to business size (assumed to affect
firms' terms of access to capital markets) and the business conditions case (Copeland et al., 2000b). Key elements
of the cost of capital calculation are as follows:
Cost of debt:
> For the General Business Conditions case, the cost of debt is based on the reported market yield of 7.0
percent for "Moody's Baa-rated corporate bonds - all industries," over the period 2000-2007 (U.S.
Federal Reserve, 2007a).30 The Baa rating is considered "Medium Grade" debt and is the lowest of the
"Investment Grade" debt ratings.31
> For the Adverse Business Conditions case, based on the estimated market yield of 12.7 percent for
Moody's B-rated debt in the year 2001, the most recent declared recession year in the U.S. economy
(NBER, 2003) for which full-year data are available. The B rating is considered "Low Grade
(speculative)" and the second highest debt grade in the "Not Investment Grade" debt ratings. This rating
and the associated debt cost would be appropriate for firms with appreciably weak financial performance.
29 The calculation of after-tax cash flow from operations would also typically involve adding back depreciation, since this a non-cash
charge, and subtracting an allowance for ongoing outlays to maintain the existing capital stock and associated baseline production
capability. EPA did not "add back" depreciation in the cash flow calculation because no information was available for estimating an
appropriate allowance for ongoing capital outlays. In effect, the value of depreciation recorded in the baseline operating statements is
being treated as approximately equal to the ongoing capital outlay value.
30 Moody's yield on seasoned corporate bonds - all industries, Baa (medium grade, lowest investment grade rating).
31 Debt ratings definitions from The Bond Market Association.
4-36 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 4: Analysis Baseline
The estimated 12.7 percent cost for B-rated debt is calculated from reported interest rate spreads for
industrial bonds of various ratings against the debt cost for 10-year Treasury Bonds (Bondsonline, 2006).
> To convert the debt cost to an after-tax basis, the debt costs are reduced by the estimated combined
federal/state tax rate for each of the firm models, by revenue range, as described above. The resulting
after-tax debt costs were applied to firms of all sizes in calculating a cost of capital for use in the firm-
level analysis.
Cost of equity:
> The cost of equity is calculated on the basis of the Capital Asset Pricing Model (CAPM) analytic
convention, which determines the cost of equity capital as the return on a "riskless" investment plus a
risk-adjusted equity market premium. The risk-adjusted equity market premium is based on a firm's or
sector's undiversifiable, or systematic, market risk - conventionally defined as the market "beta" for the
firm or sector32 - and the observed equity cost premium to the "riskless" investment - typically a
Treasury bond of 10 years or more maturity (Copeland et al., 2000a).
> The riskless return value is based on the average market yield, 4.6 percent, on 10-Year Treasury Bonds
over the period 2000-2008 (U.S Federal Reserve, 2009).
> The equity market premium varies by business conditions case. The General Business Conditions case
uses an equity market premium of 4.9 percent, which is at the lower end of the range of equity market
premiums estimated for U.S. equity markets (Damoradan, 2008).33 The Adverse Business Conditions case
uses a higher equity market premium of 6.0 percentto reflect the higher degree of investor risk aversion
during periods of weak economic performance (Copeland et al., 2000a).
> The beta values applied in the equity cost analysis are based on the average market beta for 41 publicly-
traded firms in the Homebuilding Sector34, as identified by the Value Line Investment Survey
(Damoradan, 2008).35 Two beta values are used in the analysis for each analysis case. For the General
Business Conditions case, model firms judged of sufficient size to access public markets for equity
capital - $100 million and greater, the highest revenue category in the analysis - were assigned a beta of
0.98, which is based on public securities markets. For model firms in the revenue categories below $100
million, which are judged not to be of sufficient size to access public capital markets, a so-called "total
market risk" beta of 1.32 is used in the analysis. Under the Adverse Business Conditions case the two
beta values are 1.36 and 1.46, respectively. The "total" beta reflects the total variance in securities' value
for firms in the Value Line Homebuilding Sector and does not set aside the "diversifiable" component of
variance. The "total" beta concept is judged more appropriate for estimating equity cost for private firms
whose owners are likely to have heavily concentrated, less diversified ownership in those firms.
> The resulting after-tax equity costs range from 9.5 percent for large businesses under the General
Business Conditions case to 13.4 percent for small businesses under the Adverse Business Conditions
case.
32 The extent of correlation of the firm's or sector's returns with the overall market, which thus cannot be "diversified away" in a
portfolio.
33 As recommended in the internet-based financial data portal maintained by Aswath Damoradan, professor of finance at New York
University's Stem School of Business.
university s siem scnooi 01 Business.
The Homebuilding Sector provides the "best" sector match within the Value Line companies and sectors dataset for identifying the
relevant financial characteristics of firms in the construction and development industries.
35 Both beta values - the "standard public securities market" beta, applicable to publicly traded firms and the "total" beta, applicable to
private companies - are as reported by Aswath Damoradan.
November 23, 2009 4-37
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 4: Analysis Baseline
The after-tax cost of debt and cost of equity are combined according to the baseline capital structure - debt and
equity fractions of total long-term capital - of model firms, by sector, revenue range, and financial performance
quartile, to yield the weighted average cost of capital used in the business value analysis for model firms.
The cost of equity developed in this analysis is an after-tax cost of equity, since it reflects the income payable to
the firm's equity owners, which by definition, is after taxes. The after-tax cost of equity is converted to a pre-tax
basis by dividing by one minus the estimated combined federal/state tax rate of 42.5 percent.
Table 4-22, following page, summarizes cost of capital values used in the firm and industry impact analysis.
Table 4-22: Cost of Capital for C&D Industry Effluent Guidelines Analyses
Cost of Debt Capital
Cost of Equity Capital
After-tax
for Public Market Sized Firms
for Smaller Undiversified Ownership Firms
Pre-tax
for Public Market Sized Firms
for Smaller Undiversified Ownership Firms
General Business
Conditions Case
7.0%
9.5%
FF.2%
13.5%
16.0%
Adverse Business
Conditions Case
12.7%
12.7%
114%
18.1%
191%
Source: EPA estimates based on underlying data sources
All business operating financial parameters and, as a result, cash flow are assumed to be constant, except for the
effect of inflation. Accordingly, the present value of cash flow is determined simply by dividing the constant (in
real terms) cash flow value by the estimated cost of capital. To account for the effect of inflation in this analysis,
the estimated cost of capital is reduced by the assumed constant rate at which cash flow is assumed to grow. This
approach is equivalent mathematically to using a real discount rate (i.e., setting aside the component of cost of
capital which results from inflation) in the discounted cash flow calculation. For this adjustment, EPA used a
nominal cash flow growth rate of 3.1 percent, which is the average of year-to-year rates of change of the
Engineering News-Record's Construction Cost Index over the period 1990-2007 (McGraw Hill, 2008).
As detailed in this section, the firm-level financial models are defined for both the General Business Conditions
case and Adverse Business Conditions case. Table 4-23 summarizes the parameter definitions for these business
cases.
Table 4-23: Summary of Key Parameters that Define the General and Adverse Business Conditions Cases
Sector
General Business
Conditions Case
Adverse Business
Conditions Case
Data Source
Methodology
Model Firm Rate of Compliance Cost Pass-Through
NAICS236115
NAICS236116
NAICS236117
NAICS 236210
NAICS 236220
NAICS 2373 10
85.0%
85.0%
85.0%
71.0%
71.0%
71.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Price elasticity of
supply: Green,
Malpezi, and Mayo
(2005); and,
Benjamin, Jud, and
Winkler(1998).
Price elasticity of
demand: HUD, 2006;
DiPasquale, 1999;
Benjamin, Jud, and
Winkler, 1998.
> General Business Conditions Case:
estimates of cost pass-through rates for
sectors are based on estimates of price
elasticity of supply (Es) and demand
(Ed).
> Adverse Business Conditions Case:
firms are assumed to absorb all of the
compliance outlay within their current
operating finances - i.e., the cost pass-
through rate is set to zero.
Model Firm Cost of Debt Capital
4-38
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 4: Analysis Baseline
Table 4-23: Summary of Key Parameters that Define the Genera/and Adverse Business Conditions Cases
Sector
All Sectors
General Business
Conditions Case
7.0%
Adverse Business
Conditions Case
12.7%
Data Source
Moody 's Seasoned
data (U.S. Federal
Reserve, 2007a).
Methodology
> General Business Conditions Case:
based on the reported market yield for
Moody's Baa-rated corporate bonds
(investment grade) over the period 2000-
2008.
> Adverse Business Conditions Case:
based on the reported market yield for
Moody's B-rated debt (speculative grade)
over the period 2000-2008.
Model Firm Cost of Equity Capital, After-Tax
All Sectors, for Public Market
Sized Firms
All Sectors, for Smaller
Undiversified Ownership Firms
9.5%
11.2%
12.7%
13.4%
Based on the Capital
Asset Pricing Model
(CAPM) analytic
convention, using
data on equity market
premiums from
Damoradan (2008)
and Copeland
(2000a).
> General Business Conditions Case:
based on an equity market premium that
is at the lower end of the range of equity
market premiums estimated for U.S.
equity markets.
> Adverse Business Conditions Case:
based on a higher equity market premium
to reflect the higher degree of investor
risk aversion during periods of weak
economic performance.
> Also, cost of equity differs by size of
firm. The cost of equity for smaller,
undiversified ownership firms reflects a
larger market risk premium since these
firms are not expected to be of sufficient
size to access public capital markets.
Industry Average Deviation from Trend of Construction Activity During Adverse Performance Years
NAICS236115
NAICS236116
NAICS236117
NAICS236210
NAICS 236220
NAICS237310
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
-13.89%
-13.89%
-4.23%
U.S. Census, value of
construction by
sector: 1990 to 2008
(U.S. Census, 2009a).
> General Business Conditions Case: No
assumed deviation from trend.
> Adverse Business Conditions Case:
For the non-residential and transportation
sectors, EPA assigned each year into
categories of at trend, above trend, or
below trend based on that's year's
deviation in the value of construction
activity from the long term trend for the
sector. An average deviation from trend
during each adverse performance years
was estimated for each general industry
sector. EPA used these percentage
values to model a contraction from the
2008-trend in the non-residential and
transportation sectors during adverse
market conditions.
For the residential sector, the actual 2008
level of activity was used to define
adverse conditions in this sector. See
Appendix A for more detail.
Model Firm Baseline Financial Information
NAICS 2361 15
Pre-Tax Income/Total Assets
ggjY^e^st'
Net Income Margin
NAICS 2361 16
Pre-Tax Income/Total Assets
ggjY^e^st'
Net Income Margin
NAICS 2361 17
Pre-Tax Income/Total Assets
ggjY^e^st'
Net Income Margin
NAICS 2362 10
Pre-Tax Income/Total Assets
5.77%
5.5
2717%
6.53%
o
L85%
5.47%
6A
129%
5.38%
-1.93%
o"?
^62%
0.14%
27s
io';63%'
-1.49%
1.5
:"f;'88%
3.49%
EPA estimates based
on Risk Management
Association (RMA)
eStatement Studies.
RMA reports
financial statement
metrics by each
NAICS sector and for
seven revenue ranges.
> General Business Conditions Case:
Values are based on an average of
values over the period April 2002 through
March 2008, as detailed above.
> Adverse Business Conditions Case:
Based on adverse performance years
within each sector using Census data on
the value of construction activity from
1990 to 2008. The adverse performance
years used in the analysis are 2008 for
the residential sector (based on adjusted
RMA data) and 2003 for the non-
residential and non-building sectors.
> Note: EPA performed the analysis for
each of the six NAICS sectors and for the
seven revenue ranges within each
NAICS code. The values reported here -
November 23, 2009
4-39
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 4: Analysis Baseline
Table 4-23: Summary of Key Parameters that Define the Genera/and Adverse Business Conditions Cases
Sector
EBIT/Interest
Net Income Margin
General Business
Conditions Case
9.0
1.22%
Adverse Business
Conditions Case
6.2
0.85%
NAICS 236220
Pre-Tax Income/Total Assets
EBIT/Interest
Net Income Margin
5.70%
10.0
1.33%
3.93%
7.9
0.92%
NAICS 2373 10
Pre-Tax Income/Total Assets
EBIT/Interest
Net Income Margin
6.45%
5.0
1.94%
4.10%
3.7
1.27%
Data Source
Methodology
for illustration - are the averages of the
median financial ratios across the seven
revenue ranges within each NAICS
sector.
Source: EPA Analysis
4.5.3 Summary of Model Firm Financial Data
Table 4-24 through Table 4-26 present key baseline financial information - Pre-Tax Income/Total Assets,
Earnings Before Interest and Taxes (EBIT)/Interest, and Net Income Margin - for model firms in each of the
construction sectors and revenue ranges. The summary presented below reflects the General Business Conditions
case relationships (i.e., an averaged dataset over the 6-year period 2002 through 2007), and this is the basis for the
primary economic impact analysis. As expected, the values necessarily show improvement in baseline financial
performance over the three quartile values - First Quartile (weakest performance), Median, and Third Quartile
(strongest performance). In addition, these data generally show strengthening financial performance as business
size increases within each NAICS sector. This observation underscores the importance of accounting for variation
in baseline financial condition and performance by business size in the cost and economic impact analysis for this
regulation.
4-40
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 4: Analysis Baseline
Table 4-24: Model Firms: Pre-Tax Income/Total Assets
Revenue Range
Revenue Range 1 :
$100 thousand to $1 million
Revenue Range 2:
$1 million to $3 million
Revenue Range 3:
$3 million to $5 million
Revenue Range 4:
$5 million to $10 million
Revenue Range 5:
$10 million to $50 million
Revenue Range 6:
$50 million to $100 million
Revenue Range 7:
$100 million and more
Quartile
First Quartile
Median
Third Quartile
First Quartile
Median
Third Quartile
First Quartile
Median
Third Quartile
First Quartile
Median
Third Quartile
First Quartile
Median
Third Quartile
First Quartile
Median
Third Quartile
First Quartile
Median
Third Quartile
NAICS Sector3
236115
-2.4%
2.2%
12.3%
0.0%
4.6%
13.7%
0.9%
4.9%
12.5%
1.1%
5.2%
12.9%
1.5%
6.1%
14.0%
3.8%
8.7%
15.8%
3.8%
8.7%
15.8%
236116
-5.0%
2.2%
15.2%
0.5%
6.0%
16.6%
1.7%
7.2%
20.1%
1.2%
6.1%
15.1%
1.5%
6.5%
16.1%
4.2%
8.9%
17.8%
4.2%
8.9%
17.8%
236117
-2.2%
3.7%
12.7%
-1.2%
4.7%
22.0%
0.4%
3.5%
11.8%
1.3%
5.8%
14.3%
1.3%
5.1%
12.0%
3.2%
7.7%
14.9%
3.2%
7.7%
14.9%
236210
-4.9%
1.9%
13.9%
-1.5%
5.8%
18.4%
-1.3%
5.2%
15.6%
0.4%
6.0%
15.2%
1.7%
5.8%
13.1%
2.5%
6.5%
12.6%
2.5%
6.5%
12.6%
236220
-3.8%
3.4%
15.1%
-1.3%
6.1%
19.3%
-0.4%
5.9%
15.1%
1.3%
6.7%
16.1%
1.5%
6.1%
13.5%
2.4%
5.8%
11.3%
2.4%
5.8%
11.3%
237310
-9.9%
3.3%
15.4%
0.3%
6.4%
18.0%
0.7%
7.1%
18.6%
1.1%
6.7%
15.7%
2.2%
7.1%
15.6%
3.0%
7.3%
13.3%
3.0%
7.3%
13.3%
a NAICS 236115 is New single-family housing construction (except operative builders), NAICS 236116 is New multifami
operative builders), NAICS 236117 is New housing operative builders, NAICS 236210 is Industrial building construction,
and institutional building construction, NAICS 237310 is Highway, street, and bridge construction.
Source: EPA Estimates based on RMA
ly housing construction (except
NAICS 236220 is Commercial
Table 4-25: Model Firms: EBIT/lnterest
Revenue Range
Revenue Range 1 :
$100 thousand to $1 million
Revenue Range 2:
$1 million to $3 million
Revenue Range 3:
$3 million to $5 million
Revenue Range 4:
$5 million to $10 million
Revenue Range 5:
$10 million to $50 million
Revenue Range 6:
$50 million to $100 million
Revenue Range 7:
$100 million and more
Quartile
First Quartile
Median
Third Quartile
First Quartile
Median
Third Quartile
First Quartile
Median
Third Quartile
First Quartile
Median
Third Quartile
First Quartile
Median
Third Quartile
First Quartile
Median
Third Quartile
First Quartile
Median
Third Quartile
NAICS Sector3
236115
-0.7
2.2
8.3
1.0
3.9
13.4
1.5
4.7
18.8
1.8
5.4
21.9
2.2
7.2
27.4
3.1
7.6
26.4
3.1
7.7
26.4
236116
-4.0
1.6
10.7
1.1
4.5
18.6
2.1
6.0
19.0
0.8
5.1
18.9
2.0
8.2
38.8
4.1
16.3
91.0
4.1
16.3
91.0
236117
0.3
3.7
9.9
-0.4
4.7
20.5
1.4
5.9
20.7
1.7
4.8
22.9
1.8
6.6
29.6
2.5
9.4
47.7
2.5
9.4
47.7
236210
-5.8
2.3
14.4
0.1
3.5
13.3
0.0
4.8
16.2
0.8
7.3
24.5
2.6
7.8
38.0
4.1
18.6
69.4
4.0
18.6
69.4
236220
-1.9
3.2
9.5
-0.3
3.9
13.3
0.3
4.9
17.6
1.8
7.2
27.3
2.7
9.9
42.2
5.6
20.4
81.1
5.6
20.4
81.1
237310
-1.5
1.9
7.4
0.8
3.3
11.6
0.8
4.5
13.0
1.3
5.4
15.2
2.3
6.2
18.1
2.8
6.7
19.0
2.9
6.7
19.0
a NAICS 236115 is New single-family housing construction (except operative builders), NAICS 236116 is New multifami
operative builders), NAICS 236117 is New housing operative builders, NAICS 236210 is Industrial building construction,
and institutional building construction, NAICS 237310 is Highway, street, and bridge construction.
Source: EPA Estimates based on RMA
ly housing construction (except
NAICS 236220 is Commercial
November 23, 2009
4-41
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 4: Analysis Baseline
Table 4-26: Model Firms: Net Income Margin
Revenue Range
Revenue Range 1 :
$100 thousand to $1 million
Revenue Range 2:
$1 million to $3 million
Revenue Range 3:
$3 million to $5 million
Revenue Range 4:
$5 million to $10 million
Revenue Range 5:
$10 million to $50 million
Revenue Range 6:
$50 million to $100 million
Revenue Range 7:
$100 million and more
Quartile
First Quartile
Median
Third Quartile
First Quartile
Median
Third Quartile
First Quartile
Median
Third Quartile
First Quartile
Median
Third Quartile
First Quartile
Median
Third Quartile
First Quartile
Median
Third Quartile
First Quartile
Median
Third Quartile
NAICS Sector3
236115
-4.7%
1.7%
4.0%
0.0%
2.1%
3.0%
0.6%
1.6%
2.4%
0.6%
1.7%
2.6%
0.8%
2.0%
3.1%
1.9%
3.1%
3.8%
1.9%
3.0%
3.7%
236116
-11.2%
1.5%
3.6%
0.4%
2.5%
3.3%
1.0%
2.0%
3.1%
0.7%
1.5%
2.0%
0.7%
1.5%
2.5%
1.7%
1.9%
2.5%
1.7%
1.9%
2.6%
236117
-6.2%
3.1%
3.0%
-1.2%
2.1%
3.7%
0.3%
1.4%
2.1%
0.8%
2.0%
2.7%
0.6%
1.5%
2.5%
1.9%
3.0%
3.5%
1.9%
3.0%
3.5%
236210
-8.0%
1.0%
3.3%
-0.9%
1.7%
2.8%
-0.7%
1.2%
2.3%
0.1%
1.2%
2.2%
0.4%
1.1%
1.9%
0.6%
1.2%
1.9%
0.6%
1.2%
1.9%
236220
-5.2%
1.5%
3.0%
-0.8%
1.9%
3.4%
-0.2%
1.5%
2.1%
0.4%
1.2%
2.2%
0.3%
1.1%
1.9%
0.5%
1.1%
1.7%
0.5%
1.1%
1.7%
237310
-11.0%
1.5%
3.6%
0.2%
2.4%
3.9%
0.3%
1.9%
3.4%
0.5%
1.8%
3.3%
0.7%
1.8%
3.2%
1.1%
2.1%
3.0%
1.1%
2.1%
3.0%
a NAICS 236115 is New single-family housing construction (except operative builders), NAICS 236116 is New multifamily housing construction (except
operative builders), NAICS 236117 is New housing operative builders, NAICS 236210 is Industrial building construction, NAICS 236220 is Commercial
and institutional building construction, NAICS 237310 is Highway, street, and bridge construction.
Source: EPA Estimates based on RMA
4.6 Key Sources of Uncertainty and Limitations
The primary sources of uncertainty and limitations in the analysis baseline are highlighted below:
> Compilation of the C&D Firm Universe Potentially Subject to Regulation. As described in Section
4.3.5, to develop the firm-level analysis baseline, EPA blended firm-level data from the Economic Census
and SUSB to reconcile inconsistencies between data reported at the level of the establishment versus the
level of C&D firms. In addition, EPA reconfigured these data to develop firm-level data by state. This
process, although appropriate and credible for the stated purpose, inevitably introduces error into the
baseline economic data. EPA has no basis for knowing the quantity or direction of error in these data.
EPA does not judge these errors/uncertainties to materially affect the findings from the analyses
performed for the final regulation.
> Acreage estimates do not exclude sites less than 1-acre in size. These acreage estimates presented in this
chapter do not exclude sites less than 1-acre in size. Ideally, these estimates would be adjusted downward
to exclude acreage developed in projects of less than 1-acre in size, to be consistent with the definition of
the quantity of acreage subject to the final regulation. However, the available data do not indicate what
portion of acreage may fall into this category, and therefore, EPA may be overstating the quantity of
activity subject to the regulation, and thus overstate the compliance costs resulting from the final
regulation.
> Baseline Financial Data for Model Firms. To develop the model firms, EPA assigned financial
characteristics - balance sheet, income statement, and metrics of financial performance and condition - to
each of the model firms as defined by the six NAICS sectors and seven revenue size ranges, from
financial statement information reported by Risk Management Association (RMA) (see Section 4.5).
RMA compiles and reports financial statement information by industry as provided by member
4-42
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 4: Analysis Baseline
commercial lending institutions. Because the financial statements received by RMA are for businesses
applying for credit from member institutions, these data do not constitute a statistically valid random
sample. In particular, the RMA data would not generally be representative of firms that are of sufficient
size to access capital markets directly, for example, through issuance of corporate debt securities in public
capital markets. Nevertheless, EPA, which has utilized the same data in previous economic analyses,
believes these data are of high quality and do offer the advantage of being available at the 6-digitNAICS
level and for quartile ranges of baseline financial performance and condition.
Potential Bias in the RMA Financial Data. Expanding on the item above, EPA evaluated whether the
RMA financial data is potentially biased in its representation of the financial performance and condition
of firms in the overall C&D sectors. To assess whether a bias existed in the RMA eStatement Studies
data, EPA compared the RMA data used in the firm impact analysis to data from the IRS Corporate
Source Book, which are representative of all firms filing federal income tax forms. Three different key
ratios were analyzed from each data source: EBIT/Interest, Return on Assets, and Profit before Tax.
Although the RMA variables were directly presented in the eStatement Studies, some of these variables
required calculation from the IRS Corporate Source Book dataset. Table 4-27, below, presents the
calculations performed to determine the ratios from the IRS Corporate Source Book.
Table 4-27: Calculations in the IRS Corporate Source Book
Dataset to Compare to RMA Ratios
Ratio
Calculation
EBIT/Interest
(Net Income + Interest Paid)/Interest Paid
Return on Assets
Net Income/Total Assets
Profit Before Tax
Net Income/Total Receipts
To assess the presence of bias, EPA compared ratio values from the RMA eStatement Studies to ratio
values from the IRS Corporate Source Book, calculated by asset size range for the below years.36 The
RMA data used in the comparison were for the median quartile. Because the IRS Corporate Source Book
presents data for NAICS 236 and 237 only at the level of the 3-digit NAICS sector, the RMA data used
for the comparison for these sectors was an average of all data available for the 6-digitNAICS codes in
these 3-digit sectors (see Table 4-28, below).
Table 4-28: RMA eStatement Studies and IRS Corporate Source Book Years Compared
ms
RMA
IRS Data
Year
2006
2005
2004
2003
2002
RMA eStatement
Studies Year
2007-2008
2006-2007
2005-2006
2004-2005
2003-2004
Fiscal Closing Dates
April 1,2006-
March 31 ,2007
April 1,2005 -
March 3 1,2006
April 1,2004 -
March 3 1,2005
April 1,2003 -
March 3 1,2004
April 1,2002 -
March 3 1,2003
Earliest 12-Month
Period Covered
April 1,2005 -
March 3 1,2006
April 1,2004 -
March 3 1,2005
April 1,2003 -
March 3 1,2004
April 1,2002 -
March 3 1,2003
April 1,2001 -
March 3 1,2002
Latest 12-Month
Period Covered
April 1,2006 -
March 3 1,2007
April 1,2005 -
March 3 1,2006
April 1,2004 -
March 3 1,2005
April 1,2003 -
March 3 1,2004
April 1,2002 -
March 3 1,2003
Majority of RMA
Data During Year
2006
2005
2004
2003
2002
36 The IRS Corporate Source Book provides more disaggregated asset range breakouts than RMA. Three of the six asset ranges are the
same (Less than 500k, 50 million to 100 million, 100 to 250 million), one asset range breakout is nearly the same (RMA: 500k to 2
million, IRS: 500k to 1 million), and the remaining two RMA asset ranges are aggregated among four IRS revenue ranges (RMA: 2 to
10 million, IRS: 1 to 5 million and 5 to 10 million; RMA: 10 to 50 million, IRS: 10 to 25 million and 25 to 50 million). For the two
asset ranges for which IRS provided more disaggregate ranges, the RMA variable was compared to both the low and high asset size
range variable from the IRS data.
November 23, 2009
4-43
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 4: Analysis Baseline
Table 4-29, below, presents the results of this comparison, showing, by NAICS sector, year, and key
ratio, the percent of the RMA ratios across asset size ranges that were below the IRS Corporate Source
Book ratios, also by asset size range. As seen in the table, the majority of the RMA ratios are lower than
the IRS ratios - an average of 63.8 percent - indicating that the RMA data actually reflect poorer
performance than presented in the IRS data. In addition, no pattern is present across asset size ranges in
these relationships - in particular, lower asset size ranges do not appear to have systematically lower
performance in the IRS data than in the RMA data.
Table 4-29: Summary Results of Comparison of Financial Metrics from IRS Corporate Source Book
and RMA (median quartile) eStatement Studies
Average Percent of RMA Ratios Among Asset Size Ranges below IRS ratios
NAICS Sector
236
237
237210
238210
238220
EBIT/Interest
Return on Assets
Profit Before Tax
EBIT/Interest
Return on Assets
Profit Before Tax
EBIT/Interest
Return on Assets
Profit Before Tax
EBIT/Interest
Return on Assets
Profit Before Tax
EBIT/Interest
Return on Assets
Profit Before Tax
Year
2002
50.0%
75.0%
50.0%
75.0%
87.5%
0.0%
50.0%
100.0%
37.5%
100.0%
100.0%
100.0%
83.3%
83.3%
83.3%
2003
50.0%
100.0%
25.0%
62.5%
62.5%
0.0%
37.5%
50.0%
12.5%
100.0%
100.0%
100.0%
71.4%
85.7%
71.4%
2004
62.5%
100.0%
25.0%
50.0%
75.0%
0.0%
50.0%
62.5%
12.5%
83.3%
100.0%
100.0%
100.0%
100.0%
66.7%
2005
50.0%
100.0%
25.0%
87.5%
87.5%
25.0%
25.0%
87.5%
25.0%
71.4%
100.0%
57.1%
100.0%
85.7%
57.1%
2006
37.5%
100.0%
12.5%
62.5%
87.5%
0.0%
50.0%
50.0%
12.5%
37.5%
75.0%
62.5%
100.0%
87.5%
37.5%
>
Acreage Intensity Source Data. There is uncertainty with respect to the Reed Construction data that
underlies the estimated acreage intensity values for the multifamily and nonresidential building
construction sectors. Recall that acreage intensity is defined as the number of acres developed per dollar
value of activity accruing as revenue to the firm. The source of potential error derives from the Reed
"value of construction" data, which is used as the denominator in estimating acreage intensity. The value
field is intended to capture the value of the construction activity itself, and may not capture other
components of eventual total project revenue, e.g., land value, financing costs, or developer's markups.
As such, the Reed-reported value may understate the overall project value, and thus revenue that could
accrue from these activities (thus overstating the quantity of acreage developed per dollar of total project
value). Furthermore, because this information is self-reported by builders/developers and not
subsequently verified at the end of a project, there is fundamentally an unknown amount of error in the
value estimates.
NO1 Project Distribution Source Data. The matrixes of model projects by size and duration, by state and
construction activity sector, which underlie the assignment of model projects to model firms for the firm-
level impact analysis, are based on NOI data from a limited sample of states. The data, and the use of the
data for this purpose, are subject to several uncertainties, including:
• As received from states, the NOI data are not necessarily comprehensive and may contain reporting
errors, in terms of the acreage size of a project, the project's duration, or the type of project. EPA
attempted to remove records with apparent errors from the NOI dataset, but this process is inevitably
imperfect.
• The selection of states to use in developing state -by-state project distributions is based in part on
judgments about the quality and comprehensiveness of the NOI data and the ability of these states to
4-44
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 4: Analysis Baseline
reflect diversity of construction activity across states by region and construction profile. These
judgments are somewhat subjective and introduce uncertainty in the use of the distributions to
represent the project development profiles for other states.
• The need to use data from selected states to represent the project development matrix for other states,
underscores the limitations and uncertainties in understanding the project development profile and in
estimating the potential cost and impact of the final regulation. Further, the determination of the states
to which the four individual state distributions are applied in developing project distributions,
involves additional judgment and again introduces uncertainty. The observation that the state- and
sector-level distributions yielded acreage values by size range that could not make sense within the
size range - i.e., total acreage in a size x duration cell that is less than the acreage size of the size x
duration cell - is another indicator of the imperfection and uncertainty in this process. The algorithm
used to redistribute acreage to achieve a sensible size distribution again introduces uncertainty in the
analysis.
Overall, EPA does not judge these uncertainties to materially affect the findings from the cost and
economic impact analysis for the C&D regulation.
> Changes in the NOIProject Distributions and Other Factors Potentially Affecting Aggregate
Compliance Cost Estimates. As described in this Chapter, the distribution of construction projects across
model project categories derives from the NOI project distribution information for selected states. In the
analysis of compliance cost and impact, EPA does not assume any change or shift in the profile of project
performance across the model project categories. That is, in response to the regulation, profit-maximizing
C&D firms might alter the profile of projects undertaken, for example, in recognition of the acreage cut-
offs for project coverage and the level of compliance requirements under the regulation. Such changes
could lead to modest differences in the overall project profile by size and/or duration, which in turn could
affect the total quantity of in-scope acreage and/or the estimates of total compliance cost for in-scope
projects. In addition, firms may identify methods, on a specific project basis, that enable them to meet the
rule's requirements using lower cost practices/ technologies.
November 23, 2009 4-45
-------
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 5: Analysis Overview
Overview of the Economic Impact Analyses
This chapter presents an overview EPA's methodology for analyzing the economic impacts of the regulation. EPA
has employed a number of different methods for assessing the economic impacts on C&D businesses and
consumers of construction industry output at the project-level, firm-level, industry-level, and national-level.
This overview section summarizes some of the key underlying concepts and assumptions EPA has used to develop
and implement the economic analysis methodology, including the regulatory baseline and the mechanisms by which
the final rule may affect the C&D industry. The last part of this overview summarizes the various methodologies
developed for this EA and how the rest of the chapter is organized.
5.1 The Regulatory Baseline
EPA's standard practice in developing regulatory baselines is to assume full compliance with all existing state and
federal regulations that affect the entities in the analysis. For the economic analysis, EPA assumes that affected
C&D markets have fully implemented the existing Phase I and II stormwater regulations and any state-level
requirements. EPA also assumes that industry will be in 100 percent compliance following promulgation of the
final rule. These criteria define the general regulatory baseline criteria for this economic analysis.
In addition to these general regulatory baseline conditions, EPA has established detailed information that
describes the nature, composition, and quantity of baseline industry activity against which the regulation's
incremental effects are measured. The baseline specifications that support the economic analysis are detailed in
Chapter 4 - Developing the Analysis Baseline, which estimates key baselines metrics describing the C&D
industry, model construction firms, and developed acreage that underlie the analysis of the regulatory options.
Please refer to Chapter 4 for the results of the baseline analysis.
5.2 Mechanisms by which C&D Markets May be Affected by the Final Rule
Some of the mechanisms by which the C&D industry regulation can potentially affect product markets and, as a
result, induce impacts of concern in the analysis of a C&D industry regulation include:
1. Regulatory requirements may increase construction costs and lengthen project construction periods, which
further increases total project costs. Increased project costs may in turn adversely affect the financial
performance of construction projects and the firms that undertake these projects and/or increase the prices
paid by consumers of C&D industry output. Increased prices will increase sale prices or rents of completed
projects. The extent to which increased construction costs manifest as higher sales prices and rents will
depend on supply and demand elasticities in specific construction product markets. These elasticities may
vary substantially both over time, across regional markets, and within regional markets according to supply
and demand conditions in specific product segments.
2. Consumers' response to increased project prices can affect the overall bundle of characteristics (e.g., size,
technical design and finished product specifications) that determine consumers' value of, and price paid for,
the finished real estate product. Faced with increased construction costs and potential price increases for a
finished product, consumers (and project developers as their surrogate) may select lower cost specifications
on other aspects of final project design. The flexibility to adjust project design specifications can buffer
consumers from the construction cost increase and upward price pressure resulting from regulatory
requirements, but may also result in trade-offs of valuable attributes. Such flexibility is particularly important
November 23, 2009
5-1
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 5: Analysis Overview
if the potential construction cost and price increases are substantial and consumers faced income-based
constraints on the price (or rent) that may be paid for the finished product.
3. If producers are unable to pass all increased costs along to consumers in the form of higher prices, this could
lead to weakened financial performance of and lower employment among, C&D industry businesses.
Affected businesses may lose business value and could face financial stress, leading potentially to reductions
in business activity and, in the worst case, closure of individual businesses. Given the relative fluidity of the
C&D industry sectors expected to be affected by this regulation, idled economic resources - i.e., labor and
capital - might be redeployed relatively quickly into other existing C&D industry businesses or new industry
entrants. Regional and temporal variation in market response to increased construction costs and potential
price effects may lead to substantial variation in the extent and character of impacts within the C&D industry.
4. Increased project costs and associated pressure on project prices for new finished product may spill over into
price effects - as increased sales prices or rents, in the present and in the future -for existing finished
product or new product not subject to the regulation's requirements. Because the quantity of new home sales
represents a small fraction of total home sales, EPA does not expect this effect to be significant.
5. Conversely, the presence of existing finished product and new product not impacted by the rule serves as
competition for newly constructed finished product andean thus limit the potential for upward pricing
pressure on finished product subject to the regulation's requirements. The presence of existing finished
product provides a buffer against price and rent increases to C&D industry product consumers.
6. Regulatory requirements may change the expected profitability (economic rent) of undeveloped land. Overall,
the C&D rule is expected to increase the production costs of C&D industry output. As described above, the
increase in production costs can be pushed forward to consumers via increased prices and/or become a
reduction in profits to C&D industry firms. These two potential incidences of effect are the primary focus of
the economic impact analysis undertaken for the final C&D rule. However, the increase in production cost
can also be pushed upstream in the production chain and lead to reduced value of undeveloped land, and
thereby affect a third incidence category. To the extent that the increase in production costs is capitalized into
the prices for undeveloped property, the reduction in value of undeveloped property can become an offset to
an increase in project costs and buffer the project developer/construction firm and/or consumers from the
economic/financial effects of regulatory requirements as assessed in this economic impact analysis. This
effect does not mean that the reduced value of undeveloped property reduces the overall costs of the
regulation, but rather, it represents a potentially different distribution of the rule's effects, where some of the
costs of the regulation are shifted to the owners of undeveloped property in the long-run.
7. These effects will vary depending on the compliance requirements that apply to properties of given physical
characteristics. On a relative basis, some undeveloped properties will become less valuable as a result of a
regulation while others could become more valuable. The differential changes in economic rent and value of
undeveloped properties may also cause shifts in the ordering and timing of project development. On the
margin, the economically desirable time for project development will be delayed for some properties while
being accelerated for other properties. For example, in a given local market, all else equal, the development of
in-scope undeveloped property may be delayed while the development of out-of-scope undeveloped property
may be accelerated.
All of these regulatory response effects - increased construction costs from regulation compliance; distribution of
compliance costs among owners of undeveloped property, construction businesses, and consumers; changes in the
characteristics of C&D industry finished product; and potential effects on the timing and configuration of property
development - reflect the internalization of construction-related costs to society that are currently not accounted
for in the private transactions of property purchase, development, and sale/rent. These cost and price effects, and
the decision responses by property owners, producers and consumers, are indicative of the correction of
5-2 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 5: Analysis Overview
production costs and market prices to account for the costs to society that were previously unaccounted for in the
various affected transactions.
Of these effect mechanisms, EPA considers items 1, 2, 3, and 7 to be of most importance in causing a material
regulatory impact. Of these, items 1, 2, and 3 are able to be addressed in this cost and economic impact analysis.
5.3 Summary of Economic Impact Analysis Models and Organization
This section provides a summary of the analysis methodologies developed for the EA and how the next five
chapters are organized:
> Chapter 6 - Analysis of Firm- and Industry-Level Economic Impacts. Assessment of the cost and
economic/financial impact of regulatory requirements on C&D industry firms, and the potential industry-
level effects in terms of numbers of firms that may be adversely affected, potential employment at risk,
and total costs to the C&D industry for regulation compliance;
> Chapter 7 - Projection of Cost and Impacts. Analysis that simulates the rule's phase-in over the period
2010 - 2014 and projects the estimated total cost out to the year 2025. This analysis accounts for the
expected phase-in of compliance over the first five years as states renew their Construction General
Permits, the expected phase-in of the rule's requirements during that period, and estimated levels of C&D
activity for the years 2010-2014.
> Chapter 8 -Analysis of Single-Family Housing Affordability Impacts. An assessment of housing
affordability, where impacts are measured in terms of the expected change in price for median- and
lower-quartile priced new single-family homes and the associated number of prospective home buyers
that may experience an affordability effect due to the price change;.
> Chapter 9 - Analysis of Social Cost. An assessment of partial equilibrium market effects in the C&D
industry building sectors is used to adjust the initial firm-level estimate of total resource cost of
compliance to account for the potential reduction in C&D industry output. The analysis also estimates the
overall social welfare loss to society arising from the change in each market's output level. The quantity-
effect-adjusted resource cost of compliance and the additional social welfare loss comprise two
components of the total social cost of the final rule.
> Chapter 10 - Analysis of Economy- Wide Output and Employment Impacts. An input-output multiplier
analysis that considers total economy effects - in terms of output and employment - based on the total
change in demand for society's resources arising from (1) compliance outlays, and (2) the reduction in
C&D industry output. The analysis also estimates the net change in demand for society's resources arising
from these two effect mechanisms; and,
November 23, 2009 5-3
-------
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 6: Firm Analysis
6 Analysis of Firm- and Industry-Level Economic Impacts
The firm- and industry-level analysis examines the impact of the rule's compliance costs on firms in the major
C&D industry segments that are expected to incur compliance requirements and costs because of the regulation:
> Single-family residential construction
> Multifamily residential construction
> Industrial building construction
> Commercial and institutional building construction
> Non-building construction.
EPA began this analysis by assessing the effect of compliance requirements and costs on C&D projects, and then
carries this project-level assessment to the level of C&D firms for the assessment of firm and industry-level
effects. C&D firms are the appropriate entity for assessing the impact the regulation in terms of effects on
financial performance, business value, and employment because these are the entities that will be responsible for
incorporating the regulation's requirements into their construction project operations. The firm- and industry-level
analysis is based on model firms that represent the baseline (i.e., pre-regulation) financial performance and
condition of "typical" businesses in these industry segments. These model firms are used in combination with
model project-based compliance cost estimates to examine the potential for financial stress, employment effects,
and increased barriers to the entrance of new firms to the industry.
The model firms are structured as baseline financial statements for each of the NAICS sectors that align with the
C&D industry segments expected to be affected by the regulation, and within NAICS sectors, by revenue size
ranges for which data are reported by the Statistics of U.S. Business (SUSB) and the Economic Census (see
Chapter 4). The financial statements for the model firms are constructed to capture two business condition cases
for the firm-level analysis:
1. A General Business Conditions case, which is meant to reflect the financial performance and condition of
C&D industry businesses during normal - neither excessively strong nor weak - economic conditions for the
specific industrial segments. The analyses under the General Business Conditions case examine the potential
for unfavorable impacts on firms over the longer term of general steady-state business conditions in the C&D
industries.
2. An Adverse Business Conditions case, which is meant to reflect the financial performance and condition of
C&D industry businesses during weak economic conditions for the specific industry segments. As described
above in Chapter 3: Economic Profile of the Construction and Development Industry, the conditions that the
residential construction sub-sector faced in 2007 and 2008 - prior to the recovery this sub-sector is currently
experiencing - and the nonresidential sub-sector faced in 2003 as well as the current decrease in
nonresidential activity could be interpreted as matching the Adverse Business Conditions case. During these
periods, the potential economic/financial impact of the C&D rule on some firms in the industry may be
relatively greater due to their weakened financial performance and condition and lower ability to recover
compliance costs from customers. Thus, the analyses under the Adverse Business Conditions case provide an
alternate, more severe case assessment of the potential for adverse financial impact on firms as a result of the
C&D rule.
The two business condition cases are differentiated by the baseline operating financial circumstances of the model
firms as well as other important factors in financial performance, including cost of debt and equity capital, and the
estimated ability of the model firms to recover compliance costs from customers via price increases.
November 23, 2009
6-1
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 6: Firm Analysis
Impact findings are assessed in terms of occurrence of compliance costs exceeding impact thresholds, increased
frequency of weak financial condition and performance, and occurrence of negative business value due to
compliance costs. The findings from the analysis of model firms are aggregated by revenue size range and total
industry sub-sector to assess the total potential adverse impact in the various sub-sectors. These impact findings
are also used in assessing the potential impact of the C&D rule on small entities. The model firm analysis also
supports an assessment of potential barriers to entry for new businesses seeking to enter the C&D industry.
The top two boxes in Figure 6-1, "Model Projects (and compliance costs)" and "Model Firms," represent EPA's
characterization of the baseline as described in Chapter 4. This chapter differs from Chapter 4 in that the costs of
compliance are assigned in this chapter to the model projects, in order to conduct the economic impacts analysis
of the regulatory options.
This chapter introduces the step of assigning model projects to model firms. This step was not introduced in the
baseline chapter because this step is not necessary for determining the baseline. This step is inherently a
forecasting exercise, as the projects being analyzed do not exist yet. As such, there are many ways to assign
model firms to model projects, and no single rule or simple set of rules is likely to be truly representative of the
future actual distribution of projects to firms.37 In the absence of primary industry survey data that would show
which firms had previously done which projects, EPA instead made a series of reasonable allocation assumptions
that are consistent with economic theory.
The duration and timing of projects are important features of the allocation of projects to firms. Think of firms as
having an annual acreage capacity, as determined by their annual revenue and the acreage intensity for the
sector/type of construction project they perform. Within this construct, duration and timing determine the ability
of firms to undertake projects of a given size and duration. In terms of duration, whether projects are completed
within a year or take longer than a year influences the potential for firms to undertake projects of a given size: if
projects are completed over a longer performance period, firms will generally be capable of performing larger
projects. In addition, in terms of timing, the firm's annual acreage capacity for performing new projects is also
determined by projects undertaken in that year, and whether some capacity is already accounted for by projects
begun in prior years as well as projects newly undertaken in that year. In other words, when allocating projects to
firms according to their capacity, it is important that duration and timing are taken into account.
The project matrix introduced in Chapter 4 represents projects ranging from the SW corner of the project matrix
(largest acreage in shortest duration) as having the fewest firms capable of performing that project, to those
projects in the NE corner of the project matrix (smallest acreage over longest duration) as having the most firms
capable of performing that project (indeed, all firms). EPA determined that a very logical assignment algorithm,
perhaps even well represented in the real world, would be to assign projects beginning with the relative scarcity of
capacity associated with the SW corner and then proceed to the relative abundance of capacity associated with the
NE corner.
37 EPA also performed a sensitivity analysis that tests the sensitivity of firm- and industry-level impacts to changes in the allocation
method used in EPA's primary analysis (see Appendix C).
6-2 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 6: Firm Analysis
Figure 6-1: Overview of Firm and Industry Impact Analysis Framework
Model Projects
(Chapter 4)
Defined by:
• Size
• Duration
Number of Projects by:
• State
• Sector
Model Firms
(Chapter 4)
Defined by:
• Sector
• Revenue size range
• Financial Performance
& Condition
Number of firms by state
Assign Model Projects to Model Firms
(Section 6.2)
Based on:
Project performance capability by firms
Relative performance capacity across model
firms, accounting for number of firms by sector
and state
Assess Impact for Model Firm and
Model Project "Combinations"
(Section 6.3)
Assign compliance costs
Adjust baseline income statement and balance
sheet
Calculate impact metrics:
• Cost-to-revenue greater than 1% and 3%
• Deterioration of key financial performance
measures, pre-tax ROA; EBITto
interest — indicator of financial stress
• Occurrence of negative business value —
indicator of potential closure
Estimate occurrence of adverse impact
outcomes based on baseline distribution of
financial performance and condition, by model
firm
Calculate Business Impacts at Industry-Level
(Section 6.4)
Extrapolate impact findings for model firm/
project combinations to industry-level based
on number of firms assigned for each model
project case
Calculate total impacts by summing over state
and sector-level results to total industry
Model Project Assignment Algorithm
(Section 6.2)
Assess feasibility of model project
performance by individual model firms,
based on model firm in-scope revenue
and operating model, and annual project
value per model project acre
Rank projects (defined by size &
duration) according to total industry
performance capacity — least to highest
capacity
Successively assign projects to model
firms in proportion to performance
capacity of individual model firm
categories
Account for assignment of projects to
firms
• "used up" and remaining projects
• "used up" and remaining firms
Assign compliance costs to project
feasible model firms based on specific
model projects assigned
Creates "combinations" of model firms
and model projects for impact
assessment — with number of firms, by
state and sector, assigned for each
model firm and project combination
Industry-Level Cost and Impact
Findings (Section 6.4)
Total compliance cost to industry
Number of firms by revenue range
with:
• Cost exceeding 1% and 3%
of revenue
• Financial stress
• Negative business value
Number of employees in affected
firms
November 23, 2009
6-3
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 6: Firm Analysis
The following sections describe the data sources and approach for the firm-level analysis:
> Section 6.1: Review of Model Projects and Model Firm Concepts
> Section 6.2: Assigning Model Projects and Associated Compliance Costs to Model Firms
> Section 6.3: Estimating the Change in Model Firm Financial Performance and Condition
> Section 6.4: Applying the Findings from the Model Firm Analysis to the Total Industry
> Section 6.5: Assessing Potential Barriers to Entry of New Businesses to the C&D Industry.
Figure 6-1: Overview of Firm and Industry Impact Analysis Framework, following page, provides a schematic
summary of the overall firm and industry impact analysis described in Sections 6.1 - 6.4.
I of Model Projects and Model Firm Concepts
The two primary input components underlying the firm and industry level analysis are:
1. The model projects, with the associated compliance costs, and
2. The model firms.
In the impact analysis, model projects and model firms are brought together, according to the assignment
algorithm described in Section 6.2, to provide model project/model firm combination cases for the impact
analysis. The model project and model firm frameworks are described in depth in Chapter 4. This section
provides a brief review of these analysis components.
6.1.1 Model Projects
EPA developed estimates of the total acreage and number of projects potentially subject to compliance
requirements for the C&D rule, by state and construction subsector, within a model project matrix structured by
12 project durations and 12 project sizes. Each cell of the resulting 12 x 12 (144 cell) matrix contains a number of
projects (and associated acreage) for which compliance costs were estimated for each of the compliance outlays
considered in developing the C&D final rule. Analyzing compliance costs within this project framework supports
differentiation of how the technologies and associated compliance costs of alternative regulatory options vary
with project size and project duration. Exhibit 6-1, below, illustrates the structure and content of the model project
matrix.
Exhibit 6-1: Illustration of Model Project Matrix
^
M
sS
a
1
5«
.§
X
-^-i
a
?
a.
1-3
3-5
5-7.5
7.5-10
10-15
15-20
20-30
30-40
40-60
60-80
80-100
>100
Project Durations (months)
<1.5
1.5-3
3-6
6-9
9-12
For each state a
each cell is defir
> Number of
> Total acrea
And for each rej
compliance cost
12-15
nd construction s
led by a:
projects and
ge
julatory option, by
15-18
18-21
21-24
jbsector,
an estimated
^
24-30
:::::::
30-36
>36
6-4
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 6: Firm Analysis
EPA performed the estimation and assignment of compliance costs to model firms on a state-by-state basis for
each regulatory option. EPA estimates that the frequency and level of compliance requirements and compliance
costs per acre of construction activity will vary from state to state. The variation over states results from three
factors:
1. The presence of state requirements that already capture elements of the compliance requirements of a given
regulatory option. For those states in which all or part of the requirements of a given C&D rule regulatory
option are already required by the states, EPA adjusted the compliance costs per acre to reflect only the
incremental requirement, if any, for the regulatory option in estimating costs for the state.
2. For some regulatory options, variation by state in soil characteristics and rainfall levels, which may affect the
extent and character of compliance response required for a regulatory option. For example, states with more
frequent occurrence of large rainfall events will typically have higher compliance costs for a given regulatory
option.
3. Variation in compliance activity costs by state resulting from differences in labor and other compliance input
costs by state.
As a result of these factors, for certain regulatory options, some states have no or substantially lower compliance
costs per acre of in-scope construction activity than other states. As a result, the assessments of aggregate
subsector and industry level impacts described in later sections of this chapter are based on model firm analyses
that are performed on a state-by-state basis. The state-by-state findings are then aggregated to the national level to
yield national cost and impact results.
6.1.2 Model Firms
EPA defined model firms for each of 6 construction subsectors and by 7 revenue ranges, resulting in a 42-cell
matrix of model firms. Exhibit 6-2, below, illustrates the structure and content of the model firm matrix.
Exhibit 6-2: Illustration of Model Firm Matrix
NAICS Sector
and Name
236115
236116
236117
236210
236220
237310
Mew single-family housing
Mew multifamily housing
Mew housing operative builders
Industrial building
Commercial/institutional building
Highway, street, and bridge
Revenue Ranges
Range 1 :
$100,000 -
$1 million
Model firms
Association
quartile per
on Econom
Range!:
$1 - $2.5
million
Range 3:
$2.5 - $5
million
Range 4:
$5 -$10
million
Range 5:
$10 - $50
million
Range 6:
$50 - $100
million
Range 7:
>$100
million
5 defined by baseline financial statements based on Risk Management
data; differentiated by sector, revenue range, and median, low and high
formance/condition; firm counts by state, sector, and revenue range based
ic Census and SUSB data
Within the 42-cell matrix defined by construction subsector and regulatory requirement, model firms are further
differentiated by baseline financial performance and condition based on the low, median, and high quartile values
of key financial metrics reported by Risk Management Association (RMA), which leads to 126 model firm
financial statements underlying the firm-level analysis. The differentiation of firms by subsector, revenue range,
and baseline financial performance/condition supports assessment of the potential impact of regulatory
requirements on firms across the diversity of these defining characteristics. Each model firm - by state, subsector,
and revenue range - is associated with a specific number of firms that serve as analysis weights for extrapolating
findings from the model project/model firm analysis to the level of the industry - again differentiated by state,
subsector, and revenue range.
November 23, 2009
6-5
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 6: Firm Analysis
6.2 Assigning Model Projects and Associated Compliance Costs to Model Firms
As described above, EPA developed compliance cost estimates for regulatory options on the basis of model
projects defined by project duration, project acreage, state, and construction subsector. The objective of this part
of the firm- and industry-level analysis is to assign the model projects and the associated compliance cost
estimates to the model firms to support assessment of the firm- and industry-level financial impacts of the C&D
regulation.
The assignment of model projects (and associated compliance costs) to model firms involved the following steps:
1. Assessment of the feasibility of performance of a given model project by individual model firms
2. Assignment of model projects to model firms
3. Assignment of compliance costs for the economic/financial impact analysis.
Each step is discussed below. All elements of this assignment procedure are performed by state and construction
subsector.
6.2.1 Assessing the Feasibility of Model Project Performance by Individual Model Firms
The first step in assigning model projects to model firms is to assess the feasibility of model firms to perform the
individual model projects present for a given state and construction subsector. The test of performance feasibility
is required because not all model firms are capable of performing the full slate of model projects present for a
given state and construction subsector. Specifically, larger firms are capable of performing larger, shorter duration
projects that would not be feasible for smaller firms, which have smaller performance capacity in terms of the size
and duration of the projects that they are capable of undertaking.
The test of performance feasibility involves comparing:
> For a given model firm, the Annual Effective Performance Capacity, or steady state maximum project
acreage on an annual effective performance basis (i.e., acres of performance capacity per year), that the
model firm is estimated capable of performing - assuming that the model firm performs only in-scope
projects of a given duration
with
> For a given model project the Annual Effective Performance Requirement of the project, which is based
on project size and the duration over which the project is performed. The annual effective performance
requirement is the number of acres of project performance capacity -for a model firm - that is required
for performance of the project on an annual equivalent basis (i.e., acres of performance requirement per
year). To illustrate, a 5 acre project performed over a 6 month period requires 10 acres of annual
performance capacity in order to be undertaken by a model firm, while a 5 acre project performed over a
12 month period would require 5 acres of annual performance capacity. Similarly, a 5 acre project period
over a 24 month period would require 2.5 acres of annual performance capacity.
The discussion below provides further definition of these concepts and the details of their calculation.
If the model firm's Annual Effective Performance Capacity exceeds the model project's Annual Effective
Performance Requirement, then the model firm is assumed capable of performing the model project. These
comparisons are performed for all possible combinations of model projects and model firms for a given state and
construction subsector. The feasibility determination is independent of the actual number of model projects that
will need to be assigned to model firms, and likewise is independent of the actual number of model firms to which
the model projects will be assigned.
6-6 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 6: Firm Analysis
The model firm's steady state Annual Effective Performance Capacity is a function of:
> The model firm's baseline in-scope revenue. In-scope revenue, together with the other factors described
below, is a key determinant of a model firm's project performance capacity. All else equal, the larger the
model firm's revenue, the larger will be the size of project that the firm is capable of performing.
> The acreage intensity of the model project category. As described previously in Chapter 4, acreage
intensity is the acreage quantity per dollar of construction project value (which is assumed to translate to
business revenue) and was estimated by EPA for the principal construction activities - single-family
housing construction, multifamily housing construction, commercial project construction, and industrial
project construction - estimated to be within the scope of the C&D rule. Acreage intensity is used as the
translator between a firm's in-scope revenue and the annual effective project acreage that the model firm
is capable of performing.
> The assumed steady state operating model of the firm, in terms of the length of time between project
starts. That is, how long following the start of one model project (or bundle of model projects of the same
size and duration) before the model firm begins another model project(s), with the assumption that the
length of time between project starts is, by definition, no longer than the duration of the model projects
under analysis.38 This factor interacts with the duration of the model project under analysis to determine
the total number of model projects, of a given type, that a firm will have ongoing in a single analysis
year - accounting both for the model project (or bundle of model projects) started in that year and for the
model projects (or single-year project bundles) that may have started in prior years but remain ongoing
(and continuing to generate compliance costs) in the current analysis year. The factor is particularly
important for understanding the potential for smaller revenue firms - and otherwise smaller project
performance capacity firms - for performing in-scope projects. To illustrate, in the steady state, if a firm
starts a new project, or round of projects, each year, and those projects last longer than one year, then the
firm will have more than one year's projects ongoing in any given year. The ongoing performance of
projects from more than one year of project starts will use up some of the firm's project start capacity, in
any given year. Alternatively, in the steady state, if a firm does not start a new project, or new round of
projects, each year, but instead waits to complete the ongoing project(s) from a given year before starting
new projects, then the firm will have ongoing only the project(s) from one year at any time - even though
those projects may require longer than one year to complete. In this case, all else equal, the firm will be
able to start and undertake a larger project in a given year than would otherwise be possible if the firm
starts a new slate of projects in each year.
For the final rule analysis, EPA's adopted the following operating model assumptions:
• Larger firms - Revenue of at least $50 million (Revenue Ranges 5-7) - will start a new project/slate
of projects each year. This assumption is consistent with the expectation that these firms will
replenish annually their ongoing project slate, adding new projects to replace the slate of projects
completed in the prior year, regardless of the duration of the projects.
This assumption reflects the more general expectation that firms operate in a steady state in which the
character of their business is effectively the same from year to year. The alternative assumptions
adopted for mid-range firms and smaller firms, as described below, deviate from this model in
delaying the start of new projects and increase the potential of these smaller revenue firms to
undertake larger projects, which would otherwise exceed these firms' Annual Effective Project
Performance Acreage - if a new round of these projects were started in each year.
Otherwise, the firm would have operating gaps, in which no projects were being performed and no project revenue generated.
November 23, 2009 6-7
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 6: Firm Analysis
• Mid-range firms - Revenue between $5 and $50 million (Revenue Ranges 4-5) - will start a new
project/slate of projects after a two year lag, for model projects that are at least two years duration.
For model projects that are less than two years duration, these firms are assumed to start a new slate
of projects each year. This assumption increases the potential for this size of firm to undertake larger
projects.
• Smaller firms - Revenue less than $5 million (Revenue Ranges 1-3) - will not start a new
project/slate of projects until the completion of the current project/slate of projects. In this case, the
project start lag is the duration of the model project under analysis for projects longer than one year.
This assumption maximizes the potential for smaller firms to undertake a given project alone, by size
and duration.
In all instances, for any model projects of one year or longer, the project start lag is assumed to be no
longer than the duration of the model project under analysis (otherwise the firm would have revenue
gaps). Because the basic time unit of the model project analysis is one year, the project lag concept
applies to the re-starting of an annual project, or bundle of projects. Thus, for projects of less than one
year duration, the project start lag remains one year. However, projects that are less than one year
duration are assumed to be performed sequentially over the course of an analysis year, and the full slate of
projects completed in a given year is assumed to be replenished in the following year.
> Duration of the model project. As described above, model project duration interacts with the project start
lag to determine the number of model projects ongoing in a given analysis year - including both the
projects from the current year and projects continuing from prior years. For projects of greater than one
year duration, EPA assumed that the model project, and its value, could be spread uniformly over the
project's duration for determining the annual effective performance requirement of the model project.
When the number of projects ongoing includes projects from prior years, the model firm's annual
effective project acreage that is available for performing new model projects is reduced to account for the
project performance capacity that is being used for those projects from prior years.
The model project's Annual Effective Performance Requirement is a function of:
> The model project's total acreage. Ability to perform a project of a given acreage is the fundamental
requirement of the project feasibility test.
> Duration of the model project. Given the model project's total acreage, project duration determines the
annual effective performance requirement for the project. As described above, for projects of greater than
one year duration, EPA assumed that the model project could be spread uniformly over the project's
duration for determining the annual effective performance requirement of the model project.
The equations for determining the model firm's Annual Effective Performance Capacity and the model project's
Annual Effective Performance Requirement, for a given model project case, are as follows:
Annual Effective Performance Capacity d,;
(1)
(Revenue «*•, rr * Acreage _ Intensity
(Project Duration Pj ProjectStart Lag d, rr)
Where:
Annual_Effective_Performance_Capacity
= The steady state maximum project acreage, on an
annual effective performance basis, for performance
of new model projects of a given project duration d,
for a model firm in sector sctr and revenue range rr
6-8
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 6: Firm Analysis
(model firms are denoted according to their sector sctr
and revenue range - rr)
Revenue sctrjrr = Model firm in-scope revenue by sector sctr and
revenue range rr
Acreage_Intensity sctr = Acres per Dollar of Project Value by sector sctr
Proj ect_Duration p = Duration in years for model proj ect p
Project_Start_Lag 4 „ = The lag between starts of model projects (or bundles
of projects), for projects of duration d for model firms
in revenue range rr; constrained to be less than or
equal to the duration of the model project under
analysis, but no less than one year.
A 7 T-M ,• r> r D • , Acreage p (2)
Annual Effective Performance Requirement P =
Project Duration P
Where:
Annual_Effective_Performance_Requirement p = Project performance capability, on an annual effective
performance basis (acres per year), that must be met by a model
firm in order to perform model project/) (model projects
defined by acreage and duration)
Acreage p = Acreage for model project/)
Proj ect_Duration p = Duration in years for model proj ect p
As described above, if the model firm's Annual Effective Performance Capacity exceeds the Annual Effective
Performance Requirement for the model project under analysis, then the model firm is deemed capable of
performing the given model project.
6.2.2 Assigning Model Projects to Model Firms
Based on the findings from the feasibility test, EPA assigned model projects to model firms. Unlike the previous
step, the assignment of model projects to model firms accounts for the estimated number of industry-level firms,
by state and subsector, required to perform the estimated number of model projects, again by state and subsector.
In this part of the calculation, the industry-level number of firms, by state and subsector, for each revenue range
category serves as an analysis weight for the model firms that represent the state, subsector, and revenue range.
Thus, multiplying information determined at the level of the model firm - e.g., project performance capacity or an
impact analysis result - by the model firm analysis weight, yields an industry-level finding, for a given state,
subsector, and revenue range. Similarly, the number of model projects, by state and construction subsector, serves
as an analysis weight for calculating the total number of projects and annual effective performance requirement,
by model project size x duration category, that are assigned to model firms.
The assignment accounts for the following:
> Relative industry-level performance capability across model firm categories for performance of individual
model projects - i.e., accounting for the performance capability of individual model firms and the number
of firms, at the industry level by state and subsector, that the model firm represents.
> Relative performance capability for a given model project across the model firm categories that are
assessed as capable of performing a project of that size and duration.
November 23, 2009 6-9
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 6: Firm Analysis
> "Using up" of the actual firms, by state and subsector, available for project performance; "using up" of
the actual projects, by state and subsector, to be assigned to the model firms.
As the first step in the assignment algorithm, EPA calculated the totalfeasible project performance capacity, on
the basis of annual effective acreage, for all model projects that are estimated to occur in a given state and
construction subsector. The total feasible project performance capacity for a given model project is calculated by
multiplying the industry-level number of firms (the analysis weight, as described above), by state and subsector,
times the Annual Effective Performance Capacity calculated for the model firm in the preceding section (see
equation (1)), and summing this value for all model firms that were found feasible of performing the given model
project in the calculations of the preceding section. The equation for this calculation is as follows:
Total Performance Capacity s,sctr,p = (3)
(Fsctr.rr.p * N Firms s,Sctr,rr * Annual Effective Performance Capacity rr, #
Where:
Total_Performance_CapacityS)SCtr)p = The total feasible project performance capacity, in annual
effective acreage, for model project/), in state s and sector sctr
Fsctr !IT)P = Whether model firm representing revenue range rr is assessed
as capable of performing project/) in sector sctr; 1 = feasible,
0 = not feasible
N_Firms SjSCtr]rr = Number of firms in state s, sector sctr and revenue range rr
Annual_Effective_Performance_Capacity n-,P,sctr = Annual effective performance capacity in acres per year, for
model firm rr, for project/), in sector sctr, from equation (1),
above
In the second step of the assignment algorithm, EPA ranked all model projects, for a given state and sector, from
lowest to highest, based on Total Performance Capacity, in annual effective acreage. The purpose of this ranking
is to identify those projects for which the least performance capacity is available, and subsequently to begin
assignment of model projects to model firms starting with those model projects for which the least performance
capacity is available. In general, the model projects for which least performance capacity is available are large
acreage, short duration projects. Based on the feasibility calculation outlined above, these projects require the
largest Annual Effective Performance Capacity by a model firm in order for the model firm to be able to
undertake the project, and as a result, fewer firms will have sufficient revenue and annual project performance
capacity for these projects than for projects of smaller acreage and/or longer duration. Said another way, the
"more difficult" projects are larger, shorter duration projects, and "less difficult" projects are smaller, longer
duration projects. EPA assigned model projects to model firms beginning from the model projects for which the
least performance capacity is available to ensure that sufficient project performance capacity would be available
to perform these projects: the requirements for these projects are "met" before moving to successively "easier"
projects, for which more model firms were found feasible to undertake.
In the third step of the algorithm, EPA worked sequentially through the ranked schedule of model projects to
assign model projects to the project-feasible model firm categories. Model project performance responsibility is
assigned to each of the project-feasible model firm categories (defined by revenue range) in proportion to the
available annual effective performance capacity of each individual model firm category out of the total available
performance capacity across all model firm categories that were found feasible of performing the given model
project. In effect, under this assignment step, whenever a given model firm is determined capable of performing a
given model project and "some " of that model firm 's analysis weight remains available for assignment, the
6-10 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 6: Firm Analysis
model firm category will be assigned its proportionate share of model project performance. The procedure
described below repeats iteratively through the cells of the model project matrix (see Exhibit 6-1, above) until all
projects and acreage have been assigned to model firms.
As in other steps of this algorithm, the assignment of model project performance is done on the basis of the
Annual Effective Performance Requirement for the given model project (calculated in equation (2)). The total
acreage performance requirement assigned for a given model project is calculated as follows:
Totalperformance ^Requirement s,sctr,P =
N_Projects s,sctr * Annual _ Effective _ Performance ^Requirement,
(4)
Where:
Total_Performance_RequirementS)SCtrjp
N_Projectss,sctr
Annual_Effective_Performance_Requirementp
The total project performance requirement, in annual
effective acreage, for model project/), in state s and sector
sctr
Number of model projects in state s and sector sctr
Project performance capability, on an annual effective
performance basis (acres per year), that must be met by a
model firm in order to perform model project/) (model
projects defined by acreage and duration), from equation (2)
The quantity of model project performance responsibility (in annual effective acreage) assigned to a given model
firm category (defined by sector and revenue range), for a given model project category, is calculated as follows:
Project Performances,Sctr,P,rr = Total Performance Requirements,
Sctr,P
(5)
(Remaining Firms s,sctr,rr * Annual Effective Performance Capacity sctr.rr.p)
^ (Remaining Firms s,sctr,rr * Annual Effective Performance Capacity sctr,rr,p)
Where:
Proj ect_PerformanceS!SCtrjrr)p
Total_Performance_Requirement S]SCtr)p
Remaining_Firms SjSCtr!lT
Annual_Effective_Performance_Capacity
Project performance responsibility, in annual effective
acreage, for model project/) assigned to model firm category
rr, in state s and sector sctr
The Total Project Performance Requirement, in annual
effective acreage, for model project/), in state s and sector
sctr, from equation (4)
Number of firms in state s, sector sctr and revenue range rr,
remaining after assignment of project performance
responsibility for preceding model projects in the model
project assignment schedule
Annual effective performance capacity in acres per year, for
model firm rr, for project/), in sector sctr, from equation (1),
above
The assignment of model project performance responsibility to model firms generates the impact analysis
combination cases - combinations of model firm and model project - that underlie the cost and financial impact
analysis discussed in the next section. For each analysis case, it is necessary to know the number affirms at the
November 23, 2009
6-11
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 6: Firm Analysis
industry-level to which the analysis case applies. This value, which becomes the model firm analysis weight in the
impact case analysis, is calculated by converting the Project Performance value from an annual effective acreage
concept to a number affirms concept, as follows:
_r „ Project Performance s,Sctr,rr,P (6)
TV firmS S,sctr,rr, p =
Annual Effective Performance Capacity «*-, rr,P
Where:
N_Firms SjSCtr,rr,P = Number of firms in state s, sector sctr and revenue range rr,
to which model project/) performance responsibility is
assigned
Project_PerformanceSjSCtr!rr)p = Project performance responsibility, in annual effective
acreage, for the current model project/) assigned to model
firm category rr in state s and sector sctr, from equation (5)
Annual_Effective_Performance_Capacity n-,P,sctr = Annual effective performance capacity in acres per year, for
model firm rr, for project/), in sector sctr, from equation (1),
above
In equation (5), Remaining Firms refers to the number of firms in a given subsector and revenue range that remain
not fully assigned from the preceding model project assignments. At the beginning of the assignment algorithm,
Remaining Firms necessarily equals the number of firms in the subsector and revenue range. However, as firms'
project capacity is assigned for performance of projects, the Remaining Firms value is decremented to reflect the
remaining, not fully assigned firms balance. This updating of the Remaining Firms value uses the Number Of
Firms from equation (6) to decrement the number of remaining firms with unused project performance capacity as
the algorithm proceeds through the ranked schedule of model projects, according to the following equation:
Remaining Firms New s,Sctr,P,rr = Remaining Firms Prvs,sctr,P - N Firms s,Sctr,rr,P (7)
Where:
Remaining_Firms_New SiSC^n = Updated number of firms in state s, sector sctr and revenue range rr, remaining
after assignment of project performance responsibility for the current model
project
Remaining_Firms_Prv SjSCtr]rr = Number of firms in state s, sector sctr and revenue range rr, remaining after
preceding steps but before assignments for the current model project
N_Firms S)SCtr,n-,P = Number of firms in state s, sector sctr and revenue range rr, to which model
project/) performance responsibility is assigned in the analysis for the current
model project percent, from equation (6)
The updated Remaining Firms New is carried forward for analysis of the next model project in the schedule of
model projects as outlined in the description of model project ranking, above.
The final information item needed from this step of the project assignment algorithm is the number of model
projects assigned to each model firm. This data item is required to calculate the total compliance cost assigned to
the model firm in the impact analysis combination cases - combinations of model firm and model project - that
underlie the cost and financial impact analysis discussed in the next section. EPA developed compliance cost
estimates on a single model project basis; therefore, to know the total compliance cost assigned to a model firm, it
is necessary to multiply the single project compliance cost times the number of model projects assigned per model
6-12 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 6: Firm Analysis
firm. The number of model projects value is calculated by converting the Project Performance value from an
annual effective acreage concept to a number of model projects concept, as follows:
N Projects s,Sctr,rr, P = (8)
Project Performance s,Sctr,rr,P
(N Firms s,Sctr,rr,P * Annual Effective Performance _Requirement P]
Where:
N_Projects SjSCtr,rr,P = Number of model projects p in state s and sector sctr assigned
to each model firm rr
Project_PerformanceS!SCtrjrr)p = Total project performance responsibility, in annual effective
acreage, for the current model project/), assigned to model firm
category rr in state s and sector sctr, from equation (5)
N_Firms SjSCtr,rr,P = Number of firms in state s, sector sctr and revenue range rr, to
which model project/) performance responsibility is assigned in
the analysis for the current model project percent, from equation
(6)
Annual_Effective_Performance_Requirement p = Project performance capability, on an annual effective
performance basis (acres per year), that must be met by a model
firm in order to perform model project/) (model projects
defined by acreage and duration), from equation (2)
This assignment procedure continues until all model projects in the project ranking schedule are exhausted. The
result of the preceding steps is a set of impact analysis combination cases for use in the cost and financial impact
analysis cases. For each state and construction subsector, each impact analysis combination case is defined as a
combination of model firm and model project with the number of model projects assigned to each model firm, and
the number of industry-level firms that the analysis case represents.
In performing the above steps to assign model projects to model firms, EPA found for some states and subsectors
that the project assignment algorithm did not assign the full set of model projects to model firms. This result
occurred even though project performance capacity for the total industry exceeded the performance requirements
of the compliance projects. The shortfall occurred because of the limitations imposed by the project feasibility test
outlined in Section 6.2.1, above (see page 6-6): smaller and mid-size firms were not found project performance-
feasible early enough, and thus were not able to be assigned projects early enough, in the project ranking schedule
to meet the project performance requirements for some of the larger and/or shorter duration projects. In short, in
some instances, the assignment algorithm did not "clear the market." To allow all model projects to be assigned to
model firms - and thus "clear the market" - EPA adjusted the project feasibility test by adding a multiplier to the
calculation, which specifies a fraction less than one, by which the feasibility test can be relaxed. Specifically, the
multiplier indicates the fraction of Annual Effective Performance Requirement - from equation (2) - for a given
model project that a model firm must supply in Annual Effective Performance Capacity - from equation (1) - to
be assessed as capable of performing the model project. This multiplier was developed on a state- and sector-
specific basis to just exhaust the project performance needs of the state and subsector. Application of the
multiplier lets smaller and mid-size firms into the project performance feasibility set earlier than would otherwise
be the case, as the assignment algorithm proceeds through the ranking of model projects from least to greatest
performance capacity. Apart from allowing the assignment algorithm to clear the market, the overall effect of the
adjustment is to increase the participation of smaller and mid-size firms in the performance of in-scope projects.
A practical interpretation of this adjustment is that it simulates the performance of in-scope projects by a group of
firms - e.g., via joint venture/partnership or subdivision of a larger project into several smaller projects - as
November 23, 2009 6-13
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 6: Firm Analysis
opposed to requiring that a given model firm be capable of performing a given model project by itself in order to
be assessed as capable of performing the model project.
The procedure described above for developing the analysis combinations of model firms and model projects for
use in assessing potential firm- and industry-level impacts involves a specific preferential assignment concept in
which model projects, by state and subsector, are:
> Ranked and processed according to the industry-level capacity for project performance - least to highest -
or, in other words, according to project performance difficulty, with the larger acreage/shorter duration
projects for which less performance capacity is available, being assigned before smaller acreage/longer
duration projects are assigned.
> Assigned to the model firm categories that are assessed as capable of performing the given model project,
in proportion to the total performance capacity of each model firm category out of the total of
performance capacity that remains available across all model firm categories assessed as capable of
performing the given model project.
> Assigned to model firms, and subsequently analyzed, in such way that each model project/model firm
combination involves one specific combination of a model firm and a model project. Although the
procedure develops and analyzes as many as 1,008 model project/model firm combination analysis cases
for each state and construction subsector (144 cell model project matrix times 1 model firms defined by
revenue range in each construction subsector), each combination analysis case that is specifically
analyzed involves only one model firm and one model project. For the purpose of impact assessment, the
analysis does not consider cases in which a given model firm performs more than one kind of model
project. Moreover, as described more fully below, each model project/model firm combination analysis
case is analyzed as though the model firm performs the assigned model project in a way that exhausts the
full performance capacity of the model firm. This particular configuration does not match the reality of
how firms would likely perform in-scope projects: most C&D firms would not perform only in-scope
projects as the basis of their business and further would not perform only one kind of in-scope project.
However, this configuration provides a practical basis for assessing the business impact of performing in-
scope projects over a large set of model project/model firm combination cases. Moreover, by exhausting
each model firm's performance capacity, this configuration maximizes the assignment of compliance
costs and therefore the potential business impact of regulatory requirements.
Clearly, a virtual infinity of other assignment concepts are possible and will occur in actuality. However, EPA
judges that this assignment algorithm and the subsequent assessment of firm- and industry-level impacts on which
it is based, provide an appropriate basis for assessment of impacts. The preferential assignment concept - assign
most difficult projects first, assign performance responsibility across model firm categories in proportion to
capability at the industry-level - reflects the reality that larger firms are more likely to perform large/short
duration projects than smaller firms, and conserves the performance capacity of the larger capacity firms for these
projects. Conversely, smaller firms are more likely to perform smaller projects: these are the projects that they are
found feasible to perform, and that are assigned to them. In the typical profile of implementation of this algorithm,
a substantial share of large firms' performance capacity is used up in the assignment of performance capacity to
the larger/shorter duration projects. Then, as the algorithm reaches model projects that are "less difficult" for
performance - i.e., mid/small size projects of mid/longer duration - by mid- and smaller size firms, these firms
become increasingly capable of performing projects, and because of the much greater number of these mid- and
smaller size firms, they are assigned increasingly larger shares of performance responsibility for the mid/small
size projects of mid/longer duration. Overall, EPA judges this assignment concept to be reasonable in capturing a
plausible allocation of projects to industry firms for performance of the firm- and industry-level impact analysis.
6-14 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 6: Firm Analysis
Further, EPA judges that the assignment, and analysis, of model project performance responsibility to model
firms in such way that the performance capacity of each model firm is fully exhausted in performing the assigned
model projects, also provides a reasonable basis for the impact analysis. Specifically, this assignment and analysis
concept maximizes the assignment of compliance costs to the model firm, and therefore maximizes the potential to
find adverse financial impacts on the model firm in the analysis for each model project/model firm combination
analysis case. Alternative project assignment and analysis algorithms could be implemented in which each
project-feasible model firm would not be assigned project performance responsibility to the extent that the firm's
project performance is fully exhausted by the model project assignments. In this case, project performance
responsibility would be assigned to a larger number of firms within each state and construction subsector, but the
in-scope project performance responsibility and, therefore, compliance cost would generally be less for any given
model firm. As a result, the number of firms estimated to incur compliance costs in performing projects would
increase but the likelihood of finding an adverse financial impact in any given model firm/model project analysis
case would decrease.
6.2.3 Assignment of Compliance Costs for the Economic/Financial Impact Analysis
The result of the preceding steps is a set of model firm/model project combination analysis cases on which the
cost and financial impact analyses are performed. Each combination case is defined by:
> A model firm
> A model project
> The number of model projects that are assigned to the model firm - given the model firm's project
performance capacity on an annual effective acreage basis, and the model project's performance
requirement also on an annual effective acreage basis
> The number of industry-level firms (the model firm analysis weight), by state, subsector and revenue
range, that the model firm represents for the particular model firm/model project combination analysis
case.
EPA estimated compliance costs for each model project, by state, subsector and project size and duration as
described in Technical Development Document. Based on the assignment of model projects to model firms as
described above, compliance costs were assigned to the model firms as described below. The assignment of
model project costs to the model firm for the cost and financial impact analysis involves three adjustment
concepts:
1. Assignment of costs on an annual equivalent basis. In order to support an annual economic/financial analysis,
compliance costs are assigned to each model firm/project combination as an annual cost. For projects of
greater than one year duration, the total compliance cost estimated for the given model project is divided by
the model project's duration to convert the compliance cost to an annual equivalent cost. This treatment
effectively assumes that costs are recognized uniformly over the life of the project. For model projects of one
year or less, no adjustment is necessary as all of the model projects occur within one year.
2. Assignment of costs accounting for total number of model projects assigned for a given project start year. The
annual equivalent costs for the model project are multiplied by the number of model projects that were
assigned to the model firm in the project assignment algorithm assigned above. For example, if the model
firm was assessed as capable of starting three model projects on an annual effective performance basis, then
the firm would be assigned three times the annual equivalent compliance cost for the given model project.
3. Assignment of costs accounting for the total number of years of model projects ongoing in the current year.
As described above, depending on model project duration and the model firm's operating model in terms of
November 23, 2009 6-15
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 6: Firm Analysis
delay between annual project starts, a model firm may have projects from more than one year of starts
ongoing in a given year. Accordingly, to account correctly for the impact of compliance costs on the firms'
current operations, it is necessary to account for the compliance costs from those projects that were begun in
prior years and that remain ongoing in the analysis year. This is analogous to picking up the compliance costs
in later years that were put off to a future year in step 26 of this cost assignment procedure.
Based on these concepts, the compliance costs assigned to a model firm for a given model firm/model project
analysis combination are calculated as follows:
T * 1 n 1 n < S,Sctr,p *,,„., *Ar T7 D • t
Total Compl Cost s,sctr,rr, P = - Ł-^ - * N Projects s,sctr,rr,p * N_Yrs _ Projects s,sctr,rr,P
Project Duration P
Where:
Total_Compl_Cost s,sctr,rr,P = Total annual compliance cost assigned to model firm rr in state s and sector
sctr for project/)
Compl_CostSjSCtr,p = Compliance cost for model project/), in state s and sector sctr
Project_Duration p = Duration in years for model project/), for projects of greater than one year
duration
N_Projects s,sctr,rr,P = Number of model projects p in state s and sector sctr assigned to each
model firm rr, from equation (8)
N_Yrs_Projects S!SCtr,n-,P = Number of years of model projects p ongoing for model firm rr, in state s
and sector sctr assigned to each model firm rr
In this expression, for projects of greater than one year duration, Number of Years of Projects ongoing is
calculated as follows:
AT Tr „ Project Duration p (10)
N_YrS _ PrOjeCtS s,sctr,rr,p = =
~~ Project Start _ Lag d, rr
Where:
N_Years_Projects SjSCtr,rr,P = Number of years of model projects p ongoing for model firm rr, in state s
and sector sctr assigned to each model firm rr
Project_Duration p = Duration in years for model project/), for projects of greater than one year
duration
Project_Start_Lag d, rr = The length of time between starts of model projects (or bundles of projects),
for projects of duration d for model firms in revenue range rr; constrained
to be less than or equal to the duration of the model project under analysis,
but no less than one year.
The following section describes the analysis of the impact on the model firm of the assignment of model project
compliance costs.
6.3 Estimating the Change in Model Firm Financial Performance and Condition
As described above, EPA developed model firm/model project combination analysis cases which underlie the
assessment of the potential firm financial impacts of the C&D regulation. Annual compliance costs were assigned
6-16 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 6: Firm Analysis
to each model firm in these combination cases, reflecting the number of model projects that the model firm was
starting in a given year and the number of years of projects that the model firm has ongoing, given the assumed
the project start lag for the model firm.
The impact assessments at the level of the model firms are used in Section 6.4: Applying the Findings from the
Model Firm Analysis to the Total Industry to assess industry level effects, accounting for the numbers of firms
represented by the model firm in each model firm/model project combination analysis case.
6.3.1 Impacts Analyzed
Three economic/financial impacts are used in the firm- and industry-level impact analysis:
1. A "screening level" impact measure based on comparison of annual compliance costs to revenue. EPA
generally judges compliance costs that are less than one percent of revenue as not imposing a material
economic/financial burden on affected businesses. Costs exceeding three percent of revenue are judged as
potentially imposing a material economic/financial burden, while the findings for costs between one and three
percent of revenue are generally viewed as inconclusive in terms of economic/financial burden. This
assessment, which examines the frequency with which compliance costs exceed one and three percent of
revenue, is also important for the small entity impact analysis.
2. Changes in two key measures of firm financial performance and condition, based on application of
compliance costs to the model firm financial statements:
• Pre-Tax Income/Total Assets, a key measure of the fundamental asset productivity and profit
performance of a business. Businesses with weak return on assets will be unable to provide
competitive returns to investors and will have difficulty attracting capital to support the ongoing
business as well as any business expansion.
• Earnings before Interest and Taxes/Interest, which indicates the extent to which pre-interest, pre-tax
income exceeds interest obligations and thus is a key measure of the ability of an enterprise to meet
its current interest obligations and as well the risk to a borrower for extending additional credit to the
enterprise.39
The assessment for these two financial measures estimates the fraction of firms in the various subsector and
revenue ranges for which the financial measures decline - because of compliance outlays - to levels indicative
of material financial weakness. The analysis uses the lower quartile of these financial measures as developed
from the RMA statements for a given sector for the General Business Conditions case40 as the threshold value
of financial weakness.
3. Change in business value, based on application of compliance costs to the model firm financial statements,
and the fraction of firms whose net business value becomes negative because of compliance outlays. This
impact measure is used as an indicator of potential firm closures due to the regulation. EPA also estimated
and reports the employment in firms that are potential closures. This employment is at risk from the potential
closure of these facilities. In Chapter 8, EPA describes estimation of a potential employment effect resulting
from contraction in C&D industry output due to the regulation. These potential employment effects are
different in concept. The employment effect fmmfirm closures results from some firms being marginal
These are two of the financial measures reported by RMA for median, lower and upper quartiles by sector and business size that were
used in constructing the baseline financial statements for the model firms.
That is, the threshold values that are used for assessing adverse financial impact are based on the General Business Conditions case
estimates regardless of whether the analysis is being performed for the General Business Conditions case or the Adverse Business
Conditions case.
November 23, 2009 6-17
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 6: Firm Analysis
financial performers that may cease business because of regulatory requirements. These potential job losses, if
they do occur, are not necessarily permanent losses in the C&D industry but may be better thought of as
dislocations as some firms cease operations but other, financially more healthy, firms increase activity and
restore part or all of these job losses. On the other hand, the employment losses from potential contraction of
C&D industry output, as described in Chapter 8, may be understood as permanent losses.
Assessments of impact for these three measures are performed under two analysis cases:
> Primary Impact Analysis Case: This case reflects EPA's best estimates of the likely impact of the C&D
rule under general business conditions and is presented as the primary impact assessment. For this case,
firms are assumed to pass on part of the compliance outlay to other parties. The extent of pass-through
varies by subsector and is determined from the market level analysis outlined in Chapter 8. In addition,
this case reflects the General Business Conditions case of baseline firm financial performance and
condition.
> Adverse Impact Analysis Case: This case reflects more adverse business conditions - i.e., not business as
usual - and is presented as an assessment of how the regulation might affect businesses during adverse
business conditions. For this case, firms are assumed to absorb all of the compliance outlay within their
current operating finances - i.e., unable to pass on any of the compliance outlay to customers or to the
sellers of the land on which development occurs. In addition, this case reflects the Adverse Business
Conditions case of baseline firm financial performance and condition. The findings from this analysis are
presented in an appendix. EPA developed this analysis case in consideration of the challenges confronting
the economy, in general, and the C&D industry, in particular, at the time of rule promulgation.
A third case - 100% cost pass-through - in which all compliance outlays are assumed to be passed on to other
parties, is also possible. However, this case is not directly addressed in the firm-level impact analysis, since by
definition, businesses experience no adverse financial impact under 100 percent cost pass-through.41 This case is
assessed in terms of potential regulation impacts on consumers (Chapter 7).
6.3.2 Incorporating Compliance Cost Estimates into Baseline Financial Statements
Model-firm compliance cost estimates from Section 6.2 are incorporated into the baseline income statement and
balance sheet for each model firm to assess how compliance costs change the key financial ratios and business
value for the representative construction firms.
For the firm-level analysis, model firms are assumed to be in a steady state of operations in which a constant level
of activity - project starts and project completions - subject to regulation occurs year-to-year. The financial
impact of compliance outlays can be assessed as a one-time change to this steady state condition, based on the
level of activity subject to regulation that is initiated in a given year. Key assumptions in this analysis include:
> Model firms are assumed to finance compliance outlays 80 percent from debt and 20 percent from equity
capital.
> Model firms finance the compliance outlay for an assumed duration of financing, which depends on
project duration and the point in project performance at which the firm is assumed to make the
compliance outlay. For projects of less than two years duration, the duration of financing is specified as
the duration of the project. For projects of two years or greater, the duration of financing is specified as
41 Complete pass-through of compliance costs to consumers would occur if the elasticity of demand for C&D industry outputs is zero. It
is also important to note that, in this hypothetical case, there would be no contraction in the production of C&D industry outputs (as
examined in Chapter 9), and thus no overall adverse impact on the C&D industry due to reduced total production.
6-18 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 6: Firm Analysis
the duration of the project less one year - i.e., the firm is assumed to make the compliance outlay at the
beginning of the project's second year.
> For those cases in which a model firm has more than one year's projects ongoing at a time, the multiple
years of ongoing projects is assumed to increase the total financing requirement that accrues to the firm's
balance sheet. The total balance sheet effect accounts for the project financings required for the current
year and the financings from projects begun in prior years that are still ongoing in the current year.
> In the no cost pass-through analysis, the compliance outlay affects the income statement as follows:
• Cost of revenue is increased by the amount of the compliance outlay, in turn reducing business gross
profit.
• The total interest expense of the compliance outlay for a given project start year is calculated as the
one-year interest value times the number of years of the duration of project financing, as described
above, but is converted to a annual equivalent value by dividing the total interest charge by the
project duration (except for projects of one year or less). For those cases in which a model firm has
more than one year's projects ongoing at a time, the resulting one-year of project's interest expense is
further multiplied by the number of years of ongoing projects to yield the total compliance interest
expense charged for the current analysis year. The final interest value is recorded as increase in
interest expense on the firm's income statement. Interest costs are calculated according to the
business conditions case being analyzed.
• Pre-tax income is reduced by the amount of the compliance outlay and interest expense.
• The tax effect of the outlay is calculated as the model firm's tax rate times the compliance outlay and
interest expense. This tax effect reduces the model firm's baseline tax liability; however, if the model
firm's pre-tax income is less than the indicated tax effect of the compliance outlay and interest
expense, the tax effect is limited so it does not exceed the baseline tax liability. Said another way, the
tax effect of the compliance outlay and interest expense cannot generate a negative tax.
• After-tax income, post-compliance, is calculated by subtracting the post-compliance adjusted tax
value from the post-compliance adjusted pre-tax income value.
> In the no cost pass-through analysis, the compliance outlay affects the balance sheet as follows:
• As described above, in those cases in which a model firm has more than one year's projects ongoing
at a time, the multiple years of ongoing projects is assumed to increase the total financing requirement
that accrues to the firm's balance sheet. The total financing requirement is calculated by multiplying
the one-year compliance outlay times the number of years for which projects are ongoing in the
model firm's steady state operating model.
• The total compliance financing requirement for a given project start year (which may include
financing requirements from prior years), including interest cost on debt financing is assumed to be
recorded as an increase in non-current assets.
• Debt is increased by the debt fraction of the compliance financing requirement for the project start
year; equity is increased by the equity fraction of the outlay compliance financing requirement for the
project start year.
> In the partial cost pass-through analysis, the analysis differs in that the compliance financing requirement
for the project start year is assumed to be partially recovered through an increase in revenue, which in
turn results in a lower reduction in net income on the income statement, a corresponding increase in
current assets (due to the increase in cash from receipt of the increased revenue), and a lower increase in
non-current assets on the balance sheet.
November 23, 2009 6-19
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 6: Firm Analysis
The changes in income statement and balance sheet translate into changes in the financial impact measures and
also affect the business value analysis by reducing after-tax cash flow and increasing the liabilities that are
subtracted away in calculating business net worth.
6.3.3 Assessing the Effect of Compliance Outlays on the Impact Measures
As described above, three impact concepts are accounted for in the firm impact analysis:
1. Occurrence of compliance costs exceeding one and three percent of revenue - a screening-level measure of
financial impact.
2. Deterioration in measures of financial performance and condition to levels that would indicate financial stress
to the enterprise.
3. Decline to a negative net worth business value, which is assumed to point to a risk of business closure.
6.3.3.1 Occurrence of Compliance costs Exceeding One and Three Percent of Revenue
The "screening level" cost-to-revenue measure is assessed as whether the total compliance outlay, including
financing cost, exceeds thresholds of one and three percent of revenue.
This analysis is performed by comparing the total recorded compliance cost for a given analysis year (i.e.,
potentially reflecting multiple years of projects ongoing in a given year) for a given model firm/model project
combination to revenue across the revenue range for model firm category. In this comparison, revenue over firms
within a revenue range is assumed to be distributed uniformly over the range. Based on the assumption of a
uniform distribution, EPA calculated the fraction of firms within the revenue range for which compliance cost
exceeds a given cost-to-revenue threshold. Three cases are possible:
1. Cost-to-revenue at the low end of the revenue range is less than the cost-to-revenue threshold - in this case,
the fraction of firms in the revenue range for which cost exceeds the indicated cost-to-revenue threshold is
zero.
2. Cost-to-revenue at the high end of the revenue range exceeds the cost-to-revenue threshold - in this case, the
fraction of firms in the revenue range for which cost exceeds the indicated cost-to-revenue threshold is one.
3. Cost-to-revenue at a revenue value within the revenue range equals the cost-to-revenue threshold - in this
case, the fraction of firms in the revenue range for which cost exceeds the indicated cost-to-revenue threshold
is calculated as the fraction of the revenue range lying below the revenue value at which cost-to-revenue
equals the indicated impact threshold within the range, as follows:
7 ^ (Revenue Critical s,sctr,rr,P — Revenue Low rA (11)
Fraction Exceeding CTR s,sctr,rr,P = -—-. —r—-
(Revenue High rr —Revenue Low rr)
Where:
Fraction_Exceeding_CTRs sctr „ p = Fraction of firms within the model firm revenue range rr with cost-to-
revenue exceeding the indicated cost-to-revenue threshold, for analysis
combination of model firm rr and model project/), in state s and sector sctr
Revenue_Critical S)SCtr,n-,P = Revenue with revenue range rr at which cost-to-revenue equals the
indicated cost-to-revenue threshold, for analysis combination of model firm
rr and model project/), in state s and sector sctr
Revenue_Low „ = The low end of revenue range rr
6-20 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 6: Firm Analysis
Revem^Highrr = The high end of revenue range rr
The fraction of firms within the revenue range for which compliance cost exceeds one and/or three percent of
revenue is recorded as an impact event for the particular model firm/model project combination analysis case.
This calculation is performed in two ways:
1. Using the unadjusted compliance cost. This metric indicates the potential burden of compliance costs in
relation to revenue, without accounting for the likelihood that some of the compliance cost will be offset by
increase revenue.
2. Using the compliance cost adjusted by the increase in revenue that is estimated to occur from passing on a
part of the compliance cost increase to customers as a price increase. This measure may provide a more
meaningful measure of potential compliance cost burden. In this calculation, the total compliance cost is
simply reduced by the increase in revenue resulting from cost pass-through. The resulting comparison is of
net compliance cost burden (i.e., after offsetting revenue increase) to baseline revenue.
6.3.3.2 Deterioration in Measures of Financial Performance
In the financial measures analysis, baseline and post-compliance values of the measures are calculated for the
lower quartile, median, and upper quartile model firm financial statements within each subsector and revenue
range. Impact findings are assessed in terms of the estimated fraction of firms by subsector and revenue range
whose financial performance value declines below financial weakness thresholds as a result of compliance
outlays. This analysis involves the following steps:
> For each financial performance measure, the baseline and post-compliance values of the lower quartile,
median, and upper quartile values are used to construct baseline and post-compliance linear-segmented
cumulative distributions. These distributions are developed separately by revenue range within each
subsector.
> The baseline lower quartile value for each financial measure over the entire subsector (i.e., all revenue
size categories) and for the General Business Conditions case is used as the Critical Threshold Value for
assessing material financial weakness for a given subsector. Because the critical threshold value for a
given impact metric is determined on the basis of the entire subsector - and not by individual revenue
range - the critical threshold value will generally not lie at the 25th percentile for a specific revenue range.
> The baseline distribution is used to determine the fraction of firms, by revenue range and subsector,
falling below the critical threshold value for each financial performance measure in the baseline - i.e.,
before application of compliance costs. In reaching this determination, EPA assumed that firms are
uniformly distributed within the linear segments of the cumulative distribution of financial performance
measure values. Because the analysis uses a critical threshold value that is determined at the subsector
level and does not vary by revenue range within the subsector, the baseline percentage of firms falling
below the threshold value varies by revenue range within the subsector. Typically, a fraction larger than
25 percent of firms in the smaller revenue ranges fall below the impact threshold value, while less than 25
percent of firms in the higher revenue ranges fall below the threshold value.
> The post-compliance distribution is developed from the financial performance values for the median,
lower quartile, and upper quartile model firms, based on application of compliance costs to the model
firms, as described in previous sections. In effect, the post-compliance distribution is a shifted version of
the baseline distribution with the newly calculated median, lower quartile, and upper quartile values being
lower than the values at these same percentile points on the baseline distribution.
> The post-compliance distribution is then used to determine the fraction of firms, by revenue range and
subsector, falling below the critical threshold value for each financial performance measure. The
November 23, 2009 6-21
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 6: Firm Analysis
difference between the post-compliance and baseline percentages indicates the percentage of model firms
in a given subsector and revenue range that move below the critical threshold value because of incurring
compliance costs for a given regulatory option.
Key elements of these calculations are summarized in Table 6-1, below.
Table 6-1: Summary of Concepts in Developing Distributions of Financial Performance Measures and
Calculating Performance Relative to Impact Thresholds
Post-Compliance Distribution and Values
Percentile Value
Baseline Distribution and Values
0th Percentile
Threshold Value lies
between 0th and 25th
percentile
Determined by linear extrapolation from 25th
percentile value based on slope between 25th
and median percentile values
Determined by linear extrapolation from 25th
percentile value based on slope between 25th
and median percentile values
The baseline percentile of the critical
threshold value is determined by linear
interpolation between the 0th and 25th
percentile measure values from the baseline
distribution
The post-compliance percentile of the critical
threshold value is determined by linear
interpolation between the 0th and 25th
percentile measure values from the post-
compliance distribution
First Quartile (25tt
percentile)
assigned to baseline financial statement from
RMA data, for firms by revenue range and
sector
MetriCg i jost-compliance
calculated after application of compliance
costs
Threshold Value lies
between 25th
percentile and median
The baseline percentile of the critical
threshold value is determined by linear
interpolation between the 25th percentile and
median measure values from the baseline
distribution
The post-compliance percentile of the critical
threshold value is determined by linear
interpolation between the 25th percentile and
median measure values from the post-
compliance distribution
Median (50th
percentile)
MetricMedlm
assigned to baseline financial statement from
RMA data, for firms by revenue range and
sector
calculated after application of compliance
costs
Threshold Value lies
between median and
75th percentile
The baseline percentile of the critical
threshold value is determined by linear
interpolation between the median and the 75th
percentile measure values from the baseline
distribution
The post-compliance percentile of the critical
threshold value is determined by linear
interpolation between the median and the 75th
percentile measure values from the post-
compliance distribution
Third Quartile (75U
percentile)
MetricQ3
assigned to baseline financial statement from
RMA data, for firms by revenue range and
sector
calculated after application of compliance
costs
Threshold Value lies
between 75th and 100th
percentile
The baseline percentile of the critical
threshold value is determined by linear
interpolation between the 75th and 100th
percentile measure values from the baseline
distribution
The post-compliance percentile of the critical
threshold value is determined by linear
interpolation between the 75th and 100th
percentile measure values from the post-
compliance distribution
100th Percentile
If needed in analysis, determined by linear
extrapolation from 75th percentile value based
on slope between median and 75th percentile
values
If needed in analysis, determined by linear
extrapolation from 75th percentile value based
on slope between median and 75th percentile
values
The Critical Threshold Value for a each financial impact metric is defined as the 25 percentile value for the given metric from the RMA-based
distribution of financial metrics for the total sector - i.e., independent of revenue range - and is based on the distribution of those metrics for the General
Business Conditions case. As a result, the Critical Threshold Value will not generally lie at the 25th percentile of the distribution of the financial metric for a
specific revenue range within the sector.
Source: U.S. Environmental Protection Agency
As described above, the estimated increase in percentage of firms falling below a given threshold value is the
measure of impact, for each financial measure for each model firm/model project analysis case, by state and
subsector. EPA used the greater of the impact percentages for each financial measure, by revenue range and
subsector, as a composite indicator of financial stress, by revenue range and subsector. These firms are assessed as
potentially incurring material financial weakness as a result of regulatory requirements.
6-22
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 6: Firm Analysis
6.3.3.3 Occurrence of Negative Business Value
The analysis of change in business value is comparable in structure to the financial measures analysis, with
baseline and post-compliance business value being calculated at median, lower quartile, and upper quartile model
firm financial statements within each subsector and revenue range. These quartile values are again used to
construct linear-segmented cumulative distributions of business value by subsector and revenue range. As
described above, the baseline distribution of business value shifts as a result of compliance costs, leading to an
increased fraction of firms, by subsector and revenue range, whose business value is assessed as negative, and
thus at risk of closure. Impact findings are assessed in terms of the fraction and resulting number of firms whose
net business value falls below zero as a result of compliance.
As described above, EPA interprets this impact measure as an indicator of potential closures due to the regulation.
6.4 Applying the Findings from the Model Firm Analysis to the Total Industry
EPA used the findings from the model firm/model project combination analyses by state and subsector to estimate
the industry-level cost and impact of each regulatory option.
6.4.1 Estimating Industry Level Occurrence of Economic/Financial Impacts
Industry-level impacts are estimated by extending the findings from the model firm/model project analysis to the
specific revenue ranges and subsectors that are represented by the model firms. The number of occurrences of
adverse financial impacts for each model firm/model project analysis case - the estimated percentage of firms by
revenue range with costs exceeding one or three percent of revenue, the estimated percentage of firms incurring
financial stress due to regulatory requirements, or the estimated percentage of firms encountering negative
business value due to regulatory requirements - by state and subsector, are multiplied by the number of firms
represented by the relevant model firm/model project combination cases by state and subsector (from equation (6)
at page 6-11) to estimate the total number of firms expected to incur the indicated financial impact. Estimation of
the numbers of firms by state, subsector, and revenue range is described in the regulatory analysis baseline (see
Chapter 4). As described in Section 6.2, EPA performed the firm and industry level analyses on a state-by-state,
and sector-by-sector basis and aggregated the findings over states and construction subsectors to yield national
level estimates. These calculations provide estimates of the number of firms (and percentage within all firms in a
given sector) that are estimated to incur the various impact measures. In addition, for firms estimated to incur the
various financial impacts, EPA assessed total potential employment at risk based on the employment totals
reported in the SUSB/Economic Census data by subsector and revenue range.
Firms expected to experience financial stress may need to change their business operations, including potentially
down-sizing or closing operations. However, the actual likelihood of these outcomes may be quite low given that
these analyses are conditioned only on the so-called "less than full cost pass-through" cases. Furthermore, these
business effects may not be noticeable within the ordinary course of business changes in the C&D industry, where
year-to-year fluctuations in the level of business activity can be quite substantial as a result of changing
macroeconomic conditions (e.g., interest rates, overall strength of the national economy) and/or changing local
economic conditions (e.g., strength of local industries). Finally, the C&D industry is a relatively fluid industry, as
documented in the industry profile, with low barriers to entry and considerable entry and exit activity from year to
year. As a result, the potential employment losses or capital-idling effects of weakness in a specific firm are likely
to be offset by changing levels of activity in other existing firms or entry of new firms into the local market.
In general, the estimated industry-level effects from this analysis in terms of number of firms experiencing
negative business value and the associated potential revenue and employment loss (reported in Section 6.7,
November 23, 2009 6-23
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 6: Firm Analysis
below), exceed the estimated reductions in industry output and employment effects from the partial equilibrium
analysis of aggregate industry effects presented in Chapter 9. This comparison indicates that the estimated
potential closures and employment losses from the firm- and industry-level analysis overstate the expected
aggregate loss from the regulation: the findings of the firm- and industry-level analysis are better interpreted as an
indicator of stress - "transition friction" - among the marginal industry participants as the industry adjusts to the
additional requirements and costs of the C&D regulation. As stated in the preceding paragraph, the C&D industry
has historically been a highly fluid industry, with substantial year-to-year entry and exit, particularly among mid-
and smaller size firms. As such, the estimated potential losses and idling of economic resources in affected firms
would be expected to be absorbed to a substantial degree in increased activity among other existing and new
industry participants.
6.4.2 Estimating Total Cost of Compliance and Total Acreage Incurring Compliance Costs
The estimate of total industry-level effects also yields an estimate of total annual compliance outlays and related
project acreage by state and subsector and by model firm/model project analysis cases, and when aggregated, over
all subsectors and revenue ranges, for a given regulatory option. This calculation is performed by simply
aggregating the estimated compliance costs and acreage over the model firm/model project analysis cases,
weighted by the number of firm analysis weights, by subsectors and states for a given regulatory option. Summing
these values over subsectors and states yields national-level estimates of the annual costs for a given regulatory
option and a given level of industry activity.
6.5 Assessing Potential Barriers to Entry of New Businesses to the C&D Industry
EPA examined the potential for the C&D regulation to pose a barrier to entry for new businesses seeking to enter
the C&D industry. This analysis looked specifically at the extent to which the regulation would increase the
capital required by firms of various revenue sizes to participate in the industry. A substantial increase in capital
requirements could mean that some firms might not be able to assemble the capital necessary to participate in the
industry.
For this assessment, EPA made the following assumptions:
> For any given revenue level, the capital required for entry to the industry is no different than the capital
required by existing businesses for their continued participation in the industry.
> The total estimated compliance outlay would need to be financed by both existing businesses and new
entrants to the industry.
> For any given revenue level, the total estimated compliance outlay would be the same for existing
businesses and new entrants.
To assess the potential entry barrier effect, EPA compared the estimated financing requirement associated with
compliance outlays to baseline total assets for each of the model firms, by industry subsector and revenue range
(model firm specifications are defined in Chapter 4: Developing the Analysis Baseline). The comparison of the
financing requirement to the model firm's assets assumes that the firm's compliance outlay would be financed
and recorded on the model firm's balance sheet. To the extent that the compliance outlay is financed and recorded
not on the firm's baseline sheet but as part of a separate project-based financing for each individual project, this
comparison is likely to overstate, perhaps substantially, the incremental burden of financing in relation to the
going concern asset base of the model firms.
In estimating the additional financing requirement for each model firm, EPA assumed that construction projects
require the additional financing requirement to be carried on the firm's baseline sheet for a specified duration of
6-24 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 6: Firm Analysis
time (i.e., until project completion) and the steady state increase in financing requirements is thus approximately
equal to the annual project outlay times the assumed project duration. EPA estimated the average duration of the
additional financing requirement separately for each regulatory option considered and for each broad C&D
subsector (e.g., residential, non-residential, and transportation). For each option and subsector, the assumed
financing duration is estimated as the average duration of all in-scope projects, at the national level, weighted by
the total compliance outlays associated with each of the twelve project duration categories. If the resulting
additional financing requirement is substantial in relation to baseline assets, then the additional requirement could
pose a material entry barrier. Table 6-2 presents the estimated financing duration for each subsector and
regulatory option.
Table 6-2: Average Duration of Additional Financing for In-Scope Projects (years)
weighted by total compliance cost -within each duration category, by sector and regulatory option
NAICS Sector
Option 1
Option!
Option 3
Option 4
Source: EPA analysis
Residential
1.68
27i2
2763
2765
Non-Residential
1.07
L61
L46
L39
Transportation
1.68
2.41
2."l"8
2.06
6.6 Uncertainties and Limitations
EPA has addressed some of the key uncertainties present in the firm and industry level analysis for the proposed
rule by performing this analysis under two plausible alternative assumptions of business conditions for C&D
firms and the overall industry: fas primary analysis case and the adverse analysis case.
However, within both of these overall analysis configurations, additional key sources of uncertainty and
limitations remain. These uncertainties and considerations are summarized below with reference to the more
detailed discussions in previous sections of this chapter for more information:
> Determination of In-Scope Model Firm Revenue, Quantity of In-Scope Construction Activity and
Incurrence of Compliance Cost. Several sources of uncertainty affect EPA's assessment of the firm
revenue and construction activity estimated to be in-scope of the regulation and thus subject to
compliance costs:
• The Likelihood that Firms' Activities Would Incur Direct Compliance Costs. There is uncertainty
with respect to the business configurations for performance of construction projects in which the rule
will impose direct costs on C&D firms. Large construction projects, in particular, can be performed
by multiple firms and those firms can be organized in multiple business configurations for any given
project. For example, a single developer can sell "pieces" of a project to other independent firms.
Under this configuration, the single developer would incur the direct costs of the regulation (the
subsequent lot purchases may then incur indirect costs via cost pass through from the developer). Or,
a configuration could exist where several firms undertake a project as a partnership, where all of the
firms "share" the direct cost of the regulation in some way. Lacking information on the distribution of
business configurations for projects undertaken by firms in the various C&D subsectors and revenue
ranges, it is inherently difficult to account for these scenarios. The current analysis accounts for such
possibilities in an indirect manner, by allowing model firms to participate in model projects that they
would otherwise be incapable of performing, on a standalone basis, via the multiplier adjustment in
the project performance feasibility test described at page 6-13. As described above, this multiplier
adjustment increases the participation of smaller and mid-size firms in the performance of in-scope
projects, and simulates the performance of in-scope projects by a group of firms - e.g., via joint
November 23, 2009 6-25
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 6: Firm Analysis
venture/partnership or subdivision of a larger project into several smaller projects - as opposed to
requiring that a given model firm be capable of performing a given model project by itself in order to
be assessed as capable of performing the model project. Whether this adjustment reasonably reflects
the potential for firms of varying sizes to participate in, and thereby incur compliance costs for, in-
scope projects is uncertain. As a result, EPA may be overestimating or underestimating the numbers
of firms performing in-scope projects and incurring compliance costs (see Section 6.2).
* The Type of Construction Activity Performed by C&D Firms. There is uncertainty with respect to
the fraction of C&D firm revenue that is generated from potentially in-scope activities (i.e. new
construction) versus revenue generated from activities that are not potentially in-scope (i.e. additions
or remodeling work). When the Economic Census assigns C&D firms to NAICS industry sectors,
they are assigned into the subsector from which the majority of their revenue is generated, and
therefore, not all firm revenue is necessarily associated with activity in their assigned subsector. For
example, a firm assigned to NAICS 236115 generates at least 51% of its revenue from New Single-
Family Residential Construction, but as much as 49% of the firm's revenue could come from
construction activities, such as remodeling, that would not be in-scope. In the analysis of regulatory
options for the proposed C&D rule, EPA accounted for this in part, using the C&D subsector
specialization data available from the 2002 Economic Census. Specifically, model firms' in-scope
fraction of revenue was adjusted based on the Census-reported average specialization values for each
NAICS sector assessed as being likely to perform in-scope projects. This adjustment had the effect of
reducing the model firms' performance of in-scope construction activity and thereby reducing the
potential compliance cost burden. For the analysis of the final regulation, EPA did not implement this
adjustment and has, in effect, maximized the potential compliance cost burden and opportunity for
adverse financial impact in its analysis of the model firm/model project combination cases as outlined
above. As discussed at page 6-14, EPA judges this analysis to provide a reasonable basis for assessing
the firm- and industry-level impact of the C&D rule. However, inevitably, considerable uncertainty
remains in terms of the number of firms that would perform in-scope projects and the fraction of their
annual project performance responsibility and revenue that would involve in-scope projects and thus
incur compliance costs (see Section 6.2).
* C&D Firms' Project Performance Profile and Potential for Performing In-Scope Projects. As
outlined in Section 6.2, for each state and construction subsector, EPA developed model projects
within a 144 model project matrix (12 model project sizes by 12 model project durations). EPA then
assigned these model projects to model firms based on an estimated project performance capability
calculation, which involves the concept of acreage intensity (project acreage per million dollars of
project value/revenue), project duration and thus its annual effective performance requirement, and an
assumed operating model of the model firm in terms of the frequency with which the model firm
restarts an annual ongoing slate of projects. As described in Section 6.2.1, page 6-6, this framework
supports an assessment of the feasibility of a given model firm to perform a given model project, and
provides an estimate of the number of model projects of a given duration and size that a model firm is
capable of undertaking in any year, and the number of model projects that may remain ongoing from
earlier years. These determinations underlie the assignment of model projects and compliance costs
to model firms, and the assessment of firm- and industry-level financial impacts. These assessments
of project performance feasibility and assignments of model projects to model firms are subject to
uncertainty in terms of the assumptions of the model firms' operating models, and the estimates of
acreage intensity that are integral to the feasibility assessments and project responsibility assignments.
For example, the acreage intensity values are estimated as averages from the best data that are
available to calculate acreage intensity, but inevitably involve considerable uncertainty. In addition,
the assumptions about the model firms' operating models are also subject to considerable uncertainty,
6-26 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 6: Firm Analysis
in particular for the smaller and mid-size firms for which EPA assumed that the ongoing slate of
projects would not necessarily be renewed annually. On the other hand, because the assumptions
about the operating models increase the potential for smaller and mid-size firms to participate in in-
scope projects, EPA judges that these assumptions will tend not to understate the potential impact of
the regulation on smaller and mid-size firms, and thus that these assumptions provide a reasonable
basis for assessing firm- and industry-level impacts. It is not possible to state whether, in the
aggregate, these assumptions and the project assignment method will tend to overstate or understate
firm- and industry-level impacts.
• Assignment of Model Projects to Model Firms for the Firm- and Industry-Level Impact
Assessment. As described at page 6-13, for the firm- and industry-level impact assessment, EPA
followed a particular algorithm in assigning model projects to model firms, which assigns larger
size/shorter duration ("more difficult") projects to the relatively fewer large firms that are assessed as
capable of performing these projects, before moving to the progressively "easier" projects for which
more firms are assessed as capable of performance. This algorithm and the resulting model
firm/model project analysis cases provide only one of numerous possible configurations for analyzing
the financial impact of performing in-scope projects on model firms. However, as discussed at page
6-13, EPA views this assignment as reflecting basic realities about the kind of projects - in terms of
size - that are likely to be performed by firms of a given size and project performance capacity. As
such, EPA judges this assignment to be reasonable in capturing a plausible allocation of projects to
industry firms for performance of the firm- and industry-level impact analysis. Nevertheless, other
assignment methods could yield different findings in terms of the level of firm- and industry-level
impacts and the kinds of firms that would incur those impacts.
• Assignment of Model Projects to Model Firms in such way as to Exhaust the Project Performance
Capability of Model Firms. As discussed at page 6-14, EPA's assignment of model projects and
associated compliance cost burden to model firms, and the subsequent analysis of the model
firm/model project combinations, is performed in such way that, in each model firm/model project
combination, the model firm performs only one specific model project and the impact analysis is
structured so that the firm is assumed to perform the given model project to its full performance
capacity. This project assignment approach maximizes the assignment of compliance costs to the
model firm, and therefore maximizes the potential for adverse financial impact on the model firm in
the analysis for each model project/model firm combination analysis case. However, as described,
alternative project assignment and analysis algorithms could be implemented in which project
performance responsibility would not be assigned to the extent that the firm's project performance is
fully exhausted by the model project assignments. As a result, any individual firm would have a lower
compliance cost burden, and thus lower likelihood of a finding of adverse impact in the analysis of
model project/model firm combinations. At the same time, more firms would be estimated to incur
compliance costs in performing in-scope projects. EPA acknowledges that substantial uncertainty in
the overall model project and compliance cost assignment approach, but overall judges that this
analysis approach provides a reasonable basis for assessing the firm- and industry-level impact of the
C&D rule - in particular, given that the assignment approach maximizes the likelihood of impact on
any given model firm.
> Determination and Interpretation of Firm Financial Stress and Potential Closure. EPA's analyses of
the occurrence of financial stress and potential closures are based on movement of firms below specified
thresholds of concern - below lower quartile values of the financial stress measures and below a zero
business value for the potential closure measure. Because of data limitations, in particular, these analyses
involve considerable simplifications both in determining the baseline and post-compliance financial
performance/condition measures and in assessing the occurrence of the adverse impact conditions. A
November 23, 2009 6-27
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 6: Firm Analysis
more rigorous financial analysis, based on detailed understandings of the financial status of affected firms
might yield different impact findings. For example, the analysis of business value is based on a static,
single time period, model of firm financial performance and condition. A more rigorous analysis would
consider the change in financial performance and condition over time. For firms with a history, and
expectations, of substantial growth, the simplified, static assessment would tend to understate, perhaps
considerably, business value. Similarly, the use of the first quartile values of Pre-Tax Income/Total Assets
and Earnings before Interest and Taxes/Interest in the financial stress analysis is also subject to
considerable uncertainty. Although the first quartile values are, by definition, in the lower range of
observed financial performance for the subject industries, the first quartile values are not necessarily
strong differentiators between adequate and weak financial performance. EPA sought to mitigate this
concern by using the average of first quartile values observed over the full data analysis period (see
Section 6.3.3).
> Determination of Barriers to Entry. There is uncertainty with respect to the model firm's mechanism for
absorbing compliance outlays. The comparison of the rule's financing requirement to the model firm's
assets assumes that the compliance outlay would be financed and recorded on the model firm's balance
sheet. To the extent that the compliance outlay is financed and recorded not on the firm's baseline sheet
but as part of a separate project-based financing for each individual project, this comparison is likely to
overstate, perhaps substantially, the incremental burden of financing in relation to the going concern asset
base of the model firms (see Section 6.5).
6.7 Results of the Firm-Level Economic Analysis
The analysis outlined above is an assessment of the potential cost and economic/financial impact of alternative
regulatory options on the subsectors and firms likely to face compliance requirements and incur compliance costs
from a C&D industry regulation. This analysis yields estimates of the numbers of firms in the affected C&D
industry subsectors that may incur adverse economic/financial effects: costs exceeding thresholds of concern
relative to revenue, incurrence of financial stress from weakened financial performance and condition, and
potential incurrence of negative business value, which may indicate a risk of business closure. This analysis also
produces a first-order estimate (i.e., before accounting for potential market adjustment effects) of the resource cost
of regulatory compliance (i.e., the cost of resources consumed by society in meeting regulatory requirements) and
of the acreage affected by the regulatory options. Finally, this analysis supports an assessment of the potential for
C&D regulatory options to pose a barrier to entry for new businesses seeking to enter the C&D industry
6.7.1 Firm-Level Cost and Impacts
Table 6-3, below, presents EPA's estimates of the cost and firm- and industry-level impact of the regulatory
options. These results are based on the 2008-trend estimate of industry activity and are before possible reductions
in the quantity of construction activity resulting from market adjustment to compliance cost-induced price
increases. EPA performed this analysis for a primary impact analysis case and an adverse impact analysis case.
The results presented below are for the primary analysis case. EPA presents that the primary case impact analysis
as its best estimate of firm- and industry-level impacts under general, long-term business conditions for the
construction industry. The results for the adverse analysis case are presented in Appendix A. Recall that the
primary and adverse analysis cases are differentiated in the following ways:
> The primary analysis case assumes that firms in the C&D industry pass through some of the incremental
compliance costs and uses the general business conditions case definition for model C&D firms. The
general business conditions case is meant to reflect the financial performance and condition of C&D
industry businesses during normal - neither excessively strong nor weak - economic conditions for the
6-28 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 6: Firm Analysis
specific industrial segments. The financial performance and condition of the C&D industry businesses for
this case is reflected in the RMA model-firm financial statements and their costs of debt and equity.
> The adverse analysis case assumes that firms in the C&D industry pass through none of the incremental
compliance costs and uses the adverse business conditions case definition for model C&D firms. The
adverse business conditions case is meant to reflect the financial performance and condition of C&D
industry businesses during relatively weak economic conditions for the specific industrial segments. The
financial performance and condition of the C&D industry businesses for this case is reflected in the
relatively weaker RMA model-firm financial statements and by their relatively higher costs of debt and
equity. In addition, the adverse analysis case assumes a contraction of the overall C&D industry relative
to the primary analysis case.
Table 6-3, below, presents the results of these analyses of four regulatory options, which are described below:
> Option 1, which requires non-numeric effluent limitations for all sites, is EPA's least stringent policy
option;
> Option 2 requires active treatment systems (ATS) on sites disturbing 30 or more acres at one time and
imposes a 13 NTU turbidity standard while requiring non-numeric effluent limitations on all sites and is
similar to an option EPA proposed previously;
> Option 3, EPA's most stringent policy option, requires ATS on sites disturbing 10 or more acres at one
time, imposes a 13 NTU turbidity standard on these sites, and requires non-numeric effluent limitations
on all sites; and,
> Option 4, the option EPA has selected for the final rule, requires passive treatment systems on all sites
disturbing 10 or more acres disturbed, and establishes a numeric turbidity standard of 280 NTU (based on
passive treatment and expressed as a daily maximum value). In addition, all sites will be required to meet
non-numeric effluent limitations.
The results are aggregated across the affected C&D subsectors and revenue ranges used in the analysis.
November 23, 2009 6-29
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 6: Firm Analysis
Table 6-3: Summary of Cost and Economic Impact Analysis for Final Rule Options
Impact Analysis Concept
Option 1
Option 2
Option 3
Option 4
Resource Cost of Compliance and Affected Acreage and Firms (before market adjustments)
Total Costs (Smillions)
Total Acreage Incurring Cost
Number of Firms
All Firms
Firms In-Scope
Firms Incurring Cost
$176
852,649
187,100
81,665
30,508
$4,866
852,649
187,100
81,665
30,508
$9,090
852,649
187,100
81,665
30,508
$953
852,649
187,100
81,665
30,508
Firms with Compliance Cost Exceeding Percentages of Revenue Judged Potentially Indicative of Adverse Impact
Costs Unadjusted for Effect of Cost Pass-Through
Costs Exceeding 1% of Revenue
Costs Exceeding 3% of Revenue
Number Incurring Effect
% of All Firms
% of Firms In-Scope
Number Incurring Effect
% of All Firms
% of Firms In-Scope
0
0.0%
0.0%
0
0.0%
0.0%
4,717
2.5%
5.8%
2,399
1.3%
2.9%
14,021
7.5%
17.2%
9,126
4.9%
11.2%
276
0.1%
0.3%
0
0.0%
0.0%
Costs Adjusted for Effect of Cost Pass-Through"
Costs Exceeding 1% of Revenue
Costs Exceeding 3% of Revenue
Number Incurring Effect
% of All Firms
% of Firms In-Scope
Number Incurring Effect
% of All Firms
% of Firms In-Scope
0
0.0%
0.0%
0
0.0%
0.0%
873
0.5%
1.1%
81
0.0%
0.1%
3,573
1.9%
4.4%
225
0.1%
0.3%
0
0.0%
0.0%
0
0.0%
0.0%
Firms Estimated to Incur Financial Stress From Deterioration in Measures of Financial Performance
Firms Incurring Financial Stress
Number Incurring Effect
% of All Firms
% of Firms In-Scope
31
0.0%
0.0%
1,181
0.6%
1.4%
5,398
2.9%
6.6%
169
0.1%
0.2%
Firms whose Net Business Value Becomes Negative as a Result of Compliance (Potential Closures)
Firms with Negative Business Value
(Potential Closures)
Number Incurring Effect
% of All Firms
% of Firms In-Scope
30
0.0%
0.0%
430
0.2%
0.5%
1,254
0.7%
1.5%
147
0.1%
0.2%
a Assumes cost pass-through rate of 85% for residential sectors and 71% for non-residential and non-building sectors.
EPA Estimates
The estimated levels of cost and resulting firm and industry impacts reported in Table 6-3 vary substantially over
the four primary regulatory options analyzed.
> For Option 1, the least costly of the four options, EPA estimates total annual costs of $176 million. A
total of 30,508 firms are estimated to incur compliance costs under this option. Out of these 30,500 firms,
none are estimated to incur costs exceeding 1 or 3 percent of revenue, while 31 firms are estimated to
incur financial stress. These 31 firms represent 0.1 percent of all firms incurring cost, and essentially zero
percent of all firms in the affected industry subsectors. A total of 30 firms are estimated to experience
negative business value as a result of regulatory requirements. Some of the firms estimated to incur
financial stress may also be estimated to experience negative business value, and as a result, these two
measures of financial impact may not be additive.
> For Option 2, EPA estimates total annual costs of $4,866 million. Out of the 30,500 firms estimated to
incur costs, 4,717 are estimated to incur costs exceeding 1 percent of revenue, and 2,399 are estimated to
incur costs exceeding 3 percent of revenue. The 4,717 firms incurring cost exceeding 1 percent of revenue
represent about 15.5 percent of the firms that are estimated to incur costs, 5.8 percent of in-scope firms,
and less than 3 percent of all firms in the affected industry subsectors. When the effect of cost pass-
through is accounted for in the cost-to-revenue analysis - i.e., costs are reduced by the amount of
estimated offsetting revenue increase - 873 firms are estimated to incur (net) costs exceeding 1 percent of
revenue. A total of 1,181 firms are estimated to incur financial stress as a result of regulatory
requirements. A total of 430 firms are estimated to experience negative business value as a result of
6-30
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 6: Firm Analysis
regulatory requirements. Some of the firms estimated to incur financial stress may also be estimated to
experience negative business value, and as a result, these two measures of financial impact may not be
additive.
> For Option 3, the most costly option, EPA estimates total annual costs of $9,090 million. Out of these
30,500 firms estimated to incur costs, 14,021 are estimated to incur costs exceeding 1 percent of revenue,
and 9,126 are estimated to incur costs exceeding 3 percent of revenue. The 14,021 firms with cost greater
than 1 percent of revenue represent 46 percent of firms estimated to incur costs, 17 percent of in-scope
firms, and 7.5 percent of all firms in the affected industry subsectors. The 9,126 firms incurring cost
greater than 3 percent of revenue represent 30 percent of firms estimated to incur costs and 11 percent of
in-scope firms. When the effect of cost pass-through is accounted for in the cost-to-revenue analysis - i.e.,
costs are reduced by the amount of estimated offsetting revenue increase - 3.573 firms are estimated to
incur (net) costs exceeding 1 percent of revenue. A total of 5,398 firms are estimated to incur financial
stress as a result of regulatory requirements. These 5,398 firms represent 17.7 percent of all firms
incurring cost, 6.6 percent of in-scope firms, and 2.8 percent of all firms in the affected industry
subsectors. A total of 1,254 firms are estimated to experience negative business value as a result of
regulatory requirements. Some of the firms estimated to incur financial stress may also be estimated to
experience negative business value, and as a result, these two measures of financial impact may not be
additive.
> For Option 4, EPA estimates total costs of $953 million. Out of the 30,500 firms estimated to incur costs,
276 are estimated to incur costs exceeding 1 percent of revenue, and zero are estimated to incur costs
exceeding 3 percent of revenue. The 276 firms incurring cost exceeding 1 percent of revenue represent
about 0.9 percent of the firms that are estimated to incur costs, 0.3 percent of in-scope firms, and about
0.1 percent of all firms in the affected industry subsectors. When the effect of cost pass-through is
accounted for in the cost-to-revenue analysis - i.e., costs are reduced by the amount of estimated
offsetting revenue increase - zero firms are estimated to incur (net) costs exceeding 1 percent of revenue.
A total of 169 firms are estimated to incur financial stress as a result of regulatory requirements. These
169 firms represent 0.5 percent of all firms incurring cost, 0.2 percent of in-scope firms, and less than 0.1
percent of all firms in the affected industry subsectors. A total of 147 firms are estimated to experience
negative business value as a result of regulatory requirements. Some of the firms estimated to incur
financial stress may also be estimated to experience negative business value, and as a result, these two
measures of financial impact may not be additive.
6.7.2 Barriers to Entry Analysis
Overall, the C&D industry is a dynamic industry, with a relatively high rate of entry and exit as compared to the
national economy. At the outset, this observation suggests relatively low barriers to entry for the industry and may
suggest that an increase in factors associated with barriers to entry would need to be substantial before a material
barriers-to-entry effect would be observed. Table 6-4 reports the total number of firm or establishment entries and
exits for the construction industry and for the total U.S. economy for the nine-year period 1998 to 2006.42 EPA
compared these numbers to the total base of firms or establishments to determine the percentage of entries and
exits for each year, and calculated the average of these values over the seven data years. As reported in Table 6-4,
the percentage of entries and exits for the C&D industry is higher than the comparable values for all U.S.
industries.
42 U.S. SBA (2006) reports the U.S. total figures by the number of firms and reports the Construction sector figures by the number of
establishments. Since the relevant comparison is based on foe. percent of entries/exits as compared to the total base, the difference in
reporting does not inhibit the comparison. 2006 is the latest year for which data are available from SBA.
November 23, 2009 6-31
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 6: Firm Analysis
Table 6-4: Number and Percent of Firm/Establishment Entries and Exits
Construction Sector a>
U.S. Total a'b
Entry
Number
89,968
751,617
Percent
14.7%
11.8%
Exit
Number
77,818
680,131
Percent
12.8%
10.6%
Percentages are calculated as number of entries or exits divided by total firm/establishment base
a SBA reports the U.S. total by number of firms and reports the Construction sector by number of establishments.
b Average from 1998 to 2006
Source: SBA 2006
Table 6-5 summarizes the results from the barriers to entry analysis for the final regulatory options by business
subsector and revenue range. As shown in Table 6-5, under all options except the most costly Option 3, nearly all
model firms in the three lowest revenue ranges are expected to incur compliance outlays that would create no
more than a minimal additional barrier to entry for firms in these revenue ranges.
Within the higher revenue ranges (generally Revenue Range 4 and up) in which firms are estimated to perform the
majority of projects that will be subject to compliance requirements, the additional financing requirement varies
considerably by regulatory option. For Option 4 (Table 6-5), the increase in financing requirement varies from
approximately 0.0 percent to 4.1 percent of baseline assets over the business subsectors. In no instance for Option
4 is the estimated increase in financing requirements substantial in relation to baseline assets. This comparison
assumes that the compliance outlay would be financed and recorded on the model firm's balance sheet. To the
extent that the compliance outlay is financed and recorded not on the firm's baseline sheet but as part of a
separate project-based financing for each individual project, this comparison is likely to overstate, perhaps
substantially, the incremental burden of financing in relation to the going concern asset base of the model firms.
The variation by business subsector reflects differences in baseline assets in relation to revenue as reported in the
Risk Management Association financial statements underlying the model firms, differences in the assumed
average duration for the additional financing requirement, and differences in the proportion of compliance cost
accruing to those business subsectors under different regulatory configurations.
It is important to note that EPA does not consider the estimated financing requirement and the relative burden of
that requirement - additional financing requirement relative to baseline assets - to vary between existing C&D
industry businesses and businesses seeking to enter the industry. As a result, EPA foresees no differential
regulatory burden that would more adversely affect entering businesses than existing business and thus lead to a
comparative barrier to entry for firms seeking to enter the industry.
Finally, the expectation of an increase in financing requirements occurs primarily among the larger revenue
ranges in the analysis. Given their business size, the firms in these revenue ranges would be expected to have
better access to financing - both for debt and equity capital - than firms in the lower revenue ranges. Thus, the
burden of any additional financing is comparatively less than would have been the case if the regulation was
expected to impose compliance requirements on smaller businesses, which, in general, have less favorable access
to capital.
Relative to Option 4, the less costly Option 1 would impose a comparatively lower increase in financing
requirements while the more costly Option 3 would impose a comparatively high increase in financing
requirements.
6-32 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 6: Firm Analysis
Table 6-5: Compliance Outlay as a Percent of Total Assets
Revenue Ranges
NAICS
Sectorb
Range 1:
$100 thousand -
$1 million
Range 2:
$1 million -
$2.5 million
Range 3:
$2.5 million -
$5 million
Range 4:
$5 million -
$10 million
Range 5:
$10 million -
$50 million
Range 6:
$50 million -
$100 million
Range 7:
$100 million
and more
Option 1
236115
236116
236117
236210
236220
237310
0.0%
0.1%
0.0%
0.2%
0.1%
0.7%
0.0%
0.1%
0.1%
0.2%
0.1%
0.7%
0.0%
0.1%
0.1%
0.3%
0.2%
0.7%
0.0%
0.1%
0.1%
0.3%
0.2%
0.8%
0.0%
0.2%
0.1%
0.4%
0.2%
0.8%
0.0%
0.2%
0.1%
0.4%
0.2%
0.7%
0.0%
0.1%
0.1%
0.5%
0.2%
0.8%
Option 2
236115
236116
236117
236210
236220
237310
0.0%
0.2%
0.1%
0.2%
0.2%
0.8%
0.1%
0.4%
0.4%
0.6%
0.4%
1.6%
0.5%
2.0%
1.5%
2.6%
1.8%
7.0%
0.9%
4.2%
2.7%
5.7%
3.4%
13.9%
1.6%
8.7%
5.8%
11.8%
6.3%
25.4%
1.5%
9.6%
4.4%
13.5%
6.5%
25.2%
1.1%
6.9%
5.9%
17.8%
6.2%
32.9%
Option 3
236115
236116
236117
236210
236220
237310
0.1%
0.5%
0.3%
0.9%
0.5%
2.1%
1.6%
5.5%
5.1%
8.0%
5.4%
17.8%
3.1%
12.8%
9.1%
17.4%
11.9%
35.6%
2.8%
13.5%
8.4%
18.8%
11.0%
35.2%
2.9%
16.0%
10.4%
22.4%
11.9%
36.9%
2.3%
14.7%
6.6%
21.6%
10.3%
30.8%
1.6%
9.8%
8.2%
26.4%
9.1%
37.3%
Option 4
236115
236116
236117
236210
236220
237310
0.0%
0.2%
0.1%
0.3%
0.2%
0.7%
0.2%
0.6%
0.5%
0.8%
0.6%
2.0%
0.3%
1.2%
0.9%
1.6%
1.1%
3.6%
0.3%
1.4%
0.9%
1.9%
1.1%
3.9%
0.3%
1.7%
1.1%
2.3%
1.2%
4.1%
0.2%
1.5%
0.7%
2.2%
1.0%
3.4%
0.2%
1.0%
0.8%
2.6%
0.9%
4.0%
a Based on the median performance financial statement. Analysis assumes compliance-related outlays are financed from, and recorded on, the model firm's
balance sheet and not financed as part of separate project financings for each individual projects. As a result, EPA estimates that this analysis may overstate
substantially the financing burden in comparing the financing requirement to the firm's going concern assets instead of project assets that are financed
separately from the model firm's balance sheet.
b NAICS 236115 is New Single-Family Housing Construction (except operative builders), NAICS 236116 is New Multifamily Housing Construction
(except operative builders), NAICS 236117 is New housing Operative Builders, NAICS 236210 is Industrial Building Construction, NAICS 236220 is
Commercial and Institutional Building Construction, NAICS 237310 is Highway, Street, and Bridge Construction
EPA Estimates
November 23, 2009
6-33
-------
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 7: Projection Analysis
7 Projection of Cost and Impacts Over Time
As described in Chapter 4 of this document, EPA's primary economic analysis is based on an estimated level of
industry activity for 2008 that is consistent with the industry's long-term trend. This analysis case reflects
approximately the long-term steady-state condition of the industry and the level of compliance activity subject to
the final regulation - if the industry were operating at the long-term steady state as of 2008. Because of the
current economic downturn in the C&D industry and the U.S. economy generally, this level of activity exceeds
the activity actually occurring in 2008 and anticipated for the near future.
This chapter analyzes the effects of the regulation over the period 2010 - 2025. EPA chose to analyze the
economic effects of the regulation over this timeframe because it captures the short-term effects of the rule as it
phases in, and also captures a period of full rule implementation that is sufficient for estimating the rule's long-
term annual cost. The construction activity estimates underlying this analysis reflect the actual activity levels
anticipated over this timeframe. EPA's analysis of future cost and impacts is presented for EPA's preferred final
rule option, Option 4.
7.1 Projecting Aggregate C&D Industry Activity into the Future
EPA developed its projection of aggregate C&D industry activity overtime by separating the entire time period,
2010 - 2025, into two time periods and analyzing them with different approaches. The first time period is 2010 -
2014 and the second is 2015 - 2025. These time periods were treated differently by EPA for two reasons. First,
independent data sources provide relatively detailed information about the anticipated level of activity in the
industry from 2010 - 2014, whereas the period 2015 - 2025 is much less certain. Second, the period 2010 - 2014
is different from the period 2015 - 2025 with respect to rule implementation and when projects in a state must be
in compliance (as described below in Section 7.2).
C&D Industry Aggregate Activity: 2010- 2014
EPA estimated the value of construction put in place, and the corresponding quantity of acreage developed, for
each year from 2009 - 2014 and for the major in-scope C&D subsectors: Residential, Non-Residential, and
Transportation. EPA used Global Insight's July 2009 Housing and Construction Outlook as the basis for these
estimates (Global Insight, 2009). As shown below in Table 7-1, Global Insight provides the projected percentage
change in the value of construction, by subsector and on a constant dollar basis, from 2008 levels for each year
out to 2014.
Table 7-1: Projected Change in Value of Construction, Relative to Activity Base at 2008
Sector
Residential
Non-Residential
Transportation
2009
-23.0%
-17.9%
-3.2%
2010
-15.7%
-29.6%
1.3%
2011
8.5%
-26.9%
4.7%
2012
28.2%
-16.7%
6.5%
2013
36.6%
-7.0%
9.0%
2014
38.4%
-1.4%
10.8%
Source: Global Insight (2009)
EPA used these projected percentage changes from 2008 levels of activity as the basis for estimating:
> The aggregate value of construction by in-scope C&D subsector and year;
> The aggregate quantity of acreage developed by in-scope C&D subsector and year, assuming constant
acreage intensity (i.e., consistent with the approach described in Chapter 4, Section 4.1.3); and,
November 23, 2009
7-1
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 7: Projection Analysis
> The number of C&D firms and employees represented by each model C&D firm in the firm- and
industry-level economic analysis, by C&D subsector, revenue range, and year. Since the percentage
changes were applied uniformly to sector revenues, firms, and employees, EPA assumed that the average
revenue per firm in constant dollars - by sector and revenue range - does not change over this period.
Figure 7-2 shows the resulting estimates of the level of industry activity, by subsector, from 2009 - 2014.
Although aggregate C&D activity declines overall during 2009, total activity is expected to resume growth on a
constant dollar basis during 2010 - the year of rule promulgation - and in each year thereafter. By both August
2011, when the rule's numeric limits would begin to apply to sites of at least 20 acres, and 2014, when the limits
would be applicable to sites of at least 10 acres, the industry is projected to have resumed growth and achieved
higher levels of activity than estimated at 2010, the year of rule promulgation.
Figure 7-2: Projection of Aggregate Construction Value, 2009 - 2014
Note that 1
activity is i
Source: El
$800,000 T
$700 000
$600 000 -
$500 000 -
|
™ $400 000
O)
•— ^nn nnn
I
$200 000
$100 000
$0 -
Final Rule »
Effective 2010
20-Acre 10-Acre j
Requirement Begins RequiremenT — ^
" ^*^^
,~^^ •*
^***^
^, ^^**^^ 1,
•_
J;. *-•
illli
-K^
^
-J 1-
2009
- $10,500
00
o
- $10,000 8
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 7: Projection Analysis
3. The initial acreage distribution results for each year were then adjusted to produce the final model project set,
using the approach described in Section 4.2.3 of Chapter 4.
C&D Industry Aggregate Activity: 2015- 2025
Next, EPA extended this time series of aggregate industry construction value to the year 2025. EPA extended the
time series by assuming a uniform annual growth rate in aggregate construction value from 2015 to 2025 of 3.0%
per year. This value is based on the industry's average annual growth rate of construction value - on a constant
dollar basis - from Census' Annual Value of Construction Put in Place for the most recent 15-year period, 1994 -
2008 (Census 2009a).
7.2 Projecting Total Cost and Economic Impacts into the Future
Based on the profile of aggregate activity, model firms, and model projects developed in Section 7.1, EPA then
executed the firm- and industry-level analysis framework described in Chapter 6 to estimate total compliance
costs and economic impacts for each year, 2010-2014. However, unlike the steady-state analysis, EPA made two
major adjustments to the firm- and industry-level analyses of these years in order to capture how the effects of the
final rule are expected to phase in over time.
Accounting for the Phase-In of Compliance Requirements
This year-by-year projection analysis accounts explicitly for how the technical requirements of the final option,
Option 4, phase-in overtime:
> From February 2010 through July 2011, all construction sites are required to implement BMPs. Numeric
limits are not applicable during this period;
> From August 2011 through January 2014, sites of at least 20 acres will be subject to the rule's numeric
limits will apply to. Sites below 20 acres will continue to implement BMPs only.
> Beginning in February 2014 (4 years afterthe effective date of the rule), sites of at least 10 will be subject
to the rule's numeric limits. Sites below 10 acres will continue to implement BMPs only.
Accounting for the Phase-In of State Compliance
Each state is required to implement the final rule upon the first renewal of its Construction General Permit (CGP)
after rule promulgation. States renew their CGPs each five years with individual states scheduled to renew in
different years over the five year renewal window. Therefore, although 2010 is the rule's first effective year, 2014
is the first year in which all states are expected to have renewed their CGPs and the rule would be effective across
all states. EPA accounted for the anticipated phase-in of states over this five-year period by analyzing the firm-
and industry-level impacts in each year only for the states expected to have renewed their CGPs by a given year.
Table 7-2 shows which states are scheduled to have renewed their CGPs and thus construction projects be subject
to compliance requirements during each of these years. This determination is based on when each state's CGP
first expires afterthe effective date of the final rule.
November 23, 2009 7-3
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 7: Projection Analysis
Table 7-2: Anticipated State CGP Renewal
2010
Mississippi
Oregon
Tennessee
Washington
2011
Delaware
District of Columbia
Idaho
Kansas
Massachusetts
Montana
New Hampshire
New Mexico
South Carolina
Vermont
Wisconsin
Wyoming
2012
Colorado
Hawaii
Iowa
Kentucky
Missouri
Nebraska
Nevada
New Jersey
Oklahoma
South Dakota
U^
West Virginia
2013
Alabama
Arizona
Arkansas
Connecticut
Florida
Georgia
Illinois
Indiana
Maine
Maryland
Michigan
Minnesota
New York
North Carolina
Ohio
Pennsylvania
Rhode Island
Texas
2014
Alaska
California
Louisiana
North Dakota
Virginia
Source: EPA Analysis
Projecting Total Compliance Cost Beyond 2014
For the period 2015 - 2025, EPA projected total compliance costs based on the assumption that compliance costs
will change in proportion to aggregate activity, as described in Section 7.1 (i.e., assuming a uniform annual
growth rate of 3.0% per year in aggregate compliance cost).
Tallying Total Compliance Cost Over the Period 2010-2025
Lastly, EPA calculated the total present value of annual compliance costs over the period 2010 - 2025, and
calculated the corresponding annualized value over the 16-year period, using both 3% and 7% discounting rates.
The present value and annualized costs calculations state the rule's costs as of 2010, the rule's promulgation date.
7.3 Uncertainties and Limitations
> Projections of Industry Activity and Structure are Uncertain. EPA's projection of in-scope activity and
therefore compliance costs out to the year 2025 inevitably embeds an unknown, and potentially
substantial, amount of uncertainty. The actual nature and quantity of construction activity, and the
fraction of that activity that would be subject to compliance requirements, in any future year will be
determined by overall economic and industry conditions, which can vary substantially over time. In
addition, it is possible that the composition of construction activity will change in response to the
regulation, itself- for example, by a shift in the mix of construction site sizes to move some sites below
the in-scope acreage threshold. EPA's estimates of future in-scope acreage and cost are therefore
considerably uncertain, particularly as these projections move farther into the future. Also, the structure of
the industry is assumed not to change as a result of this regulation, which could influence the number of
firms overall, and by size range, that would face compliance requirements and therefore alter the
character of economic/financial impact occurring in the industry.
> Assumption of Constant Acreage Intensity over Time. EPA based the projected estimates of in-scope
acreage on an assumption that acreage intensity (e.g., acres developed per million dollars of project value)
is constant overtime. Although statistical analysis of current acreage intensity data support this
assumption, it is possible that this relationship will change in the future due to several factors, including
changes in productivity, the mix and cost of construction inputs, the mix of construction activity, and the
7-4
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 7: Projection Analysis
decline in the availability of raw, undeveloped land (and hence the tendency to use land more
parsimoniously in construction projects of a given development value over time). These factors point to
the possibility that acreage intensity will decline over the long-run. As a result, because EPA's projections
of in-scope acreage, and therefore compliance cost, are based, at the outset, on estimates of the dollar
value of activity, these activity and cost estimates may be overstated to the extent that acreage intensity
declines overtime.
7.4 Results of the Cost and Impact Projection Analysis
As described above, EPA projected the cost and economic effects of the final rule through the year 2025,
accounting for: (1) the expected levels of in-scope activity during the years in which the regulation will begin to
be implemented, (2) the phase-in of the rule's requirements during the initial years following promulgation, and
(3) the phase-in of rule applicability as states renew their Construction General Permits. This projection relies
primarily on a recent forecast of total construction industry activity over the next several years developed by
Global Insight. Unlike the other cost and impact analyses described in this document, this projection analysis is
presented only for the final rule option, Option 4.
As reported in Chapter 6, Table 6-3, the primary estimate of total compliance cost of Option 4, is $953 million.
The results - cost and impacts - presented below differ from this estimate in three important ways:
> The projection analysis accounts for the anticipated activity levels in each year from 2010 - 2014;
> The projection analysis accounts for the phase-in of the rule's requirements from 2010 - 2014; and,
> The projection analysis accounts for the phase-in of compliance from 2010 - 2014 as states renew their
CGPs.
Because 2014 is the first year of full rule implementation, the cost value reported for 2014, $810 million (2008$),
reflects the near-term cost of the rule under steady state-like conditions - i.e., the rule's requirements are fully
effective to all covered site sizes, and the rule is anticipated to have been implemented over all states. EPA's
primary estimate of $953 million (from Chapter 6) differs from this value because the primary value reflects the
cost of the rule in 2008 constant dollars, at a long-term, steady-state activity level. EPA presents this cost estimate
as an appropriate basis for understanding the long-term annual costs of the rule, in constant 2008 dollars, because
it reflects EPA's estimate of the long-term, steady state activity level in the industry. As reported in Table 2-3,
this long-term, steady-state activity level and compliance cost value, as estimated in Chapter 6, would not actually
occur until the year 2020.
Table 2-2 and Table 7-4 report the costs and impacts associated with the final rule over the period 2010 - 2014, as
aggregate industry activity increases, the requirements of the rule become applicable, and additional states come
into compliance. Table 2-2 reports the total costs and impacts over this period on a cumulative basis as additional
states come into compliance in each year following rule promulgation - i.e., the effects cannot be summed across
years. Table 7-4 differs from Table 2-2 in reporting the incremental increase in total costs and impacts from year
to year over this period.
November 23, 2009 7-5
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 7: Projection Analysis
Table 7-3: Cumulative Cost and Economic Impacts for the Final Rule, 2010 - 2014
Impact Analysis Concept | 2010 | 2011 | 2012 | 2013 | 2014
Resource Cost of Compliance and Affected Acreage and Firms (before market adjustments)
Total Costs (Smillions, 2008$)
Total Acreage Incurring Cost
Number of Firms
All Firms
Firms In-Scope
Firms Incurring Cost
$8
36,212
132,701
53,078
781
$63
107,646
155,728
59,581
2,522
$204
603,875
180,028
67,571
5,826
$538
603,875
194,442
73,056
17,515
$810
729,384
200,163
75,578
20,918
Firms with Compliance Cost Exceeding Percentages of Revenue Judged Potentially Indicative of Adverse Impact
Costs Unadjusted for Effect of Cost Pass-Through
Exceeding 1% of Revenue
Exceeding 3% of Revenue
Number Incurring Effect
% of All Firms
% of Firms In-Scope
Number Incurring Effect
% of All Firms
% of Firms In-Scope
0
0.0%
0.0%
0
0.0%
0.0%
2
0.0%
0.0%
0
0.0%
0.0%
48
0.0%
0.1%
0
0.0%
0.0%
136
0.1%
0.2%
0
0.0%
0.0%
224
0.1%
0.3%
0
0.0%
0.0%
Costs Adjusted for Effect of Cost Pass-Through"
Exceeding 1% of Revenue
Exceeding 3% of Revenue
Number Incurring Effect
% of All Firms
% of Firms In-Scope
Number Incurring Effect
% of All Firms
% of Firms In-Scope
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
Firms Estimated to Incur Financial Stress From Deterioration in Measures of Financial Performance
Incurring Financial Stress
Number Incurring Effect
% of All Firms
% of Firms In-Scope
1
0.0%
0.0%
7
0.0%
0.0%
27
0.0%
0.0%
79
0.0%
0.1%
141
0.1%
0.2%
Firms whose Net Business Value Becomes Negative as a Result of Compliance (Potential Closures)
Negative Business Value
(Potential Closures)
Number Incurring Effect
% of All Firms
% of Firms In-Scope
2
0.0%
0.0%
6
0.0%
0.0%
21
0.0%
0.0%
61
0.0%
0.1%
128
0.1%
0.2%
a Assumes cost pass-through rate of 85% for residential sectors and 71% for non-residential and non-building sectors.
EPA Estimates
7-6
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 7: Projection Analysis
Table 7-4: Incremental Cost and Economic Impacts for the Final Rule, 2010 - 2014
Impact Analysis Concept | 2010 | 2011 | 2012 | 2013 | 2014
Resource Cost of Compliance and Affected Acreage and Firms (before market adjustments)
Total Costs (Smillions, 2008$)
Total Acreage Incurring Cost
Number of Firms
All Firms
Firms In-Scope
Firms Incurring Cost
$8
36,212
132,701
53,078
781
$55
71,433
23,027
6,503
1,740
$141
377,643
24,300
7,990
3,304
$334
377,643
14,414
5,485
11,690
$122
125,509
5,721
2,522
3,403
Firms with Compliance Cost Exceeding Percentages of Revenue Judged Potentially Indicative of Adverse Impact
Costs Unadjusted for Effect of Cost Pass-Through
Exceeding 1% of Revenue
Exceeding 3% of Revenue
Number Incurring Effect
% of All Firms
% of Firms In-Scope
Number Incurring Effect
% of All Firms
% of Firms In-Scope
0
0.0%
0.0%
0
0.0%
0.0%
2
0.0%
0.0%
0
0.0%
0.0%
46
0.0%
0.1%
0
0.0%
0.0%
88
0.0%
0.1%
0
0.0%
0.0%
20
0.0%
0.0%
0
0.0%
0.0%
Costs Adjusted for Effect of Cost Pass-Through"
Exceeding 1% of Revenue
Exceeding 3% of Revenue
Number Incurring Effect
% of All Firms
% of Firms In-Scope
Number Incurring Effect
% of All Firms
% of Firms In-Scope
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
Firms Estimated to Incur Financial Stress From Deterioration in Measures of Financial Performance
Incurring Financial Stress
Number Incurring Effect
% of All Firms
% of Firms In-Scope
1
0.0%
0.0%
6
0.0%
0.0%
20
0.0%
0.0%
52
0.0%
0.1%
22
0.0%
0.0%
Firms whose Net Business Value Becomes Negative as a Result of Compliance (Potential Closures)
Negative Business Value
(Potential Closures)
Number Incurring Effect
% of All Firms
% of Firms In-Scope
2
0.0%
0.0%
5
0.0%
0.0%
15
0.0%
0.0%
40
0.0%
0.1%
41
0.0%
0.1%
a Assumes cost pass-through rate of 85% for residential sectors and 71% for non-residential and non-building sectors.
EPA Estimates
For the years beyond 2014, EPA extended the time series of aggregate industry construction value, cost, and
acreage to the year 2025 by assuming a uniform annual growth rate in aggregate construction value from 2015 to
2025 of 3.0% per year. This value is based on the industry's average annual growth rate of construction value -
on a constant dollar basis - from Census' Annual Value of Construction Put in Place for the most recent 15-year
period, 1994 - 2008 (Census 2009a). Table 2-3 presents the values for 2010-2014 and for the specific years 2020
and 2025, along with an estimate of total compliance cost as a percentage of total construction value. As
evidenced in the table, the total compliance costs associated with the final rule are expected to represent about
one-tenth of one percent of total construction value in the C&D industry over the long-term.
Table 7-5: Total Value of Construction Activity and Cost, by Year (millions, 2008$)
Total Value of Construction
Total Estimated Acreage
Total Compliance Cost
as a % of total value
2010
$487,534
495,930
$7.8
0.00%
2011
$554,457
561,710
$75.2
0.01%
2012
$641,041
646,022
$253.3
0.04%
2013
$699,860
703,565
$538.1
0.08%
2014
$726,669
729™894
$809.9
0.11%
2020
$866,895
870J42
$966.1
0.11%
2025
$1,004,210
f,008,(567
$1,119.2
0.11%
EPA Estimates
November 23, 2009
7-7
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 7: Projection Analysis
Lastly, EPA calculated the annualized cost of the final rule from 2010 - 2025, using both a 3% and 7% discount
rate. Using a 3% discount rate, the annualized cost of Option 4 is approximately $725 million. Using a 7%
discount rate, the annualized cost of Option 4 is approximately $667 million.
7-8 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 8: Affordability Analysis
8 Analysis of Single-Family Housing Affordability Impacts
8.1 Defining the Concept of a Housing Affordability Impact
Because the residential subsector comprises over one-third of the overall construction acreage subject to the
regulation and the C&D rule may increase the cost of housing construction and, as a result, the price (or rent) of
housing, the regulation has the potential to adversely affect consumers of newly constructed housing. Given this
potential effect, EPA performed a regional-level analysis (i.e., level of Metropolitan Statistical Areas (MSA)) to
estimate the number and fraction of potential single-family home buyers whose purchasing decisions may be
affected by the potential increase in the price of newly constructed, single-family housing. The results of the
analysis are reported in the last section of this chapter at the national level by aggregating the number of
potentially affected households across the MS As in each state.43
An MSA-level affordability analysis is more robust than a regional- or national-level analysis because it can
capture the high variability in housing market prices and household incomes across and within states. For this
analysis, EPA used MSA-level single-family new home prices and household income distributions to determine
the number of prospective home-purchasing households that are at or above the income level estimated to be
necessary to qualify for the financing of a newly constructed single-family home. This analysis involved the
following steps:
1. Calculating critical income values for the median price new home, lower quartile price new home, and an
hypothesized lowest price home in each MSA, based on standard home-loan underwriting criteria and
estimates of the total monthly housing payment, including mortgage loan, property tax, and property
insurance. Property tax and property insurance are estimated by MSA. The critical income value is the value
at which a household could just afford the median, lower quartile, or "lowest price" home according to
traditional underwriting criteria.
EPA performed these analyses at different housing price levels to account for differences in the number of
households across the household income distribution that would potentially be affected by regulation-induced
housing price increases. In creating the housing price cases, EPA recognized that the affordability impact of a
housing price change could be qualitatively different for homes at prices in the interior of the housing price
distribution - e.g., the median and lower quartile priced homes - than for a theoretical so-called lowest price
new home - i.e., at the bottom tail of the housing price distribution. Households seeking to buy a home in the
interior of the housing price distribution have the option of looking at a lower priced home if they no longer
qualify to purchase the median and lower quartile price home because of regulation-induced housing price
changes (among other potential impact mitigation responses, as described in Section 8.5 of this chapter).
However, for a household seeking to purchase the "lowest price home," no new home is theoretically
available for a price lower than the lowest price. In addition, the households that are more likely to purchase a
lowest priced new home than a lower quartile or median priced new home price are likely to come from the
lower end of the income distribution, other things being equal. If this portion of the income distribution is
denser,44 there is the potential for a larger number of households to be affected. For these reasons, EPA
defined and analyzed this additional case (not performed for the proposed rule analysis) assessing the impact
of the regulation on the hypothesized lowest priced home in each MSA. Because no data are available on the
The state-level results and presentation of the top 15 affected MSA's for each option are presented in Appendix D.
That is, more households per household income range.
November 23, 2009
8-1
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 8: Affordability Analysis
"actual lowest price" home by MSA, EPA chose $100,000 and $50,000 as hypothesized "lowest prices" to
illustrate the potential impact on affordability at this price level.
2. Calculating the increase in home prices due to the compliance costs of the regulatory options and the new
critical income values for the median, lower quartile, and lowest price homes, by MSA. To provide a
worst case assessment, the increase in new home price assumes that 100 percent of compliance costs will
be passed through in increased home prices.45
The analyses of firm- and industry-level impact presented in the preceding chapter rely on very different,
essentially contradictory, assumptions of "partial" cost pass-through and "no" cost pass-through. In those
analyses, only part, or none, of the increase in construction costs is assumed to be passed through to
customers, and affected construction industry businesses are assumed to bear all or a substantial fraction
of the compliance costs of the C&D regulatory options. For there to be material effects in the firm and
industry impact analysis, costs must not be fully passed through to consumers, and some cost and
economic impact burden must remain at the level of the industry's business participants. And, conversely,
for there to be material effects in the affordability analysis, costs must be passed through to consumers.
Accordingly, both sets of analysis assumptions, and as a result, the potential impact findings, cannot
occur at the same time in a given market: that is, adverse effects on the industry's business participants
will mean less potential for adverse affordability effects, and adverse affordability effects will mean less
potential for adverse effects on the industry's business participants.
EPA's review of the literature on the U.S. housing market suggests that a substantial part, but not all, of
the regulation's compliance costs will eventually be recovered in increased prices at the new market
equilibrium. Moreover, in periods of housing market weakness such as have occurred in U.S. housing
markets since late 2006, an even smaller share of compliance costs may be recovered in increased
prices.46 Either way, the assumption of 100 percent compliance cost pass-through may substantially
overstate the price effect, and therefore the critical income required to afford the new, post-compliance,
home.
3. Calculating the numbers of prospective home-purchasing households, for the median, lower quartile. and
lowest price homes, by MSA, whose purchasing decision is potentially affected by the increase in housing
price. The number of potentially affected households is calculated from the MSA-based household
income distributions by first determining the number of prospective home-purchasing households that just
qualify to purchase the median, lower quartile, and lowest-price homes at the baseline price, and then
subtracting from these values, the number of households that just qualify to purchase at the higher, post-
compliance-based prices. This difference is the number of households that were qualified to the purchase
the new home in the baseline, according to standard income-based home purchase and financing criteria,
but that fail to meet those criteria at the assumed post-compliance price. These households would need to
adjust their purchase decision, financing terms, etc., in order to continue with a transaction in the post-
regulation new home market (these potential adjustments and their consequence to the household are
discussed in Section 8.5).
In performing these calculations, EPA accounted for several factors that determine the number of
households whose housing purchase decision could be practically affected by a C&D regulation:
• Only a fraction of households are actively "in the market" for purchasing a home at any given time.
Although all new homes are expected to be in-scope of the regulation, nearly 87.5% of all new and
45 For each regulatory option, the price change per single-family housing unit was applied as a direct add-on to the median, lower
quartile, and lowest new home prices.
46 Due potentially to a more price-elastic demand for housing.
~S-2 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 8: Affordability Analysis
existing single-family homes available in the market would not be expected to incur cost under the
regulatory options.47
• Further, only a fraction of these "in the market" households would likely purchase, or even seek to
purchase, a new home whose price is likely to be directly affected by the C&D regulation.
• The likelihood of a household's participation in the market for new housing could vary by household
income.
Given these considerations, EPA based its analysis on the number of households and distribution of
household income, by MSA, for those households that purchase a new home. For this analysis, EPA used
data on the number of households and household income distribution from the 2007 American Housing
Survey48 for households that purchased a new home in 2006-2007, by MSA and/or state. Further, EPA
scaled this distribution to reflect the fraction of new home purchases in 2006 or 2007 that would have
been in-scope of the C&D regulation (specific to each regulatory option).
4. Adjusting the number of affected households to account for those households that purchase and Finance
houses in a manner that they fall outside the affected household set. The analysis outlined above identifies
potentially affected households under the assumption that buyers of the median, lower quartile, and
lowest new home purchase the baseline-price new home just at the payment-to-income ratio of 29
percent. Thus, all prospective new home-purchasing households that lie within the affected household
income range - households that qualified to finance the new home purchase at the baseline price but that
fail to qualify at the post-compliance home price - are assessed as potentially affected by the regulation-
induced increase in housing prices. However, based on data from the 2007 American Housing Survey, a
substantial percentage of households purchase homes such that financing and other payments yield a
payment-to-income ratio below 29 percent. This occurs for either or both of two reasons.
• Some households finance at terms that would permit them to increase their payments in response to
the regulation-induced price increase without exceeding the 29 percent recommended financing
criterion. These households often do so by making a larger than 20 percent downpayment.
• Some households in the otherwise critical income range purchase lower-priced new homes than the
price under analysis, such that they would remove themselves from the set of potentially affected
households.
Regardless of the mechanism, the effect on these households is different from that of the household
impact underlying the primary analysis. Although the purchase decision of these households would be
affected by a regulation-induced housing price increase, they would be able to increase their housing
payment to offset the regulation-induced increase in home prices. For this reason, EPA also estimated and
reports the estimated number of affected households accounting for this factor.
The overall objective of this analysis is to account for the possibility that an increase in the price of a new, in-
scope single-family home may increase the income necessary to qualify for a mortgage to purchase the home and,
therefore, potentially influence the purchasing decision of likely home buyers. However, a finding of a marginal
affordability effect for likely home buyers does not mean that these households would be unable to afford a home.
Rather, the analysis indicates that some households may need to adjust the preferential dimensions of their
housing purchase, or the timing of the purchase, to accommodate the higher price that could result from the C&D
industry regulation. For example, to purchase a new, in-scope single-family home, the housing purchaser might
47 Based on 2007 home sales data, EPA estimates the approximately 715,000 new, single-family home sales may incur cost under the
regulatory options out of a total of approximately 5.7 million single-family home sales.
48 The most recent year for which American Housing Survey data are available.
November 23, 2009 8-3
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 8: Affordability Analysis
avoid the increase in the monthly mortgage payment by changing some housing attribute to offset the increase in
price from regulation compliance, or by increasing their initial down payment. Alternatively, the prospective new
home purchaser might decide to purchase a home whose price is not affected by regulation's compliance
requirements. These interpretive considerations are discussed in more detail following the results presented in
Section 8.5 of this chapter.
8.2 Estimating Critical Income Values for Single-Family New Home Purchases
The critical income value is the income at which a household can just afford the median, lower quartile, or lowest-
price home. The first step in estimating this baseline income value is to establish the price for the median and
lower quartile new single-family home, by MSA. As described above, EPA assumed lowest new home prices of
$50,000 and $100,000 to test the affordability effect at the level of a "lowest price" home.
Median and lower quartile home prices from the Census Bureau's 2007 American Community Survey (ACS) and
specified lowest price homes serve as the baseline home prices (2007 was chosen because it is the most recent
year for which the required MSA-level data are available from the Census). The ACS provides the median new
home price (homes built in 2005 or later) as well as the median and lower quartile home price for all existing
homes. Since the lower quartile new home price is not available, EPA estimated the lower quartile price of a new
home by adjusting the median new home prices. This adjustment was based on the proportional relationship
between the median and lower quartile prices^or existing homes - i.e., EPA assumed that the relationship
between median and lower quartile new home prices would be the same as that observed for prices of existing
homes at the median and lower quartile levels. Since the 2007 ACS is a household survey, self-reporting bias may
be present in the home price data. For example, a National Association of Home Builders (NAHB) study
estimated that owners may overestimate the values of their homes in government surveys by as much as eight
percent (Kiel and Zabel, 1999).49 However, EPA judges that the degree of over- or under-statement for the home
prices relied upon for this analysis is likely to be small given that these estimates are for new homes purchased
very recently - i.e., between 2005 and 2007. Since homeowners were reporting the value of a home they
purchased within the past two years, it is not likely that homeowners would substantially err in estimating the
value of their home. Other sources of new, single-family home price data are available from the Census; however,
EPA identified the ACS data as the highest quality source given the relatively large sample size - approximately
three million housing units - and the additional benefit of being available for nearly 510 MSAs across the
country.50 As noted above, obtaining MSA-level home price data significantly improves the analysis because it
allows EPA to account for the high variability in housing prices across and within states.51
Table 8-1 reports the distribution - 5th percentile, 95th percentile - of newly constructed, single-family home
prices among MSA 's from the set of median and lower quartile prices used in the analysis.52 This table further
49 It should be noted that the study by Kiel and Zabel (1999) examined data from the Census-HUD American Housing Survey for years
1978 - 1991. It is not clear whether and to what extent the observations of Kiel and Zabel (1999) are also present in the American
Community Survey.
50 For example, the Census' monthly Survey of Construction is an alternate source; however, this data are available only at the national
level and by Census region. In addition, these data are based on a small sample, relative to ACS, of approximately 5,000 respondents
representing 28,000 buildings.
51 For example, among the 510 MSAs included in the analysis, median new home prices in individual MSAs range from about $52,000
to just over $1,000,000.
52 These price distributions are not presented for the lowest home price analyses since these are pre-selected values of $100,000 and
$50,000 and a distribution is not applicable. Because no data are available on the "actual lowest price" home by MSA, EPA chose
$100,000 and $50,000 as hypothesized "lowest prices" to illustrate the potential impact on affordability at this price level. EPA
believes these two prices account for the potential lowest home prices across most MSAs.
8-4 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 8: Affordability Analysis
illustrates the high variability in housing market prices - and therefore, critical income values - across and within
states, and highlights the desirability of performing this analysis at the MSA-level (as opposed to a state or
national-level analysis, which would ignore this variability).
Table 8-1: Baseline New Single-Family Home Prices (2007$)
Median Baseline New Home Price
Lower Quartile Baseline New Home Price
5th Percentile MSA
$117,400
$70,726
95th Percentile MSA
$498,000
$371,776
Source: U.S. Census Bureau. 2007 American Community Survey.
The second step in estimating the baseline critical income values is to establish the monthly housing payment for
the median, lower quartile, and lowest-price new single-family home in each MSA. The baseline monthly housing
payments are based on standard home loan underwriting criteria and include the mortgage loan, property tax, and
property insurance, as follows:
> Estimate the monthly loan payment for purchase of new housing assuming that buyers finance
approximately 79% of the new home purchase price using a 30-year conventional fixed rate mortgage
with an interest rate of 7.32%. The 79% loan to value ratio is derived from the Federal Housing Finance
Board's Terms on Conventional Single Family Mortgages, Fixed-Rate 30-Year and 15-Year Non-jumbo
Loans average percentage (since 1990) of the financing amount to the total home purchase (FHFB, 2007).
The 7.32% interest rate is derived from Freddie Mac's Primary Mortgage Market Survey: Conventional,
Conforming 30-Year Fixed-Rate Mortgage Series Since 1971 average interest rate since 1990 (Freddie
Mac, 2009). As of the time of this analysis, home mortgage loan interest rates for loans meeting these
criteria are somewhat lower (e.g., around 5.0%) than the longer term average reported above. EPA judges
that use of the longer term average provides a better indication of the potential affordability effects of the
C&D rule over the period of rule implementation and market adjustment.
> Estimate monthly property taxes by determining the percent of the monthly property tax payment to the
median, lower quartile, and lowest-priced new home value for each MSA. The 2007 ACS provides the
median annual property tax payment for each MSA. The monthly value was compared to the median
home value for each MSA to derive monthly property taxes as a percentage of the median home value.
This same percentage was used to develop the monthly property tax payment for the lower quartile and
lowest priced home analysis.
> Estimate the monthly insurance payment by determining the percent of the monthly insurance premium to
the median, lower quartile, and lowest new home value for each state. The Insurance Information Institute
(III, 2007) provides the average annual insurance premium for each state. The monthly premium was
compared to the median home value for each state to derive the percent of the monthly insurance
premium compared to the median home value. This same percentage was used to develop the monthly
insurance premium for the lower quartile and lowest priced home analysis.
Private Mortgage Insurance is not included in the monthly payment calculation since this analysis assumes a loan
to value ratio of 79%, which means that the loan would not require mortgage insurance.
Using the above parameters, the monthly mortgage payment is calculated as follows:
PI = —
(l + r/12)36U-l
T = t*P (2)
November 23, 2009 8-5
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 8: Affordability Analysis
I = s*P (3)
PITI = PI + T + I (4)
Where:
PI = Monthly Principal and Interest
P = New Home Purchase Price
F = Proportion of New Home Cost that is financed
r = Annual Mortgage Interest Rate
T = Monthly Tax Payment
t = Monthly Tax Rate as a Percentage of the New Home Purchase Price
I = Monthly Insurance Premium
s = Monthly Insurance Rate as a Percentage of the New Home Purchase Price
PITI = Principal, Interest, Taxes, and Insurance
Based on the FHA's underwriting guidance that a homeowner's total housing purchase payment should not
exceed 29% of income (FHA, 2009), the calculation of total housing payment, as outlined above, supports the
calculation of the annual income necessary to purchase a home at the median, lower quartile, and assumed lowest
prices for each MSA. Table 8-2, summarizes the key input parameters used in this part of the analysis.
Table 8-2: Terms for 30-Year Conventional Fixed-Rate Mortgage
Duration of mortgage (years)
Payments per year
Percent of home value financed
Annual interest rate
Private Mortgage Insurance
Share of gross income available for housing
30
12
78.9%
7.32%
N/A
29%
8.3 Estimating the Change in New Single-Family Home Prices due to the Regulation
The estimate of potential affordability effects - i.e., the change from baseline conditions due to the regulation -
begins by calculating the increase in home prices due to the compliance costs of the proposed regulatory options
and the new critical income values for the median, lower quartile, and lowest price homes, by MSA. For each
regulatory option, the estimated price effect for each housing unit due to the rule's compliance costs was added on
to the median, lower quartile, and lowest new home prices.
The price change per single-family unit is calculated by first assigning state-specific compliance cost per acre
values to each MSA. An MSA overlaps more than one state in approximately fifty instances. In these cases, EPA
allocated the households within the MSA to the separate states using county-level housing data from the U.S.
Census. The Census provides the county names within each MSA and the number of households within each
county (U.S. Census, 2007b). For each MSA, the total number of ACS reported households was apportioned to
each state within the MSA based on the proportion of each state's percent of total households for the counties
applicable to each MSA.
The number of households within MSAsfor each state was summed and compared to the total reported number of
householdsyfor each state. In some instances - i.e., for those states in which all households fall within an MSA -
the number of households within the MS As for each state equaled the total number of households for each state.
However, in most instances, the number of households within the MSAs for each state was less than the total
number of households for each state. Ultimately, EPA compared the total number of U.S. households found
within MSAs to the total reported number of households by state, and found that 77 percent of all households fall
8-6 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 8: Affordability Analysis
within MSAs. Therefore, in order to present results for the U.S. as a whole, EPA scaled the MSA-level results
based on the state household totals to determine the national results.
Once all MSA households are appropriately assigned to states, EPA then assigned each MSA the state's
compliance cost per acre for each regulatory option. EPA calculated compliance cost, by state, as the acreage-
weighted values of compliance cost for the homebuilding subsectors from the state-specific model project and
compliance cost matrix described in Chapter 4.
EPA converted the cost per acre by state into a price effect per single-family home. The conversion is performed
by dividing the cost per acre by the national median number of single-family units per acre - to estimate cost per
unit - and then multiplying that cost per unit by the single-family project cost multiplier derived from the project-
level analysis. Multiplying the cost by the previously estimated cost multiplier accounts for the possibility that
cost increases at a single-family residential housing project can translate into an increase in the asking price of a
new home by more than the direct compliance cost increase (see Appendix G). From the Census Bureau's
Characteristics of New Housing (2009), the 2008 median number of units per acre (for both attached and
detached single-family units) is 4.92. For the lower quartile analysis, EPA performed the analysis using 4.92 units
per acre, but also performed an alternative analysis in which the cost per unit is based on the median number of
units per acre for attached single-family homes only, which is approximately 14.7 units per acre. EPA performed
this alternative analysis to account for the fact that lower price homes are more likely to be attached single-family
homes and more likely to sit on lots smaller than the median lot over all single-family homes. In addition, Census
data indicate that lot size generally declines as sales price declines and therefore the denser configuration of
attached single-family homes may better represent a typical lot size for the lower price homes (as opposed to the
median lot size of both attached and detached homes). For the lowest home price analysis, EPA used the median
number of units per acre for attached single-family homes only. The results of this alternative analysis are
discussed in the later sections of this chapter.
In using the lot size data from the Census Bureau's Characteristics of New Housing, EPA recognized that these
data sources do not account for road development associated with a building's construction. As a result, the
reported lot size values from these datasets would understate actual area subject to the regulation for any given
housing unit. To address this omission, EPA applied a 13% multiplier to scale-up the lot size values to account for
the typical road development "overhead" associated with new construction activity. EPA derived this multiplier
from information in the Center for Watershed Protection's Impervious Cover and Land Use in the Chesapeake
Bay Watershed (Capiella and Brown, 2001).
8.4 Estimating the Number of Potentially Affected Single-Family Home Buyers
After the median, lower quartile, and lowest housing prices are adjusted to reflect the incremental compliance cost
of the regulatory options, EPA then calculated the numbers of prospective home-purchasing households, for the
median, lower quartile, and lowest price homes, by MSA, whose purchasing decision is potentially affected by the
increase in housing price.
To estimate the number of potentially affected households - i.e., those whose income is now below the new, post-
compliance critical income value for the median, lower quartile, or lowest-priced home - EPA used household
income distribution data from the American Community Survey's 2007 Statistics of Household Income. The ACS
reports the number of households falling in ten income ranges: $0-$10,000, $10,000-$14,999, $15,000-$24,999,
$25,000-$34,999, $35,000-$49,999, $50,000-$74,999, $75,000-$99,999, $100,000-$149,999, $150,000-$199,999,
and $200,000 or more.
Households in the income ranges below the range that contains the estimated critical income value for the median,
lower quartile or lowest-priced new home before the addition of compliance costs are already considered to be
November 23, 2009 sT
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 8: Affordability Analysis
unable to afford the home in that MSA and therefore cannot experience an affordability effect for that particular
home. The number of households present in the distribution below the range containing the critical income value
is estimated as follows:
»*-! (5)
N Households me = N Households ir*, me + N Households^
Where:
N Households mc = Number of households over all income ranges with income below critical
income value (inc)
Inc = Critical Income Value, i.e., the income at which a household canjust afford the
median, lower quartile, or lowest-price home
N Households „-*, mc = Number of households in Income Range ir* with income below critical income
value (inc), where Income Range ir* contains the critical income value inc
N Households ff = Number of households in Income Ranges ir below Income Range ir*
The Census does not provide information on how household income is distributed within the Census-reported
income ranges. In all likelihood, the critical income value necessary to qualify for mortgage will fall within, and
not at the edge of, a Census income range. Accordingly, it is necessary to estimate the fraction of households
within a Census income range that fall below the critical income value. For this analysis, EPA assumed that
households are uniformly distributed over the income values within an income range. As a result, the fractional
point at which the critical income value lies within an income range is also the fraction of households within that
income range that fall below the critical income value.
The uniform-distribution-of-households-within-range assumption inevitably involves error and could overstate or
understate the fraction of households within an income range that fall below a critical income value, depending on
the change in slope of the density distribution over the income range. Nevertheless, EPA considers the assumption
of a uniform distribution with an income range to be a reasonable approach. The numbers of households that fall
within the range containing the critical income value are estimated as shown within Equation (6).
TV r TT ill (InCcriticalincome — iTIC ir*,mn)/ -\T TT ill (®)
N Housenoldsir*, mc = ^ '/(J T -.xN Householdsir *
/ {InC ir*, nvc - InC ir*, am)
Where:
N Households „-*, mc = Number of households in Income Range ir *with income below the critical
income value (inc), where Income Range ir* contains the critical income value
inc
Inc critical income = Critical income value
Inc x*,mn = Minimum value of Income Range ir *
Inc ff» mx = Maximum value of Income Range ir*
N Households „-* = Total number of households in Income Range ir*
The above steps produce an estimate of (1) the change in household income needed to qualify for financing to
purchase the now-higher-priced housing unit and (2) the corresponding reduction in the number of households
with income sufficient to be able to just purchase either the median, lower quartile, or lowest priced housing unit
in each MSA.
8-8 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 8: Affordability Analysis
In performing these calculations, EPA recognized that, at any given time, the number of households that are
actually "in the market" for purchasing a home is significantly less than the number of households in an MSA.
EPA further recognized that the number of these households whose purchasing decision might be practically
affected - i.e., seek to purchase a new single-family house whose price is affected by a given regulatory option -
is smaller again than the number of households seeking to purchase a home. Accordingly, EPA based its analysis
of potential affordability effects on the distribution of households, by MSA, who purchased a new, in-scope home
in 2006 or 2007 (specific to each regulatory option).
To develop the household income distributions, EPA gathered the Department of Housing and Urban
Development's 2007 American Housing Survey (AHS) national household income distribution for households
that purchased a new home in 2006-2007. EPA combined this distribution with MSA -level household income
distribution for all households, gathered from the 2007 American Community Survey (ACS). The resulting
distributions describe the fractions and numbers of households - by income range within each MSA - for
households that purchased a new home in 2006-2007. In developing this combined distribution, EPA assumed that
the percentages of new housing purchasers, by household income, observed at the national level would also apply
at the MSA level. EPA further modified the resulting MSA-level distributions to reflect the fraction and number
of households, by income range, purchasing a new, in-scope home in 2006 or 2007 (specific to each regulatory
option). This in-scope adjustment is based on all new housing, regardless of price and income level of the
purchaser, and thus assumes that the profile of in-scope housing to total newly constructed housing is the same,
over all prices of new construction activity and income ranges of the purchasing household.53
EPA expects that the households that could experience an affordability effect from the regulation are those that
are in the market for a newly built, single-family home incurring compliance costs under the regulation.
Therefore, EPA used the household income distribution for households that purchased a new, in-scope home in
2006 or 2007 (specific to each regulatory option) to determine the fraction of total households whose purchasing
decision could be affected by a regulatory option. Furthermore, because the MSA-level results are only represent
of approximately 77 percent of the total U.S. households, EPA scaled the MSA-level results based on the state
household totals to in order to determine the national results.
Additionally, as described in the introduction to this chapter, EPA recognized that some of these households
otherwise identified as being in the affected household set, purchase and finance homes at terms that would cause
a different, and less consequential, affordability affect than the concept underlying the preceding analysis.
Specifically, based on data from the 2007 American Housing Survey, a substantial percentage of households
purchase homes with financing and other payments yielding a payment-to-income level below 29 percent. This
observation would occur for either or both of two reasons.
> Some households finance at terms that would permit them to increase their payments in response to the
regulation-induced price increase without exceeding the 29 percent recommended financing criterion.
These households often do so by making a larger than 20 percent downpayment.
> Some households in the otherwise critical income range purchase lower-priced new homes than the price
under analysis, such that they would remove themselves from the set of potentially affected households.
Either way, these households would experience a qualitatively different affordability effect than assessed above,
and it is appropriate to remove these households from the set of affected households identified in the preceding
analysis. Regardless of the price of the new home purchased, they would be able to absorb the additional payment
resulting from the regulation while still remaining at or below the financing threshold.
To determine the number of new single family home sales that are expected to incur compliance costs, EPA estimated the percentage,
for each regulatory option, of in-scope residential construction acreage to total residential construction acreage from the firm-level
analysis (i.e., for businesses inNAICS sectors 236115, 236116, and 236117).
November 23, 2009 8-9
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 8: Affordability Analysis
To assess the potential consequence of this consideration, EPA derived from the 2007 AHS household income
distribution data a joint distribution - by household income range and the percent of household income spent on
housing - for households that purchased a new home in 2006-2007. EPA used this joint distribution to provide
insight on the fraction of households, by household income range, purchasing housing according to terms that
would permit them to increase their purchasing payments and still remain below the FHA recommended total-
payment-to-income ratio of 29percent. EPA recognizes that these households still experience an affordability
effect as a result of potentially higher housing prices, but they do not experience an affordability effect in which
they can no longer afford a new home, and would be able to purchase the "same" new home as otherwise
purchased in the baseline with no purchase delay or other modifications to purchase preference by increasing their
monthly payment - and still remain within the 29 percent underwriting guidance.
To determine the percentage of households that may offset the affordability impact by increasing their monthly
housing payment while still remaining below the FHA recommended total-payment-to-income ratio of 29 percent,
EPA performed the following calculation for each MSA:
1. Calculate the gross income required to qualify for purchase of housing at the post-compliance price, at a
total payment-to-income ratio of 29 percent.
2. Calculate the baseline percentage of income spent on housing, assuming that the post-compliance
percentage of income spent on housing is 29 percent. Because the baseline payment is less than the post-
compliance payment, this percentage will be less than 29 percent. This is the percentage of income spent
on housing that the purchaser would need to be at or below, in the baseline, to be able to increase the
housing payment in response to the regulation-induced increase, without exceeding the 29 percent
underwriting guidance at the post-compliance price.
3. Determine the household income range containing the post-compliance critical income, i.e., the income
level necessary to qualify for financing the post-compliance newly constructed single-family home, at the
29 percent payment-to-income threshold.
4. For the household income range containing the post-compliance critical income value, determine the
percentage of households that spend less than the percentage of income spent on housing at the baseline
housing price, assuming that the post-compliance percentage of income spent on housing is 29 percent,
from the 2007 AHS joint distribution of percentage of household income spent on recently purchased,
new housing,54 by household income range.
5. Multiply the previously determined number of households whose purchasing decision could be practically
affected by a regulatory option, by the percentage of households that spend above the baseline percent of
income spent on housing, for the critical household income range.
„ , „ .... . Annual PITIpc/ (7)
Crross _ Income _ Qualifying pc = - /o 70
D , „ , Annual PITIu/ (8)
Percent Spent u = - /„ T _, ,.- .
~ / Gross _ Income _ Qualifying pc
Adjusted _ Num _ HHs _ Affected = (Initial _ Num _ HHs _ Affected) * (1 - Pet _ HH - Under _ Baseline) (9)
Where:
Based on owner-occupied households that purchased a new home in 2006 or 2007.
8-10 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 8: Affordability Analysis
Gross_Income_Quarifying pc = Gross Income necessary to qualify for the mortgage of a new, single family
home at the post-compliance price (pc), assuming that 29 percent of income is
spent on housing.
Annual_PITI pc = Monthly Principal, Interest, Taxes, and Insurance at the post-compliance
housing price, multiplied by 12 to determine annual PITI.
Percent_Spent M = Percentage of income spent on housing at the baseline housing price, assuming
that the percentage of income spent on housing at the post-compliance price is
29 percent.
Annual_PITI u = Monthly Principal, Interest, Taxes, and Insurance at the baseline housing price,
multiplied by 12 to determine annual PITI.
Pct_HH_Under Baseline = Percent of households that spend under Percent_Spent u within the household
income range containing the post-compliance critical income, i.e. the income
level necessary to qualify for the financing of the post-compliance newly
constructed single-family home.
Initial_Num_HHs_Affected = Number of total households whose purchasing decision could be affected by a
regulatory option, before the 29 percent financing adjustment
Adjusted_Num_HHs_Affected = Number of total households whose purchasing decision could be affected by a
regulatory option, adjusted to account for households whose observed purchase
terms indicate the ability to increase housing payments and remain under 29%
housing payment-to-income ratio.
This calculation determines the fraction and number of total households whose purchasing decision could be
affected by a regulatory option, adjusted to account for those households whose empirically observed purchase
terms indicate an ability to increase their housing payments and remain under 29% housing payment-to-income
ratio. These households are able to absorb the additional payment resulting from the regulation while still
remaining at or below the financing threshold. Therefore, although their housing purchase decision and purchase
terms are affected by the potentially higher housing price, these households do not experience the same
affordability effect as do those households that are no longer at or above the qualifying income level.
The results section of this chapter (Section 8.7) presents the findings from the affordability analysis both without
and with accounting for this effect.
8.5 Assessing the Practical Impact on the New Home Purchaser: Opportunities for
Offsetting Potential Price Effects
The single-family housing affordability analysis likely overstates the practical impact on home buyers
prospectively purchasing an in-scope home because purchasers have a number of avenues through which any
price increase due to the regulation might be mitigated:
> Price negotiation. The home buyer may be able to offset the price increase through negotiation of the
sales price. Any price reduction would be borne by the seller.
> Attribute substitution. The home buyer may be able to mitigate the effect of the price increase through
substitution (e.g., purchasing a new home with marginally different attributes, or effectively the same new
home in a marginally different location). New home buyers are often able to select from a range of
options for their new home, thereby adjusting the final price of the home. By forgoing the more expensive
option for a secondary attribute, such as countertops or carpeting, the buyer could mitigate the price
increase without sacrificing a primary attribute such as square footage, lot size, or location. These
households can always choose to make forgone upgrades later. In effect, they are trading off a short run
welfare reduction for a later welfare increase.
November 23, 2009 8-11
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 8: Affordability Analysis
> Purchase deferment. The home buyer may be able to mitigate the effect of the regulation by increasing
the down payment so that the there is no change in what would have otherwise been the monthly
payment. If the home buyer lacks the financial resources to increase the down payment at the preferred
time of purchase, the increase in the down payment might be achieved by delaying the purchase and
saving from current income to reach the needed down payment value. The analysis results presented in
Section 8.7: Results of the Single-Family Housing Affordability Analysis, assess the implications of
delaying a purchase to increase the down payment to offset the otherwise resulting increase in monthly
payment requirements. These households are trading off a short run welfare reduction during the
deferment period against other welfare reductions such as attribute substitution.
> Purchase an out-of-scope home. Each of the preceding adjustments involves changes to purchase the
desired new, in-scope home. However, the prospective home buyer may be able to mitigate the effect of
the price increase, entirely, by purchasing a new or existing home whose price does not directly increase
as a result of the regulation.55
EPA cannot determine with certainty whether and to what extent these mechanisms will be employed by likely
single-family home buyers. But, to the extent that otherwise affected home buyers do mitigate the regulation's
impact via these mechanisms, the previous methodology will overstate the magnitude of single-family housing
affordability effects.
8.6 Uncertainties and Limitations
Certain qualifications and uncertainties in this analysis are critical for properly understanding the practical
implications of whether and to what extent households will be affected by the regulation:
> Housing Affordability is Currently at a Record High. Housing affordability has been increasing rapidly
since the housing boom of 2005-2006, when housing was relatively less affordable compared to longer
term measures of housing affordability: the average Housing Affordability Index for 2006 was 107.6,
17.3 points below the average of 124.9 (average since 1973) (NAR, 2009d).56 After rising steadily since
2006, housing affordability decreased during the summer and early fall of 2009 - largely due to increased
housing prices - suggesting that the housing market may be in recovery. As the housing market recovers,
one would expect gradually rising home prices, which will gradually lower housing affordability unless
there is also an increase in household incomes. Regardless, even though affordability has decreased
slightly in recent months due to the market recovery, affordability is still at historically high levels.
Compared to the peak housing affordability of 178.8 in April, the July index is approximately 20 points
lower, but is still 34 points above the long-term average of 124.9. Figure 8-1, below, shows the historical
trend of housing affordability since 1990.
Such substitutes are expected to be readily available given that nearly 87.5% of single-family homes available in the market would not
be expected to incur cost under the regulatory options. (Based on 2007 home sales data, EPA estimates the approximately 715,000
new, single-family home sales may incur cost under the regulatory options out of a total of approximately 5.7 million single-family
home sales.)
"The Housing Affordability Index is a relative index where a value of 100 means that a family with the median income has exactly
enough income to qualify for a mortgage on median priced existing single-family home, taking into account the relationship between
median home price, average effective interest rate for loans closed on existing homes, and median family homes. The higher the index,
the better housing affordability is for buyers" (NAR, May 2009a).
8-12 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 8: Affordability Analysis
Figure 8-1 : NAR Housing Affordability Index: Annually From 1990 - 2008; Monthly From January to July 2009
9nn -,
zuu
1 RD
1fiO
14D
I 'tU
1 9D
I ZU
1 nn
I UU
on
en
DU
/in
'tU
9D
r^~^\^
1
> — ^ ^^^ / Average: 124.9
^^" ~^^~ "%^ f
-^ ^ '
T I I I I I I I I I I I I I I I I I I I I I I I I I
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2009 2009 2009
Feb Apr June
Source: NAR, 2009d
'> Cost Pass-Through Potential Varies with Prevailing Market Conditions. To provide a worst case
assessment, the increase in new home price assumes 100 percent pass-through of compliance costs, as a
market condition. This extent of housing price effect is not likely to persist over the long-term due to
several factors, including (1) the availability of substitutes for any given home, and (2) the determination
that the C&D rule is expected to affect only the equivalent of about 12.5% of the total number of single-
family home sales. And, in periods of housing market weakness, such as have occurred in U.S. housing
markets over the past few years, the assumption of 100 percent compliance cost pass-through may
overstate substantially the price effect, and therefore critical income value effect, from the regulatory
options.
> Compliance Cost and Any Related Potential Price Increase are Likely to Decline with the Baseline
Sales Price of the Affected Property. An important factor to be accounted for in the analyses for the
lower quartile and lowest price homes is that the compliance cost burden and potential home price
increase will typically be less for these homes than for the median price home. As a result, simply
carrying forward the same price effect as used for the median price analysis will overstate the typical
impact. This occurs because, as indicated by Census data, lot size typically declines with price for new
single-family homes, thereby reducing the compliance cost burden, which is directly associated with lot
size, and the resulting price impact per home. EPA presents an alternative price impact case in which a
smaller lot size - and therefore smaller housing price impact given a fixed value of compliance cost per
acre - for the lower quartile and lowest price home analyses.
> Assumption of a Uniform Distribution of Households within Income Ranges. For this analysis, EPA
assumes that households are uniformly distributed over the income values within an income range. The
uniform-distribution-of-households-within-range assumption inevitably involves error and could overstate
November 23, 2009
8-13
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 8: Affordability Analysis
or understate the fraction of households within an income range that fall below a critical income value,
depending on the change in slope of the density distribution over the income range.
> Price and Character ofln-Scope Homes is Unknown. EPA has no basis for determining which homes
along the home price distribution for any given state will actually incur costs, and therefore a potential
price effect, under the regulation. The regulatory options specify the number and character ofin-scope
projects, but the kind and price of homes that are most likely to be built within in-scope projects is
unknown. Therefore, EPA may be overstating affordability effects for some or all of the home price
affordability analyses.
> EPA's analysis of affordability impacts focuses on the potential effect on homes whose prices would be
directly affected by the C&D regulation, namely new, in-scope homes; however, the impact on home
prices could extend beyond those homes that are directly affected by the regulation. The analysis
presented in this chapter considers the price impact on only new, in-scope homes. However, regulation-
induced price increases in the new, in-scope home segment of the housing market could spill over into
other housing market segments - new, not in-scope homes and existing homes - that are substitutes for
new, in-scope homes in the home purchase market. EPA judges that its focus on the new, in-scope home
price effect is appropriate for this analysis because of the typically small share of total homes on the
market, and home sales represented by new homes in any year. As described above, the C&D regulation
is expected, in general, to apply directly to only about 12.5 percent of home sales. Given the relatively
small share of total home sales expected to be affected directly by the C&D rule, EPA expects that there
will be little spill-over price effect from the in-scope segment to the broader market. In fact, EPA judges
that the large share of total sales represented by the not in-scope segments of the market will tend to
dampen the potential price increase and affordability effect of the C&D rule.
8.7 Results of the Single-Family Housing Affordability Analysis
This analysis estimates, by Metropolitan Statistical Area, the potential change in price for newly constructed
single-family homes, and the associated number of prospective home buyers whose purchasing decisions may be
affected by the potential increase in new home prices due to compliance requirements.
The results of the analysis are produced at the MSA-level and reported at the national-level by aggregating the
total number of impacted households across all MSAs. Detailed state-level results are presented in the Appendices
chapter. As described above, EPA performed this analysis at three home price levels: the median price, lower
quartile price, and specified lowest prices for new single-family homes, by MSA. For this analysis, EPA assumed
that compliance costs would be fully passed through to consumers in increased housing prices. This assumption is
effectively contradictory to the assumptions of partial and no cost pass-through that underlie the analysis of firm
and industry-level regulatory impacts.
8.7.1 Results of the Median Price Single-Family Home Analysis
Table 8-3 shows, by regulatory option, the estimated dollar value and percentage change in the price for a new
single-family home and the number of households in the market for a new, median price single family home
whose purchasing decision may be affected by the price change. The price increase assumes: (1) a compliance
cost based on the median lot size, 0.20 acres, for all new single-family housing as reported in the Census of
Housing and (2) that compliance costs are fully passed through as an increased price to the new home purchaser.57
57 The 0.20 acre lot size is the median value for new single-family housing as reported in the Census' 2008 Characteristics of New
Housing, adjusted for additional land development associated with roadways, which is not accounted for in the Census' lot size data.
8-14 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 8: Affordability Analysis
This table also shows (1) the number of affected households as a percentage of the total number of home-
purchasing households that also qualify to purchase the median price home, before compliance cost effect, and (2)
the fraction and number of total households whose purchasing decision could be practically affected by a
regulatory option, adjusted to account for those households whose empirically observed purchase terms indicate
an ability to increase their housing payments and remain under 29% housing payment-to-income ratio. The key
conclusion from this analysis is that, for all regulatory options, the total number of households incurring an
affordability effect is small in comparison to the number of all likely single-family home buyers in any given year
who can also afford the same home. For Option 4, this percentage is less than 0.2 percent.
Table 8-3: National Results from the MSA-Level Affordability Median New Home Price Analysis - Price and
Household Affordability Effects (2008$) - based on Owner-Occupied Households that Recently Purchased
a New, Option In-Scope, Homed
Weighted Average Baseline Median New Home Price3
National Average Price Change per New Single-
Family Homeb
Number of Households Whose Purchasing
Decision for a New Single-Family Median
Priced Home Would Be Affected by a
Regulation-Induced Increase in Housing Prices
Number of Affected Households (from above),
Adjusted to Account for Estimated Number of
Households Whose Empirically Observed
Purchase Terms Indicate Ability to Increase
Housing Payments and Remain Under 29%
Housing Payment-to-income Ratio
Price Changeb
Percent Change0
Number of Households
As % of SF home buyers
qualifying for the new,
option-in-scope, median-
priced home
As % of SF home buyers
qualifying for the
median-priced home
Number of Households
As % of SF home buyers
qualifying for the new,
option-in-scope, median-
priced home
As % of SF home buyers
qualifying for the
median-priced home
EPA
Option 1
$355,893
$59
0.02%
239
0.03%
0.01%
69
0.01%
0.00%
EPA
Option 2
$355,893
$2,231
0.63%
9,757
1.05%
0.30%
2,992
0.32%
0.09%
EPA
Option 3
$355,893
$4,093
1.15%
17,222
1.86%
0.53%
5,259
0.57%
0.16%
EPA
Option 4
$355,893
$415
0.12%
1,667
0.18%
0.05%
480
0.05%
0.01%
a This value, the weighted average based on the number of households and home prices across MSAs, is not directly used in the analysis; it is presented here
for reference only.
b These are national average price changes estimated from the national average engineering estimate of per acre compliance cost converted to the equivalent
of compliance costs per housing unit. Price changes for MSAs are estimated individually using engineering estimates of state-level compliance costs.
c The national average percent change in home price is estimated using the national average price change and the weighted-average home price across all
MSAs.
d Values listed as 0.00% are greater than zero but are rounded to 0.00% for reporting purposes.
EPA Estimates
Table 8-4 shows the effect of the estimated national average change in home prices on a typical monthly payment
by comparing the baseline and post-compliance monthly payments for each option. For example, the median
home price analysis shows increases in monthly payments of $1 for Option 7, $16 for Option 2, $29 for Option 3,
and $3 for Option 4. In each case, the percentage increase in the monthly payment due to regulatory requirements
is low - for example, 0.14 percent for Option 4.
Table 8-4: National Results from the MSA-Level Affordability Median New Home Price Analysis -
Change in Monthly Mortgage Payment (2008$)
Weighted Average Baseline Monthly Mortgage Payment1
Weighted Average New Monthly Mortgage
Payment*
Monthly Payment
Percent Change
EPA
Option 1
$1,953
$1,954
0.02%
EPA
Option 2
$1,953
$1,969
0.80%
EPA
Option 3
$1,953
$1,982
1.45%
EPA
Option 4
$1,953
$1,956
0.14%
a These values are weighted by the number of households within each state.
EPA Estimates
November 23, 2009
8-15
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 8: Affordability Analysis
The marginal affordability effects for likely buyers of newly constructed, single-family homes - in this case, a
median price home - as illustrated in Table 8-3 and Table 8-4, do not mean that these households would be unable
to afford a single-family home, or even not be able afford the exact same new single-family home. Any
potentially affected home buyer has a number of ways to mitigate any price increase due to the regulation. See
Section 8.5, for a description of these options.
One option referred to as the purchase deferment option, is when the purchaser delays the new home purchase
long enough to save the requisite increase in the down-payment. Depending on a household's income and the
amount of time over which the household saves the additional funds, the impact on a given household's
disposable income will vary. For example, for any given amount to be saved, the fraction of income that would
have to be set-aside over a 3-month period is twice the fraction of income set-aside if savings are accrued over a
six-month deferment period.58
Table 8-5, below, presents the fraction of household income required to be saved, to offset the effect of the
regulation on the monthly mortgage payment via an increase in the initial down-payment. The table shows the
savings over 3, 6, and 12 month periods. In each case, the income used in the calculation is the income at which
the prospective home buyer would just be able to purchase the home at the baseline price under conventional
financing criteria. The results show, for example, that under Option 4, a household would need to set-aside 0.9%
of its income over a 6-month period to offset the regulation's effect on the mortgage payment. The fraction of
income required to be saved decreases,yor any savings time period, for households that earn income in excess of
this minimum income requirement. Therefore, the required increases in down payment in this table are overstated
to the extent that the income of households interested in purchasing the median price home exceeds the minimum
income threshold value.
Table 8-5: National-Level Change in Down-Payment Required to Offset Effect of the Regulation for the
Median Home Price (2008$)
Income necessary to pay baseline mortgage PITI
Required increase in down payment to offset regulation price
effect
Baseline
$97,695
$0
EPA
Option 1
$60
EPA
Option 2
$2,234
EPA
Option 3
$4,098
EPA
Option 4
$416
Percent of income required to be saved to accumulate marginal increase in down payment over:
12 months
6 months
3 months
0.0%
0.0%
0.0%
0.1%
0.1%
0.2%
2.3%
4.6%
9.1%
4.2%
8.4%
16.8%
0.4%
0.9%
1.7%
EPA Estimates
8.7.2 Results of the Lower-Quartile-Priced Single-Family Home Analysis
The mitigating factors described in Section 8.5 also apply to the lower quartile home price analysis and are likely
to reduce the ultimate practical effects of the regulation on single-family home buyers. But in addition, other
qualifications in this analysis are critical for properly understanding the practical implications of whether and to
what extent households - in particular low/moderate-income households and first-time home buyers - could be
affected by the regulation:
> Home price changes due to the regulation are likely to decrease with baseline home sales price. An
important factor to be accounted for in the analysis for the lower quartile price home is that the
compliance cost burden and potential home price increase will typically be less for the lower quartile
price home than for the median price home. As a result, simply carrying forward the same price effect as
With no allowance for interest earned on the savings during the accumulation period.
8-16
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 8: Affordability Analysis
used for the median price analysis will overstate the typical impact. This occurs because, as shown in
Census data, lot size typically declines with price for new single-family homes, thereby reducing the
compliance cost burden, which is directly associated with lot size, and the resulting price impact per
home. As shown in Figure 8-2, Census data indicate that about half of new, lower priced single-family
homes are constructed on lots less than 7,000 square feet, and this fraction declines as home price
increases. Based on the Census data, lower priced homes will often have lot sizes that are smaller than the
median value used in the preceding analysis.59 To account for this factor, EPA performed the affordability
analysis for the lower quartile price home under two compliance cost/price effect cases:
• Using the median lot size for all new single-family housing, 0.20 acres
• Using a smaller lot size that is based on the Census-reported median lot size of attached new single-
family housing, 0.07 acres, which yields a compliance cost and price effect that is approximately 67
percent less than under the median lot size case (see Table 8-6, below).
Figure 8-
60 -,
ti
5 50-
0
o
h-"
oi 40 -
•c
c
3 30-
o
_i
I 20-
01
o
1 ID-
'S
S?
0 -
2: Percentage of New Single Family Homes Sold with Lot Sizes Under 7,000 Square Feet,
by Price Range
^-^
^ "\^ _
-» 4 — — ^"*^^\^
Under $125- $150- $200- $250- $300- $400- $500- $750
$125 $149.9 $199.9 $249.9 $299.9 $399.9 $499.9 $749.9 and over
New Single-Family Home Sales Price (thousands)
Source: U.S. Census Characteristics of New Housing (2009)
> Low/moderate-income home buyers are less likely to purchase newly constructed single-family homes
than higher income home buyers. The practical impact of the regulation on low/moderate-income (and
first-time home buyers, to the extent these home buyers are more likely to have low/moderate incomes) is
not as significant because these households are less likely to purchase newly constructed housing than
higher income home buyers. As reported in the 2005 American Housing Survey (HUD, 2006a), in any
given income range, the fraction of home purchases that are new, generally increases with income (see
Figure 8-3). This information indicates that, in general, households with higher incomes are more likely
to purchase a new home than households with lower income.
59 The home price and lot size resolution for this analysis are limited by the data ranges reported by the Census: "$125,000 and below"
and is the lowest home price range reported, and "7,000 square feet and below" is the lowest lot size range reported.
November 23, 2009
8-17
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 8: Affordability Analysis
Figure 8-3: Fraction of Homes Purchased that are New Homes, by Income Range
14%
12%
10%
8%
6%
o
I 4%
2%
0%
$0 to $19,999 $20,000 to $39,999 $40,000 to $59,999 $60,000 to $79,999 $80,000 to $99,999 $100,000 to $120,000 or more
$119,999
Household Income
Source: U.S. Department of Housing and Urban Development (2006)
In addition to these specific considerations for low/moderate-income and first-time home buyers, it is also
important to emphasize again that this affordability analysis assumes 100 percent cost pass through of compliance
costs from builders to consumers. This assumption implies that the demand for new housing is highly inelastic
(all costs pass through as a price increase with no change in the equilibrium quantity of new housing sold or
rented). Such conditions would generally be expected to prevail during relative "boom" periods in the market for
housing (e.g., most recently in 2005 - 2006).60 While it is possible that a substantial fraction of compliance costs
could be passed through to housing consumers, the actual fraction is expected to be less than 100 percent in the
steady state. Moreover, during periods of housing market weakness, such as have occurred over the past few
years, the ability of home builders to pass through compliance costs could be considerably curtailed. The key
point is that cost pass-through, which is ultimately reflected in the supply and demand price elasticity for new
housing, is - in the steady state - expected to be less than 100 percent due to several factors, including (1) the
availability of substitutes for any given home, and (2) the determination that the rule is expected to affect only a
small fraction of the total number of single-family home sales. As such, to the extent that actual cost pass-through
is less than 100 percent, the potential affordability effects for all home-buyers are overstated.
Below, Table 8-6 through Table 8-8 present the results of the affordability analysis for the lower quartile priced
home. Table 8-6 reports, by regulatory option and for the two lot size cases outlined above, the estimated dollar
value and percentage change in the price for a new single-family home and the number of households whose
purchasing decision for a new single-family lower quartile priced home would be affected by a regulation-induced
increase in housing prices, before and after the adjustment to account for those households whose empirically
observed purchase terms indicate an ability to increase their housing payments and remain under 29% housing
payment-to-income ratio. As expected, the number of households annually estimated to incur the affordability
It should be noted that EPA's use of 2007 home prices for the analysis is therefore consistent with the analysis' assumption of 100%
cost pass-through given that "peak" market conditions generally prevailed during 2006 and the earlier part of 2007. It would have
been a relatively poor assumption to associate 100% cost-pass-through with the current price and market conditions.
8-18
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 8: Affordability Analysis
effect is smaller under the smaller lot size case of 0.07 acres (based on the median lot size for attached new single-
family housing) than under the larger lot size of 0.20 acres (based on the median lot size for all new single-family
housing): under Option 4, the estimated number of affected households declines from 2,066 to 690, (not
accounting for the adjustment for those households whose empirically observed purchase terms indicate an ability
to increase their housing payments and remain under 29% housing payment-to-income ratio). As described above,
EPA judges that the smaller lot size provides a better basis for assessing the affordability effect for the lower
quartile price analysis than the larger lot size used in the analysis for the median price. Regardless of the lot size
case, the number of affected home buyers is small in relation to the number of single-family new home purchasers
who qualify to purchase the lower quartile price home in the baseline (e.g., about 0.02% to 0.15% of such
households for Option 4, depending on the lot size case and if the adjustment to the number of households is
made).
November 23, 2009 8-19
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 8: Affordability Analysis
Table 8-6: National Results from the MSA-Level Affordability Lower Quartile New Home Price
Analysis - Price and Household Affordability Effects (2008$) - based on Owner Occupied Households
that Recently Purchased a New, Option In-Scope, Homed
EPA
Option 1
EPA
Option 2
EPA
Option 3
EPA
Option 4
Using Median Lot Size (0.07 acres) for Attached New Single-Family Housing as Basis for Compliance Cost
Weighted Average Baseline Lower Quartile New Home Pricea
National Average Price Change per New Single-
Family Homeb
Number of Households Whose Purchasing
Decision for a New Single-Family Lower
Quartile Priced Home Would Be Affected by a
Regulation-Induced Increase in Housing Prices
Number of Affected Households (from above),
Adjusted to Account for Estimated Number of
Households Whose Empirically Observed
Purchase Terms Indicate Ability to Increase
Housing Payments and Remain Under 29%
Housing Payment-to-income Ratio
Price Change"
Percent Change0
Number of Households
As%ofSFhome
buyers qualifying for
the new, option-in-
scope, lower quartile-
priced home
As%ofSFhome
buyers qualifying for
the lower quartile-
priced home
Number of Households
As%ofSFhome
buyers qualifying for
the new, option-in-
scope, lower quartile-
priced home
As%ofSFhome
buyers qualifying for
the lower quartile-
priced home
$251,471
$20
0.01%
98
0.01%
0.01%
34
0.00%
0.00%
$251,471
$745
0.30%
3,969
0.30%
0.24%
1,419
0.11%
0.09%
$251,471
$1,367
0.54%
7,095
0.53%
0.43%
2,505
0.19%
0.14%
$251,471
$139
0.06%
690
0.05%
0.04%
237
0.02%
0.01%
Using Median Lot Size (0.20 acres) for All New Single-Family Housing as Basis for Compliance Cost
Weighted Average Baseline Lower Quartile New Home Price a
National Average Price Change per New Single-
Family Homeb
Number of Households Whose Purchasing
Decision for a New Single-Family Lower
Quartile Priced Home Would Be Affected by a
Regulation-Induced Increase in Housing Prices
Number of Affected Households (from above),
Adjusted to Account for Estimated Number of
Households Whose Empirically Observed
Purchase Terms Indicate Ability to Increase
Housing Payments and Remain Under 29%
Housing Payment-to-income Ratio
Price Change"
Percent Change0
Number of Households
As%ofSFhome
buyers qualifying for
the new, option-in-
scope, lower quartile-
priced home
As%ofSFhome
buyers qualifying for
the lower quartile-
priced home
Number of Households
As%ofSFhome
buyers qualifying for
the new, option-in-
scope, lower quartile-
priced home
As%ofSFhome
buyers qualifying for
the lower quartile-
priced home
$251,471
$59
0.02%
295
0.02%
0.00%
102
0.01%
0.00%
$251,471
$2,231
0.89%
11,881
0.89%
0.08%
4,294
0.32%
0.03%
$251,471
$4,093
1.63%
21,242
1.58%
0.15%
7,591
0.57%
0.05%
$251,471
$415
0.17%
2,066
0.15%
0.01%
711
0.05%
0.00%
a This value, the weighted average based on the number of households and home prices across MSAs, is not directly used in the analysis; it is
presented here for reference only.
b These are national average price changes estimated from the national average engineering estimate of per acre compliance cost converted to the
equivalent of compliance costs per housing unit. Price changes for MSAs are estimated individually using engineering estimates of state-level
compliance costs.
c The national average percent change in home price is estimated using the national average price change and the weighted-average home price across
all MSAs.
d Values listed as 0.00% are greater than zero but are rounded to 0.00% for reporting purposes.
EPA Estimates
8-20
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 8: Affordability Analysis
Table 8-7 shows the effect of the estimated national average change in lower quartile home prices on the total
monthly payment by comparing the baseline and post-compliance monthly payments for each option and for the
two lot size cases outlined above. The analysis shows small increases in monthly payments, ranging from 0.07% •
0.21% for Option 4, depending on the lot size case.
Table 8-7: National Results from the MSA-Level Affordability Lower Quartile New Home Price Analysis -
Change in Monthly Mortgage Payment (2008$)
Using Median Lot Size (0.07 acres) for Attached
EPA
Option 1
EPA
Option 2
EPA
Option 3
EPA
Option 4
New Single-Family Housing as Basis for Compliance Cost
Weighted Average Baseline Monthly Mortgage Payment3
Weighted Average New Monthly Mortgage
Payment*
Monthly Payment
Percent Change
$1,351.7
$1,351.9
0.01%
$1,351.7
$1,356.9
0.38%
$1,351.7
$1,361.2
0.70%
$1,351.7
$1,352.7
0.07%
Using Median Lot Size (0.20 acres) for All New Single-Family Housing as Basis for Compliance Cost
Weighted Average Baseline Monthly Mortgage Payment3
Weighted Average New Monthly Mortgage
Payment"
Monthly Payment
Percent Change
$1,351.7
$1,352.1
0.03%
$1,351.7
$1,367.3
1.15%
$1,351.7
$1,380.1
2.10%
$1,351.7
$1,354.5
0.21%
a These values are weighted by the number of households within each state.
EPA Estimates
Lastly, Table 8-8 presents the fraction of household income required to be saved to offset the effect of the
regulation on the monthly mortgage payment via an increase in the initial down-payment. The results for Option 4
show that a household would need to set-aside between 0.4% and 1.2% of its income over a 6-month period to
offset the regulation's effect on the mortgage payment.
Table 8-8: National-Level Change in
Lower Quartile Home Price (2008$)
Down-Payment
Required to Offset Effect of the Regulation for the
Baseline
EPA
Option 1
EPA
Option 2
EPA
Option 3
EPA
Option 4
Using Median Lot Size (0.07 acres) for Attached New Single-Family Housing as Basis for Compliance Cost
Income necessary to pay baseline mortgage PITI
Required increase in down payment to offset regulation price
effect
$69,031
$0
$20
$746
$1,369
$139
Percent of income required to be saved to accumulate marginal increase in down payment over:
12 months
6 months
3 months
0.0%
0.0%
0.0%
0.0%
0.1%
0.1%
1.1%
2.2%
4.3%
2.0%
4.0%
7.9%
0.2%
0.4%
0.8%
Using Median Lot Size (0.20 acres) for All New Single-Family Housing as Basis for Compliance Cost
Income necessary to pay baseline mortgage PITI
Required increase in down payment to offset regulation price
effect
$69,031
$0
$60
$2,234
$4,098
$416
Percent of income required to be saved to accumulate marginal increase in down payment over:
12 months
6 months
3 months
0.0%
0.0%
0.0%
0.1%
0.2%
0.3%
3.2%
6.5%
12.9%
5.9%
11.9%
23.7%
0.6%
1.2%
2.4%
EPA Estimates
8.7.3 Results of the Lowest Priced Single-Family Home Analysis
In addition to the median and lower quartile price home analyses, EPA developed an alternative analysis
demonstrating the impact of the regulation on an assumed lowest priced home. This analysis accounts for the
theoretical possibility that no other "lower priced" home is available to be purchased if the household just
qualified to purchase the lowest price home but the price of that home increased as a result of regulatory
requirements. This analysis looks at households at the lower, and more statistically dense, segment of the
household income distribution. Therefore, potentially more households could be affected by housing price
increases because of the higher mass of the household income distribution present in the lower income ranges. At
November 23, 2009
8-21
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 8: Affordability Analysis
the same time, low-income home buyers are less likely to purchase newly constructed single-family homes than
higher income home buyers (see Section 8.7.2 and Figure 8-3).
The mitigating factors described in Section 8.5 also apply to the lowest price home analysis and are likely to
reduce the ultimate practical effects of the regulation on the buyers of the hypothesized lowest price home. In
addition, as described above in the results section for the lower quartile home price analysis, the compliance cost
burden and potential home price increase will typically be less for lower price homes than for both the lower
quartile and median price homes. As a result, EPA performed the affordability analysis for the lowest price home
under the cost/price effect case using only the smaller lot size, based on the Census-reported median lot size of
attached new single-family housing, 0.07 acres.
Because no data are available on the "actual lowest price" home by MSA, EPA chose $100,000 and $50,000 as
hypothesized "lowest prices" to illustrate the potential impact on affordability at this price level. EPA believes
these two prices account for the potential lowest home prices across most MSAs.
Below, Table 8-9 through Table 8-11 present the results of the affordability analysis for the $100,000 lowest
home price analysis. Table 8-9 reports, by regulatory option, the estimated dollar value and percentage change in
the price for a new single-family home and the number of households whose purchasing decision for a new
single-family lowest priced home would be affected by a regulation-induced increase in housing prices, before
and after the adjustment to account for those households whose empirically observed purchase terms indicate an
ability to increase their housing payments and remain under 29% housing payment-to-income ratio. Although this
analysis looks at households in the denser part of the household income distribution, the number of households
estimated to incur annually the affordability effect (680 for Option 4) is slightly less than the number from both
the median and lower quartile home price analyses (prior to the financing adjustment). After the 29 percent
financing adjustment, the number of households estimated to incur annually the affordability effect (324 for
Option 4) is slightly more than the number for the lower quartile home price analysis because lower income
households generally spend near their maximum housing price to income level and therefore do not have much
room for movement. Regardless of the household case, the number of affected home buyers is small in relation to
the number of single-family new home purchasers who qualify to purchase the lowest priced home in the baseline
(e.g., about 0.02% to 0.03% of such households for Option 4).
8-22 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 8: Affordability Analysis
Table 8-9: National Results from the MSA-Level Affordability Lowest New Home Price Analysis
($100,000) - Price and Household Affordability Effects - based on Owner Occupied Households that
Recently Purchased a New, Option In-Scope, Homed
Weighted Average Baseline Lowest New Home Pricea
National Average Price Change per New Single-
Family Homeb
Number of Households Whose Purchasing
Decision for a New Single-Family Lowest Priced
Home Would Be Affected by a Regulation-Induced
Increase in Housing Prices
Number of Affected Households (from above),
Adjusted to Account for Estimated Number of
Households Whose Empirically Observed Purchase
Terms Indicate Ability to Increase Housing
Payments and Remain Under 29% Housing
Payment-to-income Ratio
Price Change
Percent Change0
Number of Households
As%ofSFhome
buyers qualifying for
the new, option-in-
scope, lowest-priced
home
As%ofSFhome
buyers qualifying for
the lowest-priced
home
Number of Households
As%ofSFhome
buyers qualifying for
the new, option-in-
scope, lowest-priced
home
As%ofSFhome
buyers qualifying for
the lowest-priced
home
EPA
Option 1
$100,000
$20
0.02%
97
0.00%
0.00%
46
0.00%
0.00%
EPA
Option 2
$100,000
$745
0.75%
3,953
0.20%
0.05%
1,896
0.10%
0.02%
EPA
Option 3
$100,000
$1,367
1.37%
7,064
0.36%
0.09%
3,403
0.17%
0.04%
EPA
Option 4
$100,000
$139
0.14%
680
0.03%
0.01%
324
0.02%
0.00%
a Fixed values are used for each MSA and are not brought into 2008 dollars but are left as the actual values (i.e. 50,000; 75,000; 100,000).
b These are national average price changes estimated from the national average engineering estimate of per acre compliance cost converted to the
equivalent of compliance costs per housing unit. Price changes for MS As are estimated individually using engineering estimates of state-level
compliance costs.
c The national average percent change in home price is estimated using the national average price change and the weighted-average home price across
all MS As.
d Values listed as 0.00% are greater than zero but are rounded to 0.00% for reporting purposes.
EPA Estimates
Table 8-10 shows the effect of the estimated national average change in lowest home prices on the total monthly
payment by comparing the baseline and post-compliance monthly payments for each option. The analysis shows
small increases in monthly payments, 0.14% for Option 4, less than the lower quartile home price analysis.
Table 8-10: National Results from the MSA-Level Affordability Lowest New Home Price Analysis
($100,000) - Change in Monthly Mortgage Payment (2008$)
Weighted Average Baseline Monthly Mortgage Payment3
Weighted Average New Monthly Mortgage
Payment"
Monthly Payment
Percent Change
EPA
Option 1
$681.0
$681.1
0.02%
EPA
Option 2
$681.0
$686.2
0.76%
EPA
Option 3
$681.0
$690.5
1.39%
EPA
Option 4
$681.0
$682.0
0.14%
a These values are weighted by the number of households within each state.
EPA Estimates
Table 8-11 presents the fraction of household income required to be saved to offset the effect of the regulation on
the monthly mortgage payment via an increase in the initial down-payment. The results for Option 4 show that a
household would need to set-aside 1.0% of its income over a 6-month period to offset the regulation's effect on
the mortgage payment, again, less than the lower quartile home price analysis.
November 23, 2009
8-23
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 8: Affordability Analysis
Table 8-11: National-Level Change in Down-Payment Required to Offset Effect of the Regulation for the
Lowest Home Price ($100,000) (2008$)
Income necessary to pay baseline mortgage PITI
Required increase in down payment to offset regulation price
effect
Baseline
$28,028
$0
EPA
Option 1
$20
EPA
Option 2
$746
EPA
Option 3
$1,369
EPA
Option 4
$139
Percent of income required to be saved to accumulate marginal increase in down payment over:
12 months
6 months
3 months
0.0%
0.0%
0.0%
0.1%
0.1%
0.3%
2.7%
5.3%
10.6%
4.9%
9.8%
19.5%
0.5%
1.0%
2.0%
EPA Estimates
Below, Table 8-12 through Table 8-14 present the results of the affordability analysis for the $50,000 lowest
home price analysis. This analysis accounts for an even lower home price, which may not be relevant for many
MSAs. However, this analysis accounts for those households that do not have as many, if any, possibilities
through which a price increase due to the regulation might be mitigated. At the same time, these households are
less likely to be in the market for a new single-family home (see Section 8.7.2 and Figure 8-3: Fraction of Homes
Purchased that are New Homes, by Income Range). Table 8-12 reports, by regulatory option, the estimated dollar
value and percentage change in the price for a new single-family home and the number of households whose
purchasing decision for a new single-family lowest priced home would be affected by a regulation-induced
increase in housing prices, before and after the adjustment to account for those households whose empirically
observed purchase terms indicate an ability to increase their housing payments and remain under 29% housing
payment-to-income ratio. The number of households estimated to incur the affordability effect is smaller under
this lowest home price case compared to the $100,000 lowest price case presented above. Regardless of the
financing adjustment, the number of affected home buyers is small in relation to the number of single-family new
home purchasers who qualify to purchase the lowest home price in the baseline (e.g., about 0.01% of such
households for Option 4).
8-24
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 8: Affordability Analysis
Table 8-12: National Results from the MSA-Level Affordability Lowest New Home Price Analysis
($50,000) - Price and Household Affordability Effects (2008$) - based on Owner Occupied Households
that Recently Purchased a New, Option In-Scope, Homed
Weighted Average Baseline Lowest New Home Pricea
National Average Price Change per New Single-
Family Homeb
Number of Households Whose Purchasing Decision
for a New Single-Family Lowest Priced Home
Would Be Affected by a Regulation-Induced
Increase in Housing Prices
Number of Affected Households (from above),
Adjusted to Account for Estimated Number of
Households Whose Empirically Observed Purchase
Terms Indicate Ability to Increase Housing
Payments and Remain Under 29% Housing
Payment-to-income Ratio
Price Change
Percent Change0
Number of Households
As%ofSFhome
buyers qualifying
for the new, option-
in-scope, lowest-
priced home
As%ofSFhome
buyers qualifying
for the lowest-priced
home
Number of Households
As%ofSFhome
buyers qualifying
for the new, option-
in-scope, lowest-
priced home
As%ofSFhome
buyers qualifying
for the lowest-priced
home
EPA
Option 1
$50,000
$20
0.04%
22
0.00%
0.00%
9
0.00%
0.00%
EPA
Option 2
$50,000
$745
1.49%
928
0.04%
0.01%
395
0.02%
0.00%
EPA
Option 3
$50,000
$1,367
2.73%
1,652
0.08%
0.02%
728
0.03%
0.01%
EPA
Option 4
$50,000
$139
0.28%
155
0.01%
0.00%
65
0.00%
0.00%
a Fixed values are used for each MSA and are not brought into 2008 dollars but are left as the actual values (i.e. 50,000; 75,000; 100,000).
b These are national average price changes estimated from the national average engineering estimate of per acre compliance cost converted to the
equivalent of compliance costs per housing unit. Price changes for MS As are estimated individually using engineering estimates of state-level
compliance costs.
c The national average percent change in home price is estimated using the national average price change and the weighted-average home price across
all MS As.
d Values listed as 0.00% are greater than zero but are rounded to 0.00% for reporting purposes.
EPA Estimates
Table 8-13 shows the effect of the estimated national average change in lowest home prices on the total monthly
payment by comparing the baseline and post-compliance monthly payments for each option. The analysis shows
small increases in monthly payments, 0.28% for Option 4, which is the highest percentage price change of all the
home price analyses because the baseline price is so low. Therefore, the percent change is higher, although the
actual price change is lower.
Table 8-13: National Results from the MSA-Level Affordability Lowest New Home Price Analysis
($50,000) - Change in Monthly Mortgage Payment (2008$)
Weighted Average Baseline Monthly Mortgage Payment3
Weighted Average New Monthly Mortgage
Payment"
Monthly
Payment
Percent Change
EPA
Option 1
$340.5
$340.6
0.04%
EPA
Option 2
$340.5
$345.7
1.52%
EPA
Option 3
$340.5
$350.0
2.79%
EPA
Option 4
$340.5
$341.4
0.28%
a These values are weighted by the number of households within each state.
EPA Estimates
Lastly, Table 8-14 presents the fraction of household income required to be saved to offset the effect of the
regulation on the monthly mortgage payment via an increase in the initial down-payment. The results for Option 4
show that a household would need to set-aside 2.0% of its income over a 6-month period to offset the regulation's
effect on the mortgage payment, which, again, is the highest among the four home price analyses. However, this
November 23, 2009
8-25
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 8: Affordability Analysis
is expected because these households are in the lowest household income range and would therefore need to save
a larger percent of income, although a smaller absolute dollar amount.
Table 8-14: National-Level Change in Down-Payment Required to Offset Effect of the Regulation for the
Lowest Home Price ($50,000) (2008$)
Income necessary to pay baseline mortgage PITI
Required increase in down payment to offset regulation price
effect
Baseline
$14,014
$0
EPA
Option 1
$20
EPA
Option 2
$746
EPA
Option 3
$1,369
EPA
Option 4
$139
Percent of income required to be saved to accumulate marginal increase in down payment over:
12 months
6 months
3 months
0.0%
0.0%
0.0%
0.1%
0.3%
0.6%
5.3%
10.6%
21.3%
9.8%
19.5%
39.1%
1.0%
2.0%
4.0%
EPA Estimates
The key conclusion from the single-family housing affordability analysis is that, for all regulatory options and
among all home price analyses, the total number of households incurring an affordability effect is small in
comparison to the number of all likely single-family home buyers in any given year who can also afford the same
home. For Option 4, this percentage ranges from 0.01 to 0.18 percent.
8-26
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 9: Social Cost Analysis
9 Analysis of Social Cost
This analysis estimates the cost of the regulation from the perspective of society as a whole. The total social cost
of the regulation is comprised of (1) the quantity-adjusted resource cost of compliance, (2) the additional social
welfare loss due to construction market adjustments, and (3) government administrative costs for reviewing and
processing discharge monitoring reports (DMR) and other start-up costs. The estimates of cost presented
previously in Chapters 6 and 7 capture the unadjusted resource cost of compliance to the industry.
Markets vary in the level of activity, structure of the industry, and ultimately cost pass-through potential, from
state to state and region to region. The modeling approach described in this section captures such regional
variation in the impacts of the proposed regulatory options by estimating partial equilibrium models at the state
level for the residential and non-residential (i.e., commercial and industrial) building construction sectors.
EPA applied the partial equilibrium models using national-level estimates of the elasticity of market supply
and demand to estimate the impact of incremental costs on the supply curve and, thus, on prices and
quantities of construction products under post-compliance conditions. In this framework, part of the increased
costs may raise the price of new housing (or commercial space), with the balance of increased costs being
absorbed by the builder, depending on the relative elasticities of supply and demand. A partial equilibrium
analysis assumes that the final regulation will only directly affect a single industry; in this case, the construction
and development industry. Holding other industries "constant" in this way is generally appropriate since the
compliance costs of the proposed regulatory options are expected to result in only marginal changes in prices and
quantities and the rule does not directly affect the other industries (HUD, 2006).
Economic impacts in the directly affected industry can trigger further output and employment effects in the
broader U.S. economy via inter-industry linkages. For the industries indirectly affected by the proposed rule, a
multi-sector input-output or general equilibrium modeling approach is more appropriate (HUD, 2006). A
traditional approach for assessing such cross-industry effects is an input-output (I/O) model. For its analysis of the
C&D regulation, EPA used input-output-based multipliers to estimate the indirect impacts on economic output
and employment in the broader U.S. economy.61
The partial equilibrium analysis of state- and national-level economic impacts includes five broad steps:
1. Establish the baseline market equilibrium for each construction subsector at the state-level;
2. Establish the post-compliance market equilibrium for each construction subsector at the state-level after
accounting for compliance costs of the final regulation; this produces an estimate of the change in the quantity
of C&D market output;
3. Estimate the total resource cost of the final regulation and the value of lost C&D output, after adjusting for the
quantity effect of the regulation, for each state;
4. Aggregate the resource cost (an increase in demand for society's resources) and lost economic output (a
reduction in demand for society's resources) across states to obtain a national-level estimate of direct
economic impacts; and,
5. Apply national-level final demand multipliers, from the Bureau of Economic Analysis's Regional Input-
Output Modeling System (RIMS II), to the resource cost of the regulation a«Jthe direct change in C&D
61 The analysis of economy-wide effects is presented in the next chapter, Chapter 10: Analysis of Economy-Wide Output and Employment
Impacts.
November 23, 2009 JTT
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 9: Social Cost Analysis
output. The application of RIMS multipliers produces an estimate of the total inter-industry economic value
and employment effects of the final regulation.
The remainder of this section is organized as follows:
> Section 9.1 presents the methodology for estimating each partial equilibrium market model;
> Section 9.2 describes the models' data inputs; and,
> Section 9.3 presents the methodology for estimating the resource cost of compliance, the value of lost
C&D output, and the additional social welfare loss.
9.1 Summary of the Partial Equilibrium C&D Market Models
This section describes the methodology for estimating the pre- and post-compliance market equilibrium for a
given C&D subsector using the partial equilibrium market model. This methodology is applied at the state-level
separately to the residential and non-residential building construction subsector.
9.1.1 Estimating the Baseline Construction Market Equilibrium
EPA assumes a linear partial equilibrium market model. The assumption that compliance costs of the final
regulation will result in only small marginal changes in prices and quantities provides the basis for assuming that
the supply and demand curves are linear in the relevant range of market effect. The data inputs required to
estimate the baseline market equilibrium for each model include the baseline construction unit price (e.g., the
price of a housing unit or a given quantity of commercial/industrial space), the baseline quantity of construction
activity (e.g., the number of new housing units constructed or the quantity of new commercial/industrial space
constructed), and the assumed elasticities of supply and demand for the construction subsector being analyzed.
The intersection of the baseline quantity and baseline price serves as the baseline market equilibrium.
The baseline supply curve for a given construction market, in a given state, is approximated by:
Where:
Qs = Annual number of new construction unit permits issued
P = Price of a new construction unit
a = Intercept calibrated from the baseline equilibrium price and quantity
[=<2o-/?Po]
P = Supply coefficient on price
Es = Supply elasticity of new construction units (> 0)
Similarly, the state-level baseline demand curve is given by:
Qd=a + yP (2)
Where:
~9-2 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 9: Social Cost Analysis
Qd = Annual number of new construction unit permits issued
a = Intercept calibrated from the baseline equilibrium price and quantity
[=&-#,]
y = Demand coefficient on price
Ed = Demand elasticity of new construction units (> 0)
EPA assumes that the baseline condition for each market being analyzed is in equilibrium, and so, the initial
supply and demand quantity values (Qs and Qd) in these two equations are equal.
9.1.2 Estimating the Post-Compliance Construction Market Equilibrium
The incremental unit cost of compliance to comply with the final regulation increases builders' costs and causes
an upward shift on the supply curve (and creating a new, "shocked" supply intercept). This shift drives changes in
prices, which increase, and quantities, which decrease. A key assumption in the model is that the changes in
production cost on the supply side are not enough to change the price elasticities or substitution on the demand
side. In effect, the supply curve shifts by the amount of the per-unit incremental compliance cost, without any
change in the demand curve.
The post-compliance supply intercept (as) is given by:
(3)
Where, TIC is the toal per-unit incremental cost effect (i.e., The per-unit incremental cost of compliance, marked-
up by the project-level compliance cost multiplier to account for debt cost and equity cost considerations. Refer to
Appendix G for a description of the project-level carrying cost multiplier).
The new construction market price (PN) is then given by:
p =g,-g (4)
N Y-P
And the post-compliance equilibrium quantity is then recalculated using the new price:
The cost pass-through rate is the ratio of the elasticity of supply divided by the difference in the elasticity of
supply and the elasticity of demand (ES/(ES - Ed)). The cost pass-through rate can also be calculated by dividing
the change in the price of a construction unit in the market by the adjusted per unit incremental cost of
compliance, or ((PN - P0)/ESC).
November 23, 2009 9-3
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 9: Social Cost Analysis
9.2 Inputs to the Partial Equilibrium C&D Market Models
EPA estimated the above partial equilibrium model for the residential and non-residential construction subsectors.
The data sources for each model are discussed in the sub-sections below.
9.2.1 Construction Market Quantities
9.2.1.1 Residential
The quantity of new residential construction in the single and multi-family construction subsectors is measured by
the number of new units authorized. The U.S. Census reports the number of new single and multi-family units
authorized by permits on an annual basis at the state level. EPA estimated each state's average annual number of
new single- and multi-family housing units authorized for the years 2002 - 2008, and then summed these average
annual quantities to arrive at the baseline quantity of the total number of new housing units authorized, on
average, per state per year.
9.2.1.2 Non-Residential
Since the Census Bureau discontinued collection of non-residential building permit information in 1994, EPA
sought an alternative measure of new non-residential construction activity to serve as the quantity metric for the
partial equilibrium models. In the absence of other information, EPA has opted to use the sum of the annual
quantity of commercial and industrial acreage developed according to the 2008-trend baseline detailed in Chapter
4.
9.2.2 Construction Market Prices
9.2.2.1 Residential
The state-level median price of new single-family home serves as the basis for the new home price in the single-
family market. The U.S. Census American Community Survey 2007 reports the median price, at the state-level, for
owner-occupied units constructed since 2005.
Separate price series for multi-family housing units are not reported by the Census. EPA instead calculated the
ratio of multi-family housing unit prices to single-family housing unit prices using data available from the
National Association of Realtors (NAR). The NAR's Metropolitan Area Existing-Home Prices data series
includes data for existing single-family home sales as well as sales prices for condos by metro market. EPA
calculated a weighted-average value of the ratio of multi-family unit prices to single-family unit prices of
approximately 71%. This ratio was used to adjust the state-level median single-family home price series published
by the Census to approximate 2007 multi-family unit prices for each state.
EPA then estimated an aggregate new housing unit price as the average of the new single- and multi-family
housing unit prices, weighted by the quantity of new single- and multi-family units authorized, on average, per
year.
9.2.2.2 Non-Residential
Rental rates, in dollars per square foot per year, are closely watched indicators of demand for commercial space
and serve as the price for the commercial market model. Grubb & Ellis reports rental rates for Class A and Class
B office space for 71 metropolitan areas in the United States (Grubb & Ellis, 2009). Rental rate data refer to
asking rents for space that is available on the market at the end of the first quarter of 2009. Rates are per square
9-4 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 9: Social Cost Analysis
foot, quoted on an annual basis. Grubb & Ellis adheres to the BOMA62 guidelines for office building
classifications. Class A properties are the most prestigious buildings competing for premier office users with rents
above average for the area, Class B properties compete for a wide range of users with rents in the average range
for the area, and Class C buildings (not reported) compete for tenants requiring functional space at rents below the
area average.
Grubb & Ellis also reports rental rates for retail market space in 51 metropolitan areas in the United States (Grubb
& Ellis, 2009). Rental rate data refer to asking rents for space that is available on the market at the end of the
summer of 2009. Rental rate data refer to in-line shop space in a grocery-anchored center, 3,000-square-foot
national credit tenant, newly developing suburban trade area, first generation space, white-box build-out. Rates
are per square foot, quoted on an annual basis.
EPA estimated the average commercial space rental rate in each state as the average of Class A, Class B, and
retail rates across all of the metropolitan areas reported for each state. EPA used the average rental rate for other
states in the same Census division for states for which no metropolitan areas are reported. There are 15 states with
no reported data: Alaska, Arkansas, Hawaii, Idaho, Kentucky, Louisiana, Maine, Mississippi, North Dakota,
Rhode Island, South Dakota, Utah, Vermont, West Virginia, and Wyoming.
In order to use this data describing the average "annual rental rate per square foot per year" as the metric of the
price of commercial space in the partial equilibrium model, EPA converted this rate into units of "annual rental
rate per acre per year." This is required because EPA is using the quantity of acreage developed per year as the
quantity metric. To convert the "per square foot" value for commercial space into a "per acre" value, EPA used
the Reed Construction database to estimate the average quantity of commercial square footage constructed on any
given acre land developed for commercial purposes. This value, estimated to be approximately 14,200 square feet
per acre, is multiplied by the Grubb & Ellis rental rate to estimate an annual commercial rental price per acre per
year for each state.
Rental rates, in dollars per square foot per year, are also closely watched indicators of demand for industrial space
and serve as the price for the industrial market.Grubb & Ellis reports rental rates for industrial space classified as
"warehouse-distribution" or "R&D-flex" in 69 and 66 metropolitan areas in the United States, respectively
(Grubb & Ellis, 2009). Rental rate data refer to space that is available on the market at the end of the first quarter
2009. Rates for available space are expressed in dollars per square foot per year in most parts of the country and
dollars per square foot per month in areas of California and selected other markets.
EPA estimated the average industrial space rental rate in each state as the average of the two data series (Class A
and B) across all of the metropolitan areas reported for each state. EPA used the average rental rate for other
states in the same Census division for states for which no metropolitan areas are reported. There are 17 states with
no reported data: Alaska, Arkansas, Connecticut, Hawaii, Idaho, Kentucky, Louisiana, Maine, Mississippi, New
Hampshire, North Dakota, Rhode Island, South Dakota, Utah, Vermont, West Virginia, and Wyoming.
EPA estimated an aggregate measure of the average "annual rental rate per square foot per year" for the non-
residential as the average of the commercial and industrial rates, weighted by the estimated annual quantity of
acreage developed in the commercial and industrial subsectors, by state. In order to subsequently use this price
metric in the partial equilibrium model, EPA converted this rate into units of "annual rental rate per acre per
year." This is required because EPA is using the quantity of non-residential acreage developed per year as the
quantity metric. To convert the "per square foot" value for non-residential space into a "per acre" value, EPA used
the Reed Construction database to estimate the average quantity of commercial and industrial square footage
constructed on any given acre land developed for industrial purposes. This value, estimated to be approximately
BOMA was formerly known as Building Owners and Managers Association (http://www.boma.org)
November 23, 2009 9-5
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 9: Social Cost Analysis
14,000 square feet per acre, is multiplied by the non-residential rental rate to estimate an annual non-residential
rental price per acre per year for each state.
9.2.3 Incremental Compliance Cost Effect per Construction Unit
Each state-level construction market is shocked with the estimated compliance costs associated with the final
regulation. The residential partial equilibrium market model requires compliance costs on a per-construction-unit
basis in order to be consistent with the measures of price and quantity in the market models. In addition, the
incremental compliance costs per construction unit must be adjusted to account for the additional costs beyond the
direct compliance outlay (e.g., cost of financing) associated with each unit of construction. Consequently, the
final magnitude of the shift in the supply curve for each construction market will be greater than simply the
incremental compliance costs for a given residential unit or non-residential acre. The non-residential partial
equilibrium market model requires compliance costs in terms of a per-acre annual rent-recovery value since the
price metric is rent per acre and the quantity metric is acres of non-residential development. These compliance
cost concepts are detailed below.
9.2.3.1 Residential
The total state-level dollar value of price effect per housing unit (i.e., the magnitude of supply curve shift) in the
residential market model is measured by the adjusted incremental compliance cost per unit of new housing in each
state:
( 1C "I (6)
TIC = acre * COST
[.Units ^J
Where:
TIC = Total incremental cost effect per construction unit
ICacre = State-specific weighted average incremental compliance cost per acre for the
residential sector and regulatory option
UnitSacre = Estimated number of new housing units per acre, which is estimated as the
weighted average units per acre for single and multi-family construction sectors
in the project-level multiplier analysis (see Appendix G)
COSTX = Indirect project cost multiplier, which indicates the dollar change in the price of
a housing unit for each dollar of incremental compliance cost, after accounting
for overhead, debt cost, and equity cost considerations (value of multiplier is
1.38, see Appendix G).
9.2.3.2 Non-Residential
The total state-level dollar value of price effect (i.e., magnitude of supply curve shift) in the non-residential
market models needs to be a measure of the incremental increase in the annual rental price for an acre's-worth of
new non-residential space, given the price and quantity metrics previously outlined. EPA therefore converted the
non-residential incremental compliance cost per acre for each state and regulatory option into an annualized value
to be recovered through rent over the useful life of the non-residential property. This approach is appropriate
because the developer of new non-residential space will not attempt to recover the entirety of the incremental
compliance cost every year, nor will the developer attempt to recover the cost though a single year's rental fee
since that would presumably increase the rental price to such an extent that the property is less attractive relative
to other available properties for potential renters.
9-6 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 9: Social Cost Analysis
EPA calculated the annual compliance cost recovery value for each state and option by amortizing the incremental
per-acre cost assuming a 20-year recovery period, a 7% cost of debt, 13.54% cost of equity, and 75% loan-to-
value ratio (i.e., 75% of the cost is financed through debt, 25% using developer equity). Such expenditures on
non-residential property development would be depreciated over a 39-year useful life; however, EPA has
alternatively assumed a more aggressive 20-year recovery period to be conservative in the analysis.
9.2.4 Elasticity of Supply and Demand
A review of the literature indicates that, in contrast to demand elasticity research, less is known about the
behavior of supply (HUD, 2006). There are three key empirical difficulties identified in the housing supply
elasticity literature. First, estimated housing supply elasticities vary widely. Second, price does not seem to be a
sufficient statistic, and other market indicators are quite important in explaining supply (e.g., land availability,
land-use and other regulatory restrictions, and demographic characteristics). Third, construction levels seem to
respond quite sluggishly to construction costs and output prices (DiPasquale, 1999; Hwang and Quigley, 2006;
Green, Malpezzi and Mayo, 2005).
EPA's review of the literature indicates that the supply of residential and non-residential construction space is
generally elastic, although there can be significant variability across specific markets or regions. For example, an
MSA-level analysis of residential supply elasticity found statistically significant elasticity values ranging from
1.43-21.6 (Green, Malpezzi and Mayo, 2005). Green, Malpezzi and Mayo (2005) estimate separate supply
elasticities for individual U.S. Metropolitan Statistical Areas (MSAs) using annual data for 45 MSAs and over 18
years (1979-1996). Their analysis developed 45 first-stage regressions to recover supply elasticities for the MSAs,
where the dependent variable in each regression is the number of housing units for which building permits were
issued, multiplied by an average household size of 2.5, divided by population and the independent variable is the
lagged first difference in the natural logs of the Fannie Mae repeat-sales index of house prices for the MSA. The
resulting estimated supply elasticities were found to be statistically significant and greater than zero in 22 of 45
cases. Based on the results in Green, Malpezzi and Mayo (2005), EPA assumed that 4.01 is a reasonable
assumption for the price elasticity of residential supply.
For non-residential construction, EPA has referred to the analysis of Benjamin, Jud, and Winkler (1998), which
similarly analyzed price elasticity at the MSA-level. Their analysis employed data for 19 MSAs covering years
1986 - 1995. Based on the statistically significant results of Benjamin, Jud and Winkler (1998), EPA has assumed
a non-residential price elasticity value of 0.49.
Estimates of the price elasticity of demand for both residential and non-residential construction are more
consistent within the literature relative to estimates of the price elasticity of supply. A key factor that determines
demand elasticity in a given market is the availability of close substitutes. If a homebuyer has the option of
substituting existing housing, rental housing, other new housing, or manufactured housing, demand will be
relatively more elastic. On the other hand, housing is a necessity, which tends to make demand inelastic (HUD,
2006). A review of the literature indicates a somewhat inelastic demand for new housing and non-residential
space (HUD, 2006; DiPasquale, 1999; Benjamin, Jud and Winkler, 1998), ranging nationally from about -0.1 to -
1.0. Based on the literature, EPA has assumed a residential price elasticity of demand of-0.7, and a price
elasticity of non-residential demand of-0.2.
9.3 Estimating the Resource Cost, Welfare Loss, and Output Loss Due to the Final
Rule
Chapter 6 described EPA's estimation of the first order resource cost of compliance within each C&D industry
subsector and for each of the proposed regulatory options. This estimate of resource cost produced in the firm-
November 23, 2009 !JT
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 9: Social Cost Analysis
level analysis, however, does not account for the potential affect of the final regulation on the quantity of
construction activity performed in the various C&D markets. The partial equilibrium analysis considers the
potential for the regulation to shift up the supply curve in each market (i.e., via increased production costs),
resulting in a higher price per unit and, depending on market response, a lower quantity of output. A primary
output of the partial equilibrium analysis is to estimate the change in market quantity expected on average in each
market. EPA estimated this quantity-effect using the methodology outlined above for calculating the pre- and
post-compliance market equilibrium. The estimated change in quantity is then used not only to adjust the firm-
level resource cost for the quantity-effect of the regulation, but also to compute the direct output (revenue)
changes in the construction industry subsectors themselves. The resource cost and output loss, in turn, have ripple
effects in the rest of the economy, which are measured using RIMS II input-output multipliers developed by the
Bureau of Economic Analysis (BEA) in Chapter 10
9.3.1 Estimating Resource Cost and Additional Social Welfare Loss
Adjusting the firm-level estimate of the regulation's resource cost to account for the anticipated C&D market-
effect is relatively simple. EPA reduces the state-level estimate of resource cost from the firm- and industry-level
analysis by the anticipated percentage change in the quantity of output with each state, as estimated by the partial
equilibrium market model.
RCAd]=%AQ*RCUn_ad] (7)
Where:
RCAdj = Market-effect adjusted measure of resource cost in each state and market
%AQ = Percentage change in state-level quantity of construction from baseline to post-
compliance from the partial equilibrium analysis
RCun-adj = Unadjusted, firm-level measure of resource cost in each state and market
The diagram below (which exaggerates the magnitude of the market impact for purposes of illustration) shows
conceptually these alternate measures of resource cost. The firm- and industry-level analysis previously outlined
produces an estimate of the regulation's resource cost equal to the sum of area A, B, C, D, E, and F in the
diagram; this measure of the resource cost is based on an assumption that the quantity of C&D industry output
does not change as a result of the cost of the regulation. However, the partial equilibrium analysis indicates that,
given the relationship between supply and demand, the upward shift in the supply curve in a given C&D market
will result in a post-compliance market equilibrium with a lower quantity of production, and each unit of
production has a higher price. Therefore, the true resource cost of compliance, accounting for this quantity-effect,
is the sum of areas A, B, and C. The difference between the un-adjusted and adjusted measure of resource cost is
captured by the sum of areas D, E, and F. Areas D and E represent the additional social welfare loss of the
regulation for a given C&D subsector, which is simply one-half of the sum of areas D, E, and F since EPA has
assumed linear supply and demand curves in the partial equilibrium model.
The partial equilibrium model has a number of implications for the welfare of society. When the supply curve
shifts as a result of incremental compliance costs, consumers lose some of their benefits from the product in
absorbing those compliance costs. The result is a change in consumer surplus, part of which eventually makes its
way to the entities whose services are purchased to implement the requirements of the regulation, and part of
which becomes the consumer contribution to the social welfare loss of the regulation. There is also a change in
producer surplus. Some producer surplus is similarly transferred to other producers whose services are purchased
to implement the regulation due the partial absorption of compliance costs, and another portion of producer
surplus is contributes the social welfare loss of the regulation.
9-8 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 9: Social Cost Analysis
EPA estimates the adjusted resource cost and DWL for the residential and non-residential subsector and each
state. For the transportation subsector, EPA assumes inelastic demand (i.e., no quantity effect), and therefore
relies on the firm- and industry-level measure of resource cost for this subsector instead of a quantity-adjusted
resource cost measure. The sum of resource cost and additional welfare loss across all states and C&D subsectors
comprises the majority of the social cost of the regulation. The total social cost of the regulation also includes
government administrative and monitoring costs.
Post-Regulation
Price
Pre-Regulation
Price
Post-Regulation Supply
Pre-Regulation Supply
Post-
Regulation
Quantity
Pre-
Regulation
Quantity
Q
9.3.2 Estimating the Loss in C&D Output
EPA estimates the state-level change in C&D industry revenues by multiplying the baseline construction unit
price by the difference between the pre- and post-compliance quantity of construction units:
Pn W
Where:
Rloss
AQ
Decline in revenue for the C&D sector in a given state
Change in state-level quantity of construction from baseline to post-compliance
Baseline state-level construction unit price
November 23, 2009
9-9
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 9: Social Cost Analysis
The sum of the C&D output loss across all states and C&D markets is the total value of output loss associated
with the regulation.
9.3.3 Price-Effects in C&D Markets
As noted above and illustrated in the above figure, the partial equilibrium analysis indicates that the upward shift
in the C&D market supply curve will result in a post-compliance market equilibrium with a lower quantity of
production, and a higher price per unit of production. It is important to note, however, that the expected increase
in market price is actually less than the magnitude of the vertical shift in the supply curve. The supply curve shifts
upward by the amount of the per unit compliance cost, but - as seen the figure above - the supply and demand
elasticity responses to this compliance cost result in a quantity-reduction that causes the price to ultimately rise by
less than the amount of compliance cost.
In the next chapter, the aggregate measure of C&D market output loss and total resource cost are separately
analyzed using input-output multipliers in order to estimate the total (e.g., direct and indirect) economic effects of
the regulation.
9.4 Uncertainties and Limitations
Key uncertainties and limitations in this analysis include:
> Elasticities of Supply and Demand Vary. EPA estimated the state-level partial equilibrium models using
national-level estimates of the elasticity of market supply and demand. These elasticity values are used
to estimate the impact of incremental costs on the supply curve and, thus, on prices and quantities of
construction products under post-compliance conditions. However, the extent to which increased
construction costs manifest as higher sales prices and rents - and changes in market quantity - depend on
supply and demand elasticities in specific construction product markets. Elasticities may vary
substantially both over time, across regional markets, and within regional markets according to supply
and demand conditions in specific product segments and other important market indicators (e.g., land
availability, land-use and other regulatory restrictions, and demographic characteristics). To the extent
that EPA's national-level elasticity values vary across the states, overtime, and do not specifically reflect
the conditions within the market for new construction, EPA may be over- or under-estimating the
potential market effect on the prices and quantities of C&D market output.
> Impacts on Markets for Existing Construction Are Not Evaluated. There is uncertainty with respect to
how the market for existing construction may factor into the ultimate effect of the regulation on prices for
new construction subject to the regulation, and vice versa.
• Increased project costs and associated pressure on project prices for new finished product may spill
over into price effects - as increased sales prices or rents, in the present and in the future - for
existing finished product not subject to the regulation's requirements.
• Conversely, the presence of existing finished product and new product not impacted by the rule
serves as competition for newly constructed finished product and can thus limit the potential for
upward pricing pressure on both existing finished product and new finished product subject to the
regulation's requirements. The presence of existing finished product provides a buffer against price
and rent increases to C&D industry product consumers.
Given that the new construction expected to be subject to the regulation represents a very small fraction
of all available construction product (both existing and new), EPA believes that the latter effect is, in
general, likely to prevail. Therefore, price effects on new residential and non-residential construction
9-10 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 9: Social Cost Analysis
product may be overstated. In this case, over the longer term, the cost and economic impact of the
regulation may more likely be borne by owners of undeveloped land as property developers adjust
construction cost estimates to reflect regulatory requirements and correspondingly adjust the prices to be
paid for the land on which project development will occur. This effect would be particularly important in
those instances in which otherwise similar undeveloped properties in the same market have different
compliance requirements due, for example, to differences in soil and run-off characteristics, or property
size. However, this differential treatment is socially optimal in the sense that an environmental externality
has been internalized.
> Assumption of Uniform Impact on the Supply ofC&D Output. The partial equilibrium market analysis
considers the potential for the regulation to shift the supply curve upward in each market (i.e., via
increased production costs), resulting in a higher price per unit and, depending on market response, a
lower quantity of output. In this analysis, EPA assumes that in-scope C&D output is distributed uniformly
across the pre-regulation supply curve, resulting in a parallel shift of the supply curve. However, EPA has
no basis for knowing with certainty exactly which segments of the C&D supply curve in any given
market will actually be in-scope, and more importantly, where in-scope segments sit relative to the pre-
regulation market equilibrium. To the extent that the marginal - and hence price-determining - supply of
C&D output for a given market segment does not incur costs because of the regulation, the increase in
production cost for other, infra-marginal, segments of the supply schedule may have no or little effect on
the market price. As a result, EPA may be overstating the change in market equilibrium point due to the
regulation.
9.5 Results of the Social Cost Analysis
This assessment of the total social cost of the regulation reflects the potential for changes in the total output of the
affected C&D industries as a result of cost-induced price increases in construction product markets. The reduction
in construction industry activity and output reduces the resource cost of compliance estimated in the firm- and
industry-level analysis (the so-called "first-order" estimate). However, the reduction in construction industry
activity and output also reduces the net economic welfare to society from production and consumption of C&D
industry output. The estimates of impact on industry output are based on an analysis of market response to the
regulatory options undertaken on a state-by-state basis.
The social cost estimate reported from this analysis accounts for both the output reduction and the loss in net
economic welfare from production and consumption of C&D industry output. The social cost estimate also
accounts for expected Federal, State, and local government administrative costs for reviewing and processing
discharge monitoring reports (DMRs), which are required for each in-scope project (the estimation of these costs
is detailed in Chapter 14). The values presented below are annual values based on the trend-estimated levels of
construction and compliance activity, as described in Chapter 4: Developing the Analysis Baseline.
EPA developed a state-by-state linear partial equilibrium market model for the residential and non-residential
C&D building subsectors to evaluate these potential market effects. EPA's assumption that compliance costs will
result in only small marginal changes in prices and quantities provides the basis for assuming that the supply and
demand curves are linear in the relevant range of market effect. The estimated change in the quantity of output
produced in each market model is then used to not only adjust the firm-level resource cost of compliance, but also
to compute the economic value of the reduction in C&D output, and estimate the total additional loss of consumer
and producer surplus.
The total social cost of the regulation is comprised of (1) the quantity-adjusted resource cost of compliance, (2)
the additional social welfare loss due to construction market adjustments, and (3) government administrative costs
November 23, 2009 9-11
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 9: Social Cost Analysis
for reviewing and processing discharge monitoring reports (DMR) and other start-up costs. The results of the
social cost analysis are presented in Table 9-1.
For the Option 4, the total social cost is approximately $959 million.. For comparison, other regulatory options
considered have estimated social costs of $176 million, $4.86 billion, and $9.08 billion, respectively, for Options
1,2, and 3.
Table 9-1: Total Annual Social Cost of the Final Regulation, ($millions)
Total Costs, Adjusted for Quantity Effect
Total Costs, Unadjusted for Quantity Effect
Change in Costs Due to Quantity Effect
Additional Social Welfare Loss
Government Administrative Costs for DMR Processing
Total Social Cost of the Regulation
Total Acreage Incurring Cost
Option 1
$176
$176
$0.01
$0.0
$0.0
$176
852,615
Option 2
$4,856
$4,866
$10
$5.0
$2.2
$4,863
851,253
Option 3
$9,059
$9,090
$31
$15.5
$6.2
$9,081
850,249
Option 4
$952
$953
$0.29
$0.15
$6.2
$959
852,418
EPA Estimates
9-12
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 10: Output & Employment
10 Analysis of Economy-Wide Output and Employment Impacts
In addition to economic effects in C&D markets (described in previous Chapter 9), there are economic effects in
the broader economy that arise from both the resource cost of compliance outlays and the direct decrease in C&D
industry output. Resource cost outlays to comply with the regulation lead to increased production of services from
those sectors that provide the services needed for compliance. Those sectors, in turn, require inputs from a myriad
of other sectors to produce any given unit of output. The increased economic activity derived from the outlays
required for compliance should be thought of as the total increase in the demand for society's resources necessary
for compliance to occur, where, the value-added component of all the increased activity is equal to the resource
cost of compliance. It is important to emphasize that this value it is not a "benefit" of the rule, but rather, a
measure of the sum of inter-industry transfers that arise from the compliance outlays required by the regulation.
The loss in C&D industry output also produces inter-industry economic effects. In this case, the reduction in C&D
output means fewer materials and services are required from sectors in the economy that typically provide inputs
to the C&D sector. Those sectors, in turn, require fewer inputs from the sectors that supply them. It is important to
emphasize that neither set of inter-industry economic effects (i.e., resource cost-related or output loss-related
impacts) is the social cost of the regulation. Rather, these effects are manifestations of social cost.
10.1 Economy-Wide Economic Effects Arising from Resource Cost of Compliance
Outlays
The resource cost of compliance represents the dollar value of goods and services that will be purchased from
sectors that make or install the environmental controls or provide other services related to regulatory compliance.
EPA estimates that approximately 45% of these services will be provided by engineering service firms, 40% will
be provided by firms related to the production or rental of water treatment equipment, and about 15% of the
resource cost will be used to purchase chemicals for treatment.
As the first step in estimating the inter-industry output effects of the regulation, EPA allocated the total estimated
resource cost to these three key industries in proportion to the fraction of compliance services expected to come
from each industry. EPA next used multipliers from the U.S. Bureau of Economic Analysis' 2006 Regional
Input-Output Modeling System (RIMS II) for these key industry sectors to estimate the total economy effects of
the purchases of goods and services required for regulatory compliance.63 The RIMS II final-demand multipliers
are defined as follows:
> Economic output multiplier. The output multiplier for any given sector represents the total dollar loss in
output that occurs in all sectors for each dollar of output not delivered to final demand by that sector.
> Earnings multiplier. The earnings multiplier for any given sector represents the total dollar loss in
earnings of households employed by all sectors for each dollar of output not delivered to final demand by
that sector.
> Employment multiplier. The employment multiplier for any given sector represents the total potential job
loss/disruption that occurs in all sectors for each additional $1 million of output not delivered to final
demand by that sector.
EPA used RIMS sectors 230000 Construction, 333111-33399A Machinery Manufacturing, 325110-325998 Chemical Manufacturing,
and 541100-5419AO Professional, scientific, and technical services to represent the construction, water treatment equipment,
chemical, and engineering industries, respectively.
November 23, 2009
10-1
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 10: Output & Employment
Multiplying the RIMS output multiplier for each key industry sector by its assigned proportion of resource cost
yields the total value of economic activity associated with providing the services necessary for compliance with
the option being analyzed. The sum of the multiplier effects across the three key industry sectors is the aggregate,
national inter-industry economic output effect due to the resource cost of the regulation. Since the regulatory
options require outlays and additional economic activity from society, although this value has a positive sign, it is
not a benefit to society.
EPA also estimated the potential number of jobs that is associated with the additional economic activity required
to produce the services for regulatory compliance using the RIMS II employment multipliers.
10.2 Economy-Wide Economic Effects Arising from the Direct Loss in C&D Industry
Output
The compliance-induced reduction in C&D output means that the C&D industry purchases fewer inputs from
other economic sectors compared to the pre-compliance level of activity. The value of this reduction in purchases
from other sectors is represented by the direct change in C&D output. When the C&D industry reduces the value
of purchases from other sectors, those sectors, in turn, require fewer inputs from the sectors that supply them.
EPA estimated the national, inter-industry economic output and potential employment impacts associated with the
direct reduction of output in the C&D industry using the same methodology as Section 10.1, except that this
analysis uses multipliers for the C&D industry itself. These total economy effects represent the total reduction in
demand for society's economic resources resulting from the estimated contraction in C&D industry output.
10.3 Results of the Economy-Wide Analysis
The analysis of total economic effects is intended to account for inter-industry linkages in the national economy
by estimating the magnitude of output and employment changes derived from (1) the resource cost of compliance,
(2) the direct change in C&D industry output, and (3) the output and employment effects resulting from
administrative costs associated with activities performed by Federal, State, and Local governments (government
costs are described in Chapter 14). EPA used RIMS multipliers from BEA to estimate the total economic effects
of the regulation on the overall U.S. economy. The results are presented in Table 10-1.
Table 10-1: Total Economic Output and Employment Effects, ($millions)
Option 1
Option 2 | Option 3
Option 4
Output Effects
Total Change in Economic Output Arising from Compliance Cost Outlays
Change in C&D Industry Output
Total Change in Economic Output from Reduced C&D Industry Output
Total Change in Economic Output Arising from Government Cost
Total Effect on Economic Output
$529
($39)
($127)
$0
$401
$14,608
($1,621)
($5,241)
$7
$9,373
$27,253
($2,786)
($9,009)
$19
$18,263
$2,865
($269)
($869)
$19
$2,015
Employment Effects
Total Change in Employment Arising from Compliance Cost Outlays (jobs)
Direct Employment Effect from Reduced C&D Industry Output (jobs)
Total Change in Employment from Reduced C&D Industry Output (fobs)
Total Change in Employment Arising from Government Cost (jobs)
Total Effect on Employment (jobs)
3,296
(83)
(988)
0
2,309
91,071
(3,370)
(40,612)
60
50,519
169,908
(5,802)
(69,810)
167
100,266
17,861
(560)
(6,734)
167
11,295
EPA Estimates. Values may n ot sum due to rounding.
It is important to emphasize that the total economic effects reported above, whether derived from resource cost
outlays or the contraction in C&D industry output, are not costs in addition to the social cost of the rule. The
10-2
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 10: Output & Employment
reported total output and employment effects are manifestations of the rule's social cost. For example, the
reported increases in employment from Compliance Cost Outlays as reported in Table 10-1 reflect the use of
labor as a factor input for producing the goods and services required for compliance with the regulation. The
reported reductions in employment from Change in C&D Industry Output - both direct and indirect - reflect the
contraction in total industry output due to the estimated changes in the prices of industry's output.
Another way to more generally interpret this table is that it indicates how the rule will reallocate society's
resources essentially from construction activity to compliance-related activity.
November 23, 2009 10-3
-------
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 11: Benefits Analysis
11 Benefits Assessment Methodology and Results
This chapter provides an overview of the potential benefits to society related to reduced sediment discharges from
construction sites that will result from the C&D regulation. A more detailed discussion of EPA's methodology
and results from the benefits assessment can be found in the Environmental Impact and Benefits Assessment for
Final Effluent Guidelines and Standards for the Construction and Development Category (USEPA 2009),
hereafter referred to as the Environmental Assessment Document.
Sediments and other pollutants from construction sites may have a wide range of effects on water resources
located in the vicinity of construction sites. These environmental changes affect economic productivity (e.g.,
navigation, water storage, and water treatment) as well as environmental services valued by humans (e.g.,
recreation, public and private property ownership, existence services such as aquatic life, wildlife, and habitat
designated uses). Related market benefits (e.g., avoided costs of producing various market goods and services)
and non-market benefits are additive (Freeman 2003). In all cases, benefits are conceptualized and estimated
based on established welfare theoretic models (Freeman 2003; Just et al. 2004).
EPA considered four categories of quantifiable monetary benefits from the C&D Regulation:
> Benefits to Navigation (Section 11.1) - Navigable waterways are often dredged to maintain their
navigable depth and width. Reduced sediment settling in navigable channels is expected to reduce the cost
of dredging in these channels, as it is related to the amount of sediment dredged;
> Benefits to Water Storage (Section 11.2) - Water storage facilities (reservoirs) may also be dredged in
order to regain capacity lost to sediment build-up. Reduced sediment settling in reservoirs is expected to
reduce the cost of dredging in reservoirs that are dredged;
> Benefits to Drinking Water Treatment (Section 11.3) - Drinking water must be treated for sediment and
turbidity, among other things, and the treatment costs are related to the sediment and turbidity levels of
the influent water. Reducing sediment and subsequently the turbidity that must be treated by drinking
water treatment plants reduces the amount of chemicals needed for treatment, and also the amount of
sludge generated from this treatment that must be disposed, lowering the cost of drinking water treatment;
and,
> Water Quality Benefits (Section 11.4) - Reducing sediment levels in U.S. waterways has the general
effect of improving water quality, as suspended sediment is one of the determinants of water quality.
Increased water quality has both explicit and implicit value to users of water bodies, which was quantified
using willingness-to-pay estimates based on a meta-analysis of existing willingness-to-pay studies for
water quality improvements.
The first three benefit categories are avoided costs - i.e., the C&D regulatory options are expected to reduce a cost
otherwise incurred by society resulting from the presence of sediments in discharges from construction sites. The
fourth category, water quality benefits, is conceptually different in that it reflects the estimated value to society for
the water quality improvements resulting from reduced sediment discharges from construction sites. Looking
across these categories, EPA estimates that water quality improvements will contribute substantially greater
benefits than those expected from the other benefit categories because this category represents values of both
noncommercial users and nonusers, ths sum being a larger population.
The total benefits resulting from the reduced sediment and turbidity levels in U.S. waters induced by this
regulation are calculated as the sum of monetary benefits for these four categories. Total benefits are summarized
in Section 11.5. Lastly, Section 11.6 summarizes the key uncertainties and limitations underlying the analyses.
November 23, 2009
11-1
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 11: Benefits Analysis
More details of the conceptual framework underlying this benefits assessment and a discussion of additional
benefits categories not monetized can be found in Chapter 4 of the Environmental Assessment Document. EPA
used the SPARROW (SPAtially Referenced Regressions On Watershed attributes) model (USGS 2008) to
predict changes in sediment loadings and concentrations resulting from expected reductions in construction site
sediment discharges brought about by this regulation. Details of SPARROW can be found in Chapter 6 and
Appendix B of the Environmental Assessment Document.
11.1 Analysis of Benefits to Navigation
This section presents a summary of EPA's analysis of the navigable waterway maintenance costs that would be
avoided by implementation of the C&D regulation. Further details of this analysis and an expanded discussion of
its results can be found in Chapter 7 of the Environmental Assessment Document.
The analysis of benefits to navigation includes four primary steps:
> Identify navigable waterways that are regularly dredged and estimate the frequency of dredging in each
waterway;
> Estimate the navigable waterway maintenance cost per cubic yard of sediment dredged;
> Estimate the total cost of navigable waterway maintenance under the baseline and post-compliance
scenarios and,
> Estimate avoided costs from decreased dredging of navigable waterways due to the reduction in sediment
discharged from construction sites.
This analysis presents low, midpoint, and high estimates for the baseline dredging that will be affected by this
regulation in order to provide a range of benefits values. This range of values was determined by varying certain
assumptions made about current and future dredging activity in U.S. navigable waterways. The details of the
assumptions made for each range are summarized in Chapter 7 of the Environmental Assessment Document.
The avoided costs for each post-compliance scenario are calculated as the difference in total annualized dredging
costs between the baseline and each post-compliance scenario, and will be considered as the benefits to navigation
resulting from the C&D regulation. Table 11-1, Table 11-2, Table 11-3, and Table 11-4 present annualized
avoided cost estimates for navigable waterway dredging for each of the Agency's regulatory options by EPA
Region, including low, midpoint, and high estimates for cost reductions under each of these scenarios. Each of
these estimates was calculated using both 3 and 7 percent annual discount rates to discount and annualize costs.
Because the discount rate does not substantially affect the overall avoided costs, all values discussed are those
calculated assuming a 3 percent discount rate.
Annualized savings from reduced dredging activity range from $1.0 to $3.4 million, with Option 4, representing a
savings of $2.9 million in the midpoint estimate. EPA estimates that Regions 4 and 6 will benefit from the most
substantial reductions in dredging costs under all policy options. This is due to a large amount of baseline
dredging activity in these regions, and a large percentage reduction in sediment runoff expected as a result of the
regulation. Due to the lack of significant dredging activity in Region 8, no noticeable benefits are expected in this
region.
Option 1, which requires non-numeric effluent limitations for all sites, is EPA's least stringent policy option. It is
predicted to produce a range of avoided costs between $1.0 and $1.3 million with a midpoint estimate of slightly
less than $1.3 million. EPA predicts that this option would prevent 8.5 million cubic yards of sediment from
entering navigable waters each year.
11-2 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 11: Benefits Analysis
Option 2 requires ATS on sites with 30 or more acres disturbed at one time and imposes a 13 NTU turbidity
standard while requiring non-numeric effluent limitations on all sites and is similar to the option EPA proposed
previously. This option will prevent an estimated 17.6 million cubic yards of sediment from entering navigable
water bodies and requiring dredging. The midpoint estimate for avoided costs under this option is $2.6 million per
year, ranging from $2.1 to $2.8 million between the low and high estimates.
Option 3, EPA's most stringent policy option, requires ATS on sites with 10 or more acres disturbed at one time,
imposes a 13 NTU turbidity standard on these sites, and requires non-numeric effluent limitations on all sites.
This option would prevent approximately 22.0 million cubic yards of sediment from building up in navigable
waterways each year. Avoided costs from this action range from $2.7 to $3.4 million, with a midpoint of $3.3
million.
Option 4 requires passive treatment systems on all sites with 10 or more acres disturbed at one time, and
establishes a numeric turbidity standard of 280 NTU (expressed as a daily maximum value) for sites required to
implement passive treatment. In addition, all sites will be required to meet non-numeric effluent limitations.
Avoided costs from Option 4 range between $2.4 and $3.0 million, with a midpoint estimate of $2.9 million. The
requirements of Option 4 produce larger reductions in dredged sediment than those of Option 2, as turbidity
treatment is required on more sites. Option 4 is not as effective as Option 3 in reducing sediment in navigable
waters, since the two options have the same criteria for disturbed acres, but Option 4 has a less stringent turbidity
standard. The total reduction in sediment dredged from navigable waters is expected to be 20.0 million cubic
yards under Option 4.
November 23, 2009 11-3
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 11: Benefits Analysis
Table 11-1: Annualized Reductions in Dredging and Costs Under Option 1
EPA
Region
1
2
3
4
5
6
7
8
9
10
Total
Reduction in Sediment Dredged
(thousands of yd3)
Low
0.3
16.4
40.7
871.5
21.0
5,901.7
5.2
0.0
56.4
486.8
7,400.0
Mid
1.0
21.3
51.5
1,001.7
31.5
6,660.6
9.3
0.0
81.6
614.8
8,473.3
High
1.3
24.2
55.0
1,058.3
50.9
6,739.7
10.6
0.0
95.5
795.1
8,830.6
Avoided
Low
$0.3
$7.6
$20.0
$262.5
$8.3
$628.8
$0.8
$0.0
$28.7
$69.7
$1,026.7
Costs Using 3% Discount Rate
(thousands of 2008$)
Mid
$0.8
$10.4
$25.0
$320.0
$12.7
$739.1
$1.6
$0.0
$41.3
$106.2
$1,257.2
High
$0.9
$10.9
$25.6
$329.8
$18.3
$769.7
$1.7
$0.0
$43.3
$131.8
$1,331.9
Avoided
Low
$0.3
$7.4
$19.7
$258.1
$8.2
$611.5
$0.7
$0.0
$28.2
$68.3
$1,002.4
Costs Using 7% Discount Rate
(thousands of 2008$)
Mid
$0.8
$10.1
$24.4
$312.5
$12.4
$720.8
$1.5
$0.0
$40.0
$102.9
$1,225.3
High
$0.9
$10.5
$24.9
$322.3
$17.9
$754.8
$1.6
$0.0
$41.9
$127.5
$1,302.4
EPA Estimates
Table 11-2: Annualized Reductions in Dredging and Costs Under Option 2
EPA Region
1
2
3
4
5
6
7
8
9
10
Total
Reduction in Sediment Dredged
(thousands of yd3)
Low
0.7
33.8
84.5
1,806.7
43.2
12,309.2
10.8
0.0
116.9
990.2
15,395.9
Mid
2.1
43.8
106.7
2,076.3
65.0
13,891.9
19.4
0.1
168.5
1,251.4
17,625.0
High
2.7
49.9
114.0
2,193.3
105.1
14,056.6
22.0
0.1
197.4
1,618.7
18,359.8
Avoided
Low
$0.7
$15.6
$41.4
$543.1
$17.1
$1,311.4
$1.6
$0.0
$59.5
$141.8
$2,132.1
Costs Using 3% Discount Rate
(thousands of 2008$)
Mid
$1.7
$21.4
$51.9
$661.9
$26.2
$1,541.4
$3.2
$0.0
$85.4
$216.1
$2,609.2
High
$1.9
$22.4
$53.0
$682.2
$37.6
$1,605.1
$3.6
$0.0
$89.4
$268.1
$2,763.4
Avoided
Low
$0.7
$15.2
$40.8
$534.0
$16.8
$1,275.4
$1.5
$0.0
$58.5
$138.8
$2,081.7
Costs Using 7% Discount Rate
(thousands of 2008$)
Mid
$1.6
$20.7
$50.7
$646.4
$25.5
$1,503.1
$3.1
$0.0
$82.6
$209.4
$2,543.0
High
$1.8
$21.7
$51.7
$666.7
$36.8
$1,574.1
$3.4
$0.0
$86.6
$259.4
$2,702.2
EPA Estimates
11-4
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 11: Benefits Analysis
Table 11-3: Annualized Reductions in Dredging and Costs Under Option 3
EPA
Region
1
2
3
4
5
6
7
8
9
10
Total
Reduction in Sediment Dredged
(thousands of yd3)
Low
0.9
42.1
105.3
2,251.4
53.8
15,356.2
13.5
0.0
145.7
1,229.5
19,198.2
Mid
2.6
54.5
132.9
2,587.4
81.0
17,330.6
24.1
0.1
209.8
1,554.0
21,977.0
High
3.4
62.1
142.0
2,733.0
130.8
17,536.2
27.5
0.1
245.9
2,010.3
22,891.2
Avoided
Low
$0.8
$19.4
$51.6
$676.6
$21.2
$1,636.0
$2.0
$0.0
$74.2
$176.0
$2,657.7
Costs Using 3% Discount Rate
(thousands of 2008$)
Mid
$2.1
$26.7
$64.7
$824.5
$32.6
$1,922.9
$4.0
$0.0
$106.3
$268.4
$3,252.1
High
$2.3
$27.9
$66.0
$849.8
$46.9
$2,002.4
$4.5
$0.0
$111.3
$333.0
$3,444.1
Avoided
Low
$0.8
$18.9
$50.8
$665.2
$20.9
$1,591.0
$1.9
$0.0
$72.9
$172.4
$2,594.9
Costs Using 7% Discount Rate
(thousands of 2008$)
Mid
$2.0
$25.8
$63.1
$805.1
$31.8
$1,875.1
$3.8
$0.0
$102.9
$260.0
$3,169.7
High
$2.2
$27.0
$64.5
$830.4
$45.7
$1,963.7
$4.3
$0.0
$107.8
$322.1
$3,367.8
EPA Estimates
Table 11-4: Annualized Reductions in Dredging and Costs Under Option 4
EPA
Region
1
2
3
4
5
6
7
8
9
10
Total
Reduction in Sediment Dredged
(thousands of yd3)
Low
0.6
33.7
92.1
1,964.1
43.4
14,395.8
12.4
0.0
127.8
815.4
17,485.3
Mid
1.7
43.5
115.9
2,252.6
67.2
16,242.8
22.3
0.1
174.1
1,043.3
19,963.5
High
2.3
49.6
123.8
2,374.9
107.2
16,434.8
25.3
0.1
205.7
1,351.7
20,675.5
Avoided
Low
$0.6
$15.5
$45.2
$574.7
$16.9
$1,531.7
$1.8
$0.0
$65.1
$116.0
$2,367.5
Costs Using 3% Discount Rate
(thousands of 2008$)
Mid
$1.4
$21.3
$56.5
$699.0
$26.1
$1,800.0
$3.7
$0.0
$88.3
$178.8
$2,875.1
High
$1.6
$22.3
$57.7
$720.3
$37.2
$1,874.4
$4.2
$0.0
$92.6
$222.5
$3,032.8
Avoided
Low
$0.6
$15.1
$44.5
$565.1
$16.7
$1,489.6
$1.8
$0.0
$64.0
$113.6
$2,310.9
Costs Using 7% Discount Rate
(thousands of 2008$)
Mid
$1.3
$20.6
$55.2
$682.8
$25.5
$1,755.3
$3.5
$0.0
$85.6
$173.1
$2,802.9
High
$1.5
$21.6
$56.3
$704.1
$36.3
$1,838.3
$3.9
$0.0
$89.9
$215.1
$2,967.1
EPA Estimates
November 23, 2009
11-5
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 11: Benefits Analysis
11.2 Analysis of Benefits to Water Storage
This section provides a summary of EPA's analysis to estimate the benefits to water storage facilities from
reduced sediment discharge. A more detailed description of this analysis can be found in Chapter 8 of the
Environmental Assessment Document.
The analysis of these benefits includes the following steps:
> Estimating the unit cost of sediment removal from reservoirs assumed to be dredged;
> Estimating the sediment accumulation in reservoirs under the baseline scenario and the post-compliance
regulatory scenarios and the amount expected to be dredged;
> Estimating the cost of dredging this volume of sediment, assuming a period of 2, 6, or 10 years between
sediment removal activities, and discounting and annualizing this cost for the baseline and post-
compliance regulatory scenarios, and;
> Estimating the avoided costs from decreased dredging of reservoirs due to the reduction in sediment
discharged from construction sites.
Due to a lack of data on the frequency of reservoir dredging, EPA varied the assumed frequency of dredging
between 2, 6, and 10 years to produce a range of avoided cost estimates. More details of this sensitivity analysis
can be found in Chapter 8 of the Environmental Assessment Document.
The difference between the anticipated dredging costs under the baseline and a particular post-compliance
scenario represents the avoided costs of that particular scenario. Table 11-5, Table 11-6, Table 11-7, and Table
11-8 present reductions in sedimentation and subsequent avoided costs from reduced reservoir dredging for the
post-compliance regulatory scenarios, including low, midpoint, and high estimates under each of these scenarios.
All values discussed below assume a 3 percent rate for discounting and annualization.
Avoided costs from a reduction in reservoir sedimentation range from $1.3 to $3.8 million, depending on the
policy option and the assumed frequency of reservoir dredging. Option 4 represents avoided costs of $3.2 million.
The largest savings are predicted in Region 6 under all options, as SPARROW predicts the largest overall
reductions in sediment accumulation in this region. Region 4 is also expected to benefit substantially relative to
other regions due to both large reductions in construction discharges in this region and a relatively high unit cost
of dredging (estimated from USAGE data).
Option 1, which requires non-numeric effluent limitations for all sites, is EPA's least stringent policy option. This
option is expected to reduce reservoir sedimentation by about 560 thousand cubic yards nationally every year,
which is estimated to save between $1.3 and $1.5 million in dredging costs per year, with a midpoint estimate of
$1.4 million.
Option 2 requires ATS on sites with 30 or more acres disturbed at one time and imposes a 13 NTU turbidity
standard while requiring non-numeric effluent limitations on all sites and is similar to the option EPA proposed
previously. This action is estimated to prevent about 1.2 million cubic yards of sediment from building up in
reservoirs each year. This reduction represents between $2.7 and $3.0 million in annual savings, with a midpoint
estimate of $2.9 million.
Option 3, EPA's most stringent policy option, requires ATS on sites with 10 or more acres disturbed at one time,
imposes a 13 NTU turbidity standard on these sites, and requires non-numeric effluent limitations on all sites. Its
reduction in sediment deposition in reservoirs is estimated to be 1.5 million cubic yards annually. The monetized
11-6 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 11: Benefits Analysis
value of reduced dredging costs is estimated to be between $3.3 and $3.8 million with a midpoint estimate of $3.6
million.
Option 4 requires passive treatment systems on all sites with 10 or more acres disturbed at one time, and
establishes a numeric turbidity standard of 280 NTU (expressed as a daily maximum value) for sites required to
implement passive treatment. In addition, all sites will be required to meet non-numeric effluent limitations.
Because Option 4 requires passive rather than active treatment of sediment and has a higher turbidity standard, the
estimated reductions in reservoir sediment buildup are lower than those from Option 3. However, the estimated
reductions from Option 4 are still greater than those expected from Option 2, as that option requires treatment on
fewer sites. Expected avoided costs from Option 4 are estimated to be $3.2 million for the midpoint estimate,
ranging between $3.0 and $3.4 million. Regions 4 and 6 together account for more than half of the monetized
benefits of reduced reservoir sedimentation, due to the expected reductions in construction discharges in these
regions. Option 4 is estimated to reduce reservoir sedimentation by 1.3 million cubic yards annually.
Table 11-5: Reduction in Reservoir Dredging and Costs Under Option 1
EPA
Region
1
2
3
4
5
6
7
8
9
10
Total
Reduction in
Sediment (yd3)
1,422.5
534.6
2,554.2
98,832.2
7,877.6
408,507.4
24,767.9
2,165.2
4,832.7
7,293.4
558,787.8
Avoided Costs (thousand 2008$)
3% Discount Rate
Low
$13.0
$3.4
$15.5
$471.7
$32.2
$640.5
$56.3
$8.5
$27.3
$23.2
$1,291.5
Mid
$13.8
$3.6
$16.5
$501.6
$34.3
$681.1
$59.8
$9.0
$29.0
$24.7
$1,373.4
High
$14.7
$3.8
$17.5
$532.8
$36.4
$723.4
$63.6
$9.6
$30.8
$26.2
$1,458.7
7% Discount Rate
Low Mid
$10.8 $12.5
$2.8 $3.2
$12.8 $14.9
$391.4 $453.6
$26.8 $31.0
$531.4 $615.9
$46.7 $54.1
$7.0 $8.2
$22.6 $26.2
$19.3 $22.3
$1,071.6 $1,241.9
High
$14.4
$3.7
$17.1
$522.5
$35.7
$709.4
$62.3
$9.4
$30.2
$25.7
$1,430.5
EPA Estimates
Table 11-6: Reduction in Reservoir Dredging and Costs Under Option 2
EPA
Region
1
2
3
4
5
6
7
8
9
10
Total
Reduction in
Sediment (yd3)
2,876.1
1,095.8
5,277.7
205,148.0
16,291.7
851,211.4
51,567.6
4,475.7
9,992.4
14,804.0
1,162,740.5
Avoided Costs (thousand 2008$)
3% Discount Rate
Low Mid High
$26.3 $28.0 $29.7
$6.9 $7.3 $7.8
$32.0 $34.0 $36.1
$979.1 $1,041.2 $1,105.8
$66.7 $70.9 $75.3
$1,334.6 $1,419.2 $1,507.4
$117.2 $124.6 $132.3
$17.5 $18.6 $19.8
$56.4 $60.0 $63.7
$47.1 $50.1 $53.2
$2,683.8 $2,853.8 $3,031.2
7% Discount Rate
Low Mid
$21.8 $25.3
$5.7 $6.6
$26.5 $30.7
$812.4 $941.5
$55.3 $64.1
$1,107.4 $1,283.3
$97.2 $112.7
$14.5 $16.8
$46.8 $54.2
$39.1 $45.3
$2,226.8 $2,580.6
High
$29.1
$7.6
$35.4
$1,084.5
$73.9
$1,478.2
$129.8
$19.4
$62.5
$52.2
$2,972.6
EPA Estimates
November 23, 2009
11-7
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 11: Benefits Analysis
Table 11-7: Reduction in Reservoir Dredging and Costs Under Option 3
EPA
Region
1
2
3
4
5
6
7
8
9
10
Total
Reduction in
Sediment (yd3)
3,567.2
1,362.7
6,572.8
255,705.5
20,293.0
1,061,735.4
64,312.0
5,574.7
12,445.8
18,375.4
1,449,944.6
Avoided Costs (thousand 2008$)
3% Discount Rate
Low
$32.6
$8.5
$39.8
$1,220.4
$83.1
$1,664.7
$146.1
$21.8
$70.2
$58.5
$3,345.8
Mid
$34.7
$9.1
$42.3
$1,297.7
$88.3
$1,770.2
$155.4
$23.2
$74.7
$62.2
$3,557.9
High
$36.9
$9.7
$45.0
$1,378.4
$93.8
$1,880.2
$165.0
$24.7
$79.3
$66.1
$3,778.9
7% Discount Rate
Low Mid
$27.1 $31.4
$7.1 $8.2
$33.0 $38.3
$1,012.6 $1,173.5
$68.9 $79.9
$1,381.2 $1,600.7
$121.2 $140.5
$18.1 $21.0
$58.3 $67.5
$48.5 $56.2
$2,776.1 $3,217.2
High
$36.1
$9.5
$44.1
$1,351.7
$92.0
$1,843.8
$161.9
$24.2
$77.8
$64.8
$3,705.9
EPA Estimates
Table 11-8: Reduction in Reservoir Dredging and Costs Under Option 4
EPA
Region
1
2
3
4
5
6
7
8
9
10
Total
Reduction in
Sediment (yd3)
2,126.0
1,021.6
5,497.1
226,511.9
17,171.7
984,436.6
59,072.2
4,697.2
10,504.9
11,827.7
1,322,866.8
Avoided Costs (thousand 2008$)
3% Discount Rate
Low Mid High
$19.4 $20.7 $22.0
$6.4 $6.8 $7.2
$33.3 $35.4 $37.6
$1,081.1 $1,149.6 $1,221.0
$70.3 $74.7 $79.4
$1,543.5 $1,641.3 $1,743.3
$134.2 $142.7 $151.6
$18.4 $19.6 $20.8
$59.3 $63.0 $67.0
$37.6 $40.0 $42.5
$3,003.6 $3,193.9 $3,392.4
7% Discount Rate
Low Mid
$16.1 $18.7
$5.3 $6.2
$27.6 $32.0
$897.0 $1,039.5
$58.3 $67.6
$1,280.7 $1,484.2
$111.4 $129.1
$15.3 $17.7
$49.2 $57.0
$31.2 $36.2
$2,492.1 $2,888.1
High
$21.5
$7.1
$36.9
$1,197.4
$77.9
$1,709.6
$148.7
$20.4
$65.7
$41.7
$3,326.8
EPA Estimates
11.3 Analysis of Benefits to Drinking Water Treatment
This section summarizes the estimation of total baseline expenditures to remove sediments from drinking water
and the avoided costs expected with the reduction of sediment discharges anticipated from the C&D regulation.
Further details of this analysis and an expanded discussion of its results can be found in Chapter 9 of the
Environmental Assessment Document. The cost of drinking water treatment followed the following steps:
> Identifying rivers and streams modeled by SPARROW that are sources for drinking water treatment
plants;
> Determining TSS reductions in these reaches;
> Estimating the chemical cost of treating the turbidity caused by TSS in these reaches;
> Estimating the cost of disposing of the sludge generated from this turbidity treatment;
> Estimating the total costs of drinking water treatment under the baseline and post-compliance scenarios;
and,
11-8
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 11: Benefits Analysis
> Estimating the avoided costs from decreased drinking water treatment costs due to the reduction in
sediment discharged from construction sites.
To address uncertainty in its assumptions, EPA conducted a sensitivity analysis that varies assumptions about the
treatment of highly turbid influent water64 and the cost of chemical inputs, and the results of the following
analyses present low, midpoint, and high benefits estimates (see Chapter 9 of the Environmental Assessment
Document for details).
The total avoided costs from lowered turbidity resulting from lower TSS concentrations in drinking water influent
was estimated as the reduction in drinking water turbidity treatment costs between the baseline and post-
compliance scenarios. Reductions in drinking water treatment costs for the three post-compliance regulatory
scenarios are presented in Table 11-9, Table 11-10, Table 11-11, and Table 11-12.
The anticipated savings from reduced TSS and turbidity treatment at drinking water facilities are between
$978,400 and $2.1 million, varying between the least and most stringent policy options and less dramatically
between the low and high estimates. Policy Option 4 is expected to reduce TSS and turbidity treatment costs for
drinking water facilities by between $1.5 and $1.9 million. Region 5 benefits most significantly from the TSS
reductions expected from this regulatory action. The avoided costs in Region 5 under Option 1 account for more
than half of the total national savings. Other regions receive a larger portion of benefits under Options 2 through
4, though Region 5 still accounts for the greatest proportion of the cost reductions, though Regions 4 and 6 also
show significant savings under Options 2 through 4.
Option 1, which requires non-numeric effluent limitations for all sites, is EPA's least stringent policy option.
Average turbidity reductions are less than 1 NTU for this policy option, and its monetized benefits range between
$978,400 and $1.3 million, with a midpoint estimate of $1.2 million in reduced drinking water treatment costs.
Option 2 requires ATS on sites with 30 or more acres disturbed at one time and imposes a 13 NTU turbidity
standard while requiring non-numeric effluent limitations on all sites and is similar to the option EPA proposed
previously. This option reduces turbidity between 0.4 and 1.3 NTU, translating to $1.4 million to $1.9 million in
savings, with a midpoint estimate of $1.8 million.
Option 3, EPA's most stringent policy option, requires ATS on sites with 10 or more acres disturbed at one time,
imposes a 13 NTU turbidity standard on these sites, and requires non-numeric effluent limitations on all sites.
This option reduces treated turbidity by an average of 0.7 NTU in the midpoint, ranging from 0.4 to 1.4 between
the low and high estimates. Total avoided costs for this option are between $1.7 and slightly more than $2.1
million, with a midpoint estimate just below $2.1 million.
Option 4, the option EPA has selected for the final rule, requires passive treatment systems on all sites with 10 or
more acres disturbed at one time, and establishes a numeric turbidity standard of 280 NTU (expressed as a daily
maximum value) for sites required to implement passive treatment. In addition, all sites will be required to meet
non-numeric effluent limitations. National average turbidity reductions from Option 4 range from 0.4 NTU to 1.3
NTU, with a midpoint estimate of 0.6 NTU. Total avoided costs for Option 4 range between $1.5 and $1.9
million, with a midpoint estimate of $1.8 million. While Option 4 is less stringent than Option 3, it is estimated to
reduce turbidity in drinking water sources by nearly as much and to produce similar monetized benefits.
As construction site discharge is more likely to contain smaller particles that contribute less to TSS and more to
turbidity, the high estimates for Options 2, 3, and 4 may be more relevant because EPA uses a conversion factor
64 Influent turbidities exceeding 1,000 NTU are assumed to be allowed to settle, and the effectiveness of this process is varied between a
90% reduction in the low estimate and a 30% reduction in the high estimate, since a greater reduction means lower treatment costs and
hence a lower estiamte
November 23, 2009 11-9
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 11: Benefits Analysis
between TSS and turbidity that takes this into account. The high estimate for turbidity reductions under Option 2
is 1.3 NTU nationwide. Under Option 3, the high estimate is on average around 1.4 NTU nationwide. For Option
4, the selected option, nationwide reductions are 1.4 NTU. In Region 5, high estimates of reductions under all
options are 4.1 NTU.
Table 11-9: Reduction in Drinking Water Treatment Costs Under Option 1
EPA
Region
1
2
3
4
5
6
7
8
9
10
Total
Average Reduction
Low
0.0
0.1
0.0
0.4
1.2
0.3
0.1
0.0
0.1
0.1
0.2
in Treated Turbidity
Mid
0.0
0.5
0.0
0.5
1.9
0.5
0.2
0.0
0.1
0.2
0.4
(NTU)a
High
0.0
1.8
0.1
1.0
3.9
1.1
0.4
0.0
0.2
0.3
0.9
Avoided
Low
$4.0
$44.1
$8.0
$136.2
$515.0
$162.4
$11.3
$1.1
$7.6
$88.7
$978.4
costs (thousands of 2008$)
Mid
$5.0
$91.2
$9.2
$161.1
$603.4
$194.1
$14.1
$1.3
$9.9
$110.4
$1,199.8
High
$5.8
$129.8
$9.3
$164.5
$616.6
$201.0
$15.8
$1.4
$11.3
$110.4
$1,265.9
a Average Turbidity reductions shown as 0.0 are not actually zero, but not sufficiently large to show at this level of significant digits
EPA Estimates
Table 11-10: Reduction in Drinking Water Treatment Costs Under Option 2
EPA
Region
1
2
3
4
5
6
7
8
9
10"
Total
Average Reduction
Low
0.0
0.1
0.1
0.7
1.2
0.7
0.2
0.0
0.1
0.2
0.4
in Treated
Mid
0.0
0.6
0.1
1.0
2.0
1.1
0.4
0.0
0.2
0.3
0.6
Turbidity (NTU) a
High
0.1
1.8
0.2
1.9
4.1
2.3
0.8
0.1
0.4
0.6
1.3
Avoided
Low
$8.2
$50.8
$24.0
$258.9
$526.6
$341.5
$23.5
$2.2
$15.8
$195.9
$1,447.4
costs (thousands of 2008$)
Mid
$10.2
$99.4
$27.7
$307.6
$618.4
$408.3
$29.3
$2.7
$20.5
$244.9
$1,769.1
High
$11.7
$138.4
$27.8
$318.3
$633.7
$422.5
$33.0
$2.9
$23.3
$244.9
$1,856.6
a Average Turbidity reductions shown as 0.0 are not actually zero, but not sufficiently large to show at this level of significant digits
EPA Estimates
Table 11-11: Reduction in Drinking Water Treatment Costs Under Option 3
EPA
Region
1
2
3
4
5
6
7
8
9
10a
Total
Average Reduction
Low
0.0
0.1
0.1
0.8
1.2
0.9
0.3
0.0
0.1
0.3
0.4
in Treated
Mid
0.1
0.6
0.1
1.2
2.0
1.4
0.5
0.0
0.2
0.4
0.7
Turbidity (NTU)
High
0.1
1.8
0.2
2.2
4.1
2.8
1.0
0.1
0.5
0.7
1.4
Avoided
Low
$10.2
$54.1
$31.8
$312.7
$532.4
$428.6
$29.3
$2.7
$20.1
$237.0
$1,658.9
costs (thousands
Mid
$12.7
$103.7
$36.6
$370.7
$626.4
$513.1
$36.6
$3.4
$26.9
$320.3
$2,050.5
of 2008$)
High
$14.6
$143.2
$36.7
$383.2
$643.0
$531.2
$41.2
$3.7
$31.4
$320.3
$2,148.5
EPA Estimates
11-10
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 11: Benefits Analysis
Table 11-12: Reduction in Drinking Water Treatment Costs Under Option 4
EPA
Region
1
2
3
4
5
6
7
8
9
10a
Total
Average Reduction
Low
0.0
0.1
0.1
0.7
1.2
0.8
0.2
0.0
0.1
0.2
0.4
in Treated
Mid
0.0
0.6
0.1
1.1
2.0
1.3
0.4
0.0
0.2
0.2
0.6
Turbidity (NTU)
High
0.1
1.8
0.2
2.0
4.1
2.6
0.9
0.1
0.4
0.4
1.3
Avoided
Low
$6.8
$50.3
$25.6
$281.1
$526.8
$396.9
$27.0
$2.2
$16.4
$145.5
$1,478.7
costs (thousands of 2008$)
Mid
$8.5
$98.8
$29.6
$333.5
$618.8
$474.5
$33.7
$2.8
$21.5
$181.9
$1,803.5
High
$9.7
$137.8
$29.6
$344.8
$634.2
$490.6
$37.8
$3.1
$24.7
$181.9
$1,894.3
EPA Estimates
11.4 Analyzing the Benefits of Water Quality Improvement
As discussed in the preceding sections of this chapter, sediments and other pollutants from construction sites are
expected to have a wide range of effects on water resources in the vicinity of construction sites. The changes in
the cost of providing key market-valued services that are affected by sediment discharges are monetized in the
preceding sections. In addition to the reductions in the costs of providing these market-valued services to society,
non-market benefits or existence services such as aquatic life, wildlife, and habitat designated use (Freeman
2003), which accompany improvements in water quality, need to be considered as part of a comprehensive
assessment of the expected benefits of the C&D regulation.
To link water quality changes from reduced sediment runoff to effects on human uses and support for aquatic and
terrestrial species habitat, this analysis utilizes a water quality index (WQI). The WQI used in this analysis builds
on McClelland's work, and the methodology developed by Dunnette (1979), which was subsequently updated by
Cude (2001) to better account for spatial and morphologic variability in the natural characteristics of streams . The
WQI developed by Cude (2001) does not explicitly account for turbidity associated with water quality impacts
from TSS and eutrophication. This index is linked to specific pollutant levels, which in turn are linked to the
presence of aquatic species and suitability for particular recreational uses. The WQI allows the use of objective
water quality parameters (e.g., dissolved oxygen concentrations) to characterize ecosystem services or uses
provided by a given water body. The WQI is measured on a scale from 0 to 100, where 0 is poor quality and 100
is excellent. The complete description and associated equations and tables can be found in Chapter 10 of the
Environmental Assessment Document.
This section describes the use of meta-analysis of previous surface water valuation studies to provide a basis for
estimating benefits of water quality improvements resulting from the C&D regulation. The technical details
involved in the estimation of original meta-analyses are presented in Chapter 10 and Appendix A of the
Environmental Assessment Document as well as in sources such as Johnston et al. (2005; 2006), Bateman and
Jones (2003), Shrestha et al. (2007), Rosenberger and Phipps (2007), and U.S. EPA (2004c).
11.4.1 Estimated Changes in Water Quality (AWQI) from the C&D Regulation
To estimate benefits of water quality improvements expected from the C&D regulation, EPA estimated WQI
values for each regulatory option. In calculating the post-compliance WQI value, the Agency used option-specific
TSS concentrations from the SPARROW output. The sediment loading estimates for each regulatory option
reflect the expected reduction in sediment runoff under the regulatory options. EPA also estimated total nitrogen
(TN) and total phosphorus (TP) concentrations using ratios relating TN and TP to sediment concentrations. This
November 23, 2009
11-11
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 11: Benefits Analysis
calculation allows EPA to estimate benefits resulting from reduced concentrations of these nutrients in surface
water as they also factor into the WQI calculation. The other contributing parameters to the WQI were held
constant for all regulatory options.
Each RF1 reach that has an improved WQI value from the baseline scenario to a regulatory option contributes to
the estimated economic benefits. Based on the estimated WQI value under the baseline scenario, EPA categorized
each RF1 reach using four WQI ranges (WQI < 25, 2570). For each WQI category under the baseline scenario
and regulatory options in a given state, EPA estimated weighted average WQI using river miles as weights.
The difference in WQI between baseline conditions and a given rulemaking scenario is a measure of the change in
water quality attributable to the regulatory option. To monetize benefits of the C&D regulation, EPA used three
ranges of water quality improvements AWQI<0.1, 0.1
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 11: Benefits Analysis
Table 11-13: Estimated Water Quality Improvements Under Option 1
EPA
Region
1
2
3
4
5
6
7
8
9
10
National
Total
Baseline Scenario
RFI Miles
Receiving
Constructio
n Discharges
16,182
15,140
28,904
90,435
68,285
95,098
60,909
130,311
54,228
68,189
627,679
Miles of
River in
RFI
Network
18,324
16,110
33,617
94,525
71,550
98,681
60,909
130,311
56,492
69,524
650,043
Water Quality Improvements by WQI Change
0.01
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 11: Benefits Analysis
Table 11-14: Estimated Water Quality Improvements Under Option 2
EPA
Region
1
2
3
4
5
6
7
8
9
10
National
Total
Baseline Scenario
RFI Miles
Receiving
Construction
Discharges
16,182
15,140
28,904
90,435
68,285
95,098
60,909
130,311
54,228
68,189
627,679
Miles of
River in
RFI
Network
18,324
16,110
33,617
94,525
71,550
98,681
60,909
130,311
56,492
69,524
650,043
Water Quality Improvements by WQI Change
0.01
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 11: Benefits Analysis
Table 11-15: Estimated Water Quality Improvements Under Option 3
EPA
Region
1
2
3
4
5
6
7
8
9
10
National
Total
Baseline Scenario
RFI Miles Miles of
Receiving River in
Construction RFI
Discharges Network
16,182
15,140
28,904
90,435
18,324
16,110
33,617
94,525
68,285 71,550
95,098 98,681
60,909 60,909
130,311 130,311
54,228 56,492
68,189
627,679
69,524
650,043
Water Quality Improvements by WQI Change
0.01
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 11: Benefits Analysis
Table 11-16: Estimated Water Quality Improvements Under Option 4
EPA
Region
1
2
3
4
5
6
1
8
9
10
National
Total
Baseline Scenario
RFI Miles
Receiving
Construction
Discharges
16,182
15,140
28,904
90,435
68,285
95,098
60,909
130,311
54,228
68,189
627,679
Miles of
River in
RFI
Network
18,324
16,110
33,617
94,525
71,550
98,681
60,909
130,311
56,492
69,524
650,043
Water Quality Improvements by WQI Change
0.01
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 11: Benefits Analysis
11.4.2 Benefits of Water Quality Improvements
To estimate non-market benefits of water quality improvements resulting from the C&D regulation, EPA used a
benefits transfer function based on meta-analysis results presented in Appendix G of the Environmental
Assessment Document. The general approach follows standard methods illustrated by Johnston et al. (2005) and
Shrestha et al. (2007), among many others (see Rosenberger and Phipps 2007). This function allows the Agency
to forecast WTP based on assigned values for model variables, chosen to represent a resource change in the C&D
policy context.
Table 11-17 presents mean values and confidence interval boundaries of household WTP for water quality
improvements resulting form reduced sediment discharges from construction sties by EPA region and regulatory
option.
Table 11-17 :Average Household Willingness to Pay3 for Water Quality Improvement by Region (2008$)
EPA
Region
1
2
3
4
5
6
7
8
9
10
National
Option 1
Lower
10%
Bound
$0.14
$0.04
$0.09
$1.14
$0.09
$1.19
$0.42
$0.45
$0.17
$0.64
$0.49
Mean
$0.87
$0.30
$0.56
$4.39
$0.49
$3.98
$1.62
$0.80
$0.64
$2.20
$1.85
Upper
90%
Bound
$1.96
$0.66
$1.24
$9.07
$1.07
$7.87
$3.32
$1.25
$1.30
$4.41
$3.78
Option 2
Lower
10%
Bound
$0.36
$0.17
$0.28
$1.90
$0.21
$1.88
$0.70
$0.47
$0.26
$0.98
$0.83
Mean
$2.13
$1.10
$1.71
$7.05
$1.13
$5.83
$2.63
$0.93
$0.98
$3.04
$3.10
Upper
90%
Bound
$4.74
$2.45
$3.79
$14.37
$2.45
$11.28
$5.34
$1.52
$2.01
$5.93
$6.33
Option 3
Lower
10%
Bound
$0.50
$0.25
$0.40
$2.17
$0.27
$2.16
$0.82
$0.54
$0.30
$1.10
$0.97
Mean
$2.94
$1.63
$2.40
$7.87
$1.43
$6.59
$2.97
$1.29
$1.16
$3.33
$3.63
Upper
90%
Bound
$6.54
$3.66
$5.31
$15.96
$3.09
$12.68
$5.98
$2.29
$2.37
$6.42
$7.41
Option 4
Lower
10%
Bound
$0.30
$0.16
$0.29
$1.96
$0.22
$2.05
$0.76
$0.47
$0.26
$0.84
$0.86
Mean
$1.82
$1.08
$1.76
$7.23
$1.16
$6.23
$2.80
$0.91
$0.99
$2.68
$3.17
Upper
90%
Bound
$4.08
$2.42
$3.90
$14.73
$2.51
$11.98
$5.64
$1.48
$2.02
$5.26
$6.45
a EPA used the Krinsky and Robb (1986) procedure to estimate the lower and upper bound value of the total WTP for each region, based on the results of the
total WTP regression model. The Agency notes that this analysis provides confidence limits for WTP estimates related to the covariance matrix of meta-
analysis parameter estimates.
EPA Estimates
As shown in Table 11-17, the estimated national average household WTP for water quality improvements
resulting from the regulation range from $1.85 to $3.49 per household. The estimated WTP values vary greatly
across EPA regions depending on the policy option and the level of construction storm water discharge and
improvement in a given region.
EPA estimates that Option 1 will have the least water quality improvements across all EPA regions. Households
in all regions are expected to benefit from water quality improvements under this option. EPA Region 4 is
expected to the have the greatest improvements in water quality under this option. The estimated WTP per
household in Region 4 has a 10th percentile value of $1.14 per household and a 90th percentile value of $9.07 per
household, with an average WTP of $4.39. Region 2 has the smallest household WTP, with a mean value of $0.30
per household. Nationwide, household WTP has a mean value of $1.85 and 80 percent confidence interval bounds
ranging from $0.49 to $3.78.
Option 2 is estimated to improve ambient water quality in 17.9 percent of RF1 river miles included in the
analysis. The estimated national average WTP for water quality improvements resulting from the regulation is
$3.10 per household per year. Regions 4 and 6 are estimated to see improvements in water quality in more than 3 0
percent of their total RF1 river miles. EPA's analysis suggests that Region 4 households would be willing to pay
the most ($7.05per household per year) for water quality improvements resulting from the proposed regulation.
November 23, 2009
11-17
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 11: Benefits Analysis
Region 6 has the second largest household WTP of $5.83. Conversely, households located in Region 2 are
estimated to have the lowest WTP for water quality improvements from the regulation, $1.10.
Policy Option 3 yields the most significant results overall in terms of RF1 miles expected to improve under the
post-compliance scenario. The estimated scale of improvements ranges from 3.2 percent to 55.6 percent of total
RF1 river miles in Region 8 and 4, respectively. Nationwide, the 90th percentile value for the estimated per-
household WTP has a 10th percentile value of $0.97 and a 90th percentile value of $7.41, with a mean value of
$3.63.
Option 4 is estimated to generate improvements in 18.2 percent of river miles nationally. These improvements
result in a national average household WTP is $3.17 with 80 percent confidence interval bounds ranging from
$0.86 to $6.45 As with the other options, Region 4 has the largest average household WTP value ($7.23).
Conversely, EPA Region 8 has the lowest value with a mean of $0.91.
11.4.3 Estimating Total WTP for Water Quality Improvements
For each regulatory option, EPA calculated state-level WTP as follows. First, EPA estimated mean state-level
per-household WTP for each combination of the baseline water quality category (WQI baseUne) and the expected
change in WQI (AWQI). The Agency then assigned each affected reach a mean household WTP value based on
reach location, baseline water quality, and change in water quality. The WTP was then multiplied by the number
of households in a given state in 2006 and the percentage of river miles in that state that comprise a given reach.
The number of households per state was calculated by taking U.S. Census Bureau population estimates for 2006
for each state and dividing by the average number of people per household for a given state as reported in U.S.
Census Bureau (2006a, 2006b). The total WTP equation for each reach is provided below (Equation 1):
TWTPreach = WTP(WQIbaselme,&WQI) x StateHHx PercentPdwrMiles) (1)
Where:
TWTPreach = the reach-level welfare change from improved water quality
WTP = the estimated state-level per-household WTP for water quality improvement for a given
combination of the baseline water quality category (WQI baseiine) and the expected change
in water quality under the post-compliance scenario (A WQI)
StateHH = the number of households in a given state
PercentRiverMiles = the percentage of total river miles that are comprised of a given reach
Finally, EPA aggregated reach-level benefits to the regional level. The regional benefits for the 10 EPA regions
were then combined to calculate the national benefit of the regulation. Table 11-18 presents estimated benefits of
the C&D regulation by EPA region and regulatory option.
11-18 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 11: Benefits Analysis
Table 11-18 :Regional Willingness to Pay for Water Quality Improvement (Millions 2008$)
EPA
Region
1
2
3
4
5
6
7
8
9
10
National
Option 1
Lower
10%
Bound
$0.81
$0.45
$1.07
$26.41
$1.78
$15.62
$2.28
$1.76
$2.67
$2.90
$55.75
Mean
$4.93
$3.10
$6.45
$101.44
$9.92
$52.44
$8.86
$3.17
$9.95
$10.01
$210.27
Upper
90%
Bound
$11.10
$6.94
$14.23
$209.34
$21.64
$103.61
$18.12
$4.91
$20.26
$20.09
$430.24
Option 2
Lower
10%
Bound
$2.06
$1.76
$3.27
$43.94
$4.27
$24.72
$3.84
$1.85
$4.04
$4.45
$94.19
Mean
$12.07
$11.50
$19.70
$162.70
$22.97
$76.74
$14.37
$3.66
$15.32
$13.86
$352.90
Upper
90%
Bound
$26.84
$25.67
$43.59
$331.84
$49.85
$148.49
$29.15
$5.97
$31.28
$27.03
$719.72
Option 3
Lower
10%
Bound
$2.84
$2.63
$4.58
$50.10
$5.43
$28.45
$4.49
$2.12
$4.72
$5.03
$110.39
Mean
$16.67
$17.14
$27.61
$181.69
$29.01
$86.74
$16.24
$5.08
$18.09
$15.16
$413.41
Upper
90%
Bound
$37.03
$38.36
$61.08
$368.63
$62.88
$166.91
$32.67
$9.03
$36.97
$29.25
$842.81
Option 4
Lower
10%
Bound
$1.71
$1.71
$3.36
$45.36
$4.37
$27.01
$4.17
$1.84
$4.08
$3.82
$97.44
Mean
$10.32
$11.30
$20.30
$167.04
$23.52
$82.05
$15.27
$3.60
$15.43
$12.21
$361.04
Upper
90%
Bound
$23.09
$25.35
$44.94
$340.13
$51.02
$157.72
$30.81
$5.83
$31.47
$23.97
$734.34
EPA Estimates
From this analysis, EPA estimates that the mean values for total annual benefits of water quality improvements
resulting from reduced sediment discharge from construction sites range from $210.27 million under Option 1 to
$397.17 million under Option 3. The estimated mean regional benefits vary from $3.10 to $173.33 million per
year, depending on the level of construction activity and average rainfall in a given region and stringency of the
policy option.
As shown in Table 11-18, Option 1 generates the least water quality improvements of the four regulatory options.
Thus, this option yields the smallest benefits at the regional and national levels. The national benefits of water
quality improvements under this option have a 10th percentile estimate of $55.75 million, a 90th percentile
estimate of $430.24 million, and a national average of $210.27 million. Region 4 gains the most benefit from
water quality improvement, with atotal value of $101.44 million (48.2 percent of the total national benefits).
Region 6 has the second largest benefits ($52.44 million), which account for 24.9 percent of the total national
benefits.
Under Option 2, the average national benefits are $352.90 million. The 90th percentile value has a 10th percentile
value of $94.19 million and a 90th percentile estimate of $719.72 million. Region 4 gains the most from water
quality improvements resulting from the regulation ($162.70million). EPA Region 8 receives the smallest
benefits, $3.66 million.
Under Option 3, the estimated mean national benefits of water quality improvement from the regulation are
$413.41 million with a 10th percentile estimate of $110.39 and a 90th percentile value of $842.81 million. As with
the other policy options Region 4 receives the largest benefits from water quality improvements, accounting for
46.1 percent ($181.69 million) of the total national benefits. Region 8 is anticipated to gain least under this Option
3, with the total regional benefits estimated at $5.08 million per year.
Option 4 is expected to generate national benefits of $361.04 million with a 10th percentile estimate of $97.44
million and a 90th percentile estimate of $734.34 million. EPA Region 4 gains the largest benefits, with a total of
$167.04 million. Region 8 has the smallest improvements in water quality under this option, with improvements
in only 1.33 percent of river miles, and thus has the smallest benefits with only $3.60 million.
11.5 Estimating Total Monetized Benefits
EPA estimated the total benefits under each post-compliance regulatory scenario by summing the benefits
estimated for each of the first four sections of this chapter. Table 11-19 presents low, midpoint, and high estimates
of benefits under each policy option, consisting of benefits to navigation, water storage, drinking water treatment,
November 23, 2009
11-19
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 11: Benefits Analysis
and WTP. It should be noted that these tables incorporate 10th, 50th, and 90th percentiles from the WTP analysis
into the low, mid, and high sensitivity analyses performed for the avoided cost estimates. Though these are
conceptually different, they are both intended to present a range of values to account for some of the uncertainty
inherent in these estimates. The sensitivity analyses create a range by varying EPA's assumptions underlying the
analysis, while the confidence interval presents high and low bounds from the meta-analysis regression.
All tables present benefits for navigable waterway and reservoir dredging calculated using both 3 and 7 percent
discount rates. Because the discount rate only applies to two of the four monetized benefits categories (drinking
water avoided costs and willingness-to-pay are estimated on a single-year basis), which represent at most 5
percent of total benefits, varying it has little effect on the total benefits estimate. The remaining discussion
presents the benefits estimates assuming a 3 percent discount rate; the associated tables present results for both
discount rates. EPA calculated benefits for drinking water treatment and WTP using a single-year timeframe,
which did not require discounting or annualizing. All benefits presented reflect annual values.
Total national benefits vary significantly among the three regulatory options. Under Option 1, the estimated
benefits range from approximately $59.0 million to approximately $434.3 million, with a midpoint estimate of
$214.1 million. Estimated avoided costs range from $3.3 million to $4.1 million, with a midpoint of $3.8 million,
and WTP varies between $55.8 and $430.2 million at the 10 and 90 percent confidence intervals, with a mean
estimate of $210.3 million.
For Option 2, the estimated benefits range from $100.5 million to $727.4 million, with a midpoint estimate of
$360.1 million. The estimated WTP for water quality improvements from reduced sediment discharges from
construction sites under Option 2 ranges from $94.2 to $719.7 million, with a mean value of $352.9 million.
Estimated avoided costs range from $6.3 million to $7.7 million per year, with a midpoint estimate of $7.2
million.
Under Option 3, total benefits are estimated to be between $118.0 and $852.2 million, with a midpoint estimate of
$422.3 million. The avoided costs are estimated to be between $7.7 and $9.4 million per year, with a midpoint
estimate of $8.9 million. WTP under Option 3 ranges between $110.4 million and $842.8 million at the 10 and 90
percent confidence intervals, with a mean value of $413.4 million.
Under Option 4, the estimated benefits range from $104.3 million to $742.7 million, with a midpoint estimate of
$368.9 million. Nonmarket benefits estimated based on household WTP for surface water quality improvements
account for 93, 98, and 99 percent of total benefits from the regulation in the low, mid, and high estimates,
respectively. The estimated WTP for water quality improvements from reduced sediment discharges from
construction sites under Option 4 ranges from $97.4 to $734.3 million, with a mean value of $361.0 million. The
estimated avoided costs to industry and government through reduced costs of navigable waterway maintenance,
reservoir dredging, and drinking water treatment range from $6.8 million to $8.3 million per year, with a midpoint
estimate of $7.9 million. Under Option 4, avoided cost benefits account for 7, 2, and 1 percent of total benefits in
the low, mid, and high estimates, respectively. Because this option requires passive treatment at sites with more
than 10 acres of land disturbed and establishes a numeric effluent limit, its benefits are more than double those of
Option 1, which does not establish numeric criteria for sediment discharge. It also produces more benefits than
Option 2, which requires active treatment of sediment but on fewer sites. Benefits under Option 4 are nearly as
high as those under Option 3, which would require active sediment treatment on the same sites where Option 4
requires passive treatment, the latter being burdensome.
11-20 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 11: Benefits Analysis
Table 11-19 Total National Benefits by Benefit Category (million 2008$)
Benefit Category
3% Discount Rate
Low Mid High
7% Discount Rate
Low Mid
High
Option 1
Navigation
Water Storage"
Drinking Watera
Avoided Costs
WTP"
Total"
$1.0
$1.3
$1.3 $1.4
$1.0
$1.2
$3.3 $3.8
$55.8
$59.0
$210.3
$214.1
$1.3
$1.5
$1.3
$4.1
$430.2
$434.3
$1.0
$1.1
$1.0
$3.1
$55.8
$58.8
$1.2
$1.3
$1.2 $1.4
$1.2
$1.3
$3.7 $4.0
$210.3
$213.9
$430.2
$434.2
Option 2
Navigation
Water Storage"
Drinking Watera
Avoided Costs
WTPa
Total"
$2.1
$2.6
$2.7 $2.9
$1.4
$6.3
$94.2
$100.5
$1.8
$7.2
$352.9
$360.1
$2.8
$3.0
$1.9
$7.7
$719.7
$727.4
$2.1
$2.2
$1.4
$5.8
$94.2
$99.9
$2.5
$2.7
$2.6 $3.0
$1.8
$6.9
$352.9
$359.8
$1.9
$7.5
$719.7
$727.2
Option 3
Navigation
Water Storage"
Drinking Water3
Avoided Costs
WTP"
Total"
$2.7
$3.3
$3.3 $3.6
$1.7
$7.7
$2.1
$8.9
$110.4 $413.4
$118.0
$422.3
$3.4
$3.8
$2.1
$9.4
$842.8
$852.2
$2.6
$2.8
$1.7
$7.0
$110.4
$117.4
$3.2
$3.4
$3.2 $3.7
$2.1
$8.4
$2.1
$9.2
$413.4 $842.8
$421.8
$852.0
Option 4
Navigation
Water Storage"
Drinking Water"
Avoided Costs
WTP"
Total"
$2.4
$2.9
$3.0 $3.2
$1.5
$1.8
$6.8 $7.9
$97.4
$104.3
$361.0
$368.9
$3.0
$3.4
$1.9
$8.3
$734.3
$742.7
$2.3
$2.5
$1.5
$6.3
$97.4
$103.7
$2.8
$3.0
$2.9 $3.3
$1.8
$1.9
$7.5 $8.2
$361.0
$368.5
$734.3
$742.5
a These savings were calculated for a one-year timeframe and that did not require discounting, and are equal under both discount rates
b Totals may not equal sum of categories due to rounding
EPA Estimates
Table 11-20, Table 11-21, Table 11-22, and Table 11-23 detail total monetized benefits (including benefits to
navigation, water storage, drinking water, and water quality) by region. Region 4 benefits the most from this
regulation under all policy options, as it experiences the most widespread changes in terms of improved river
miles and the most significant reductions in sediment concentrations in these river miles. This leads to higher
WTP estimates in Region 4, which account for the largest proportion of benefits. Region 6 benefits second most,
though monetized benefits in this region are about half of those in Region 4. Regions 4 and 6 together account for
more than half of the benefits for all of the options. For Region 4, midpoint benefits estimates are $102.4, $164.7,
$184.2, and $169.2 million, respectively under the four policy options. For Region 6, midpoint benefits estimates
for the four options are $54.1, $80.1, $90.9, and $86.0 million, respectively.
Reductions in sediment pollution originating from construction site stormwater discharges are anticipated to
reduce TSS and turbidity levels in waterbodies across the country, reducing costs of dredging navigable
waterways and reservoirs and of drinking water treatment, as well as leading to improvements in water quality
that benefit the general public. The value of these improvements derives directly from the magnitude of the
sediment and turbidity reduction in waterbodies receiving construction site stormwater effluent.
November 23, 2009
11-21
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 11: Benefits Analysis
Table 11-20 Total National Benefits Under Option 1 by EPA Region (million 2008$)
EPA
Region
1
2
3
4
5
6
7
8
9
10
Total3
3% Discount Rate
Low
$0.8
$0.5
$1.1
$27.3
$2.3
$17.1
$2.3
$1.8
$2.7
$3.0
$59.0
Mid
$5.0
$3.2
$6.5
$102.4
$10.6
$54.1
$8.9
$3.2
$10.0
$10.2
$214.1
High
$11.1
$7.1
$14.3
$210.4
$22.3
$105.3
$18.2
$4.9
$20.3
$20.3
$434.3
7% Discount Rate
Low
$0.8
$0.5
$1.1
$27.2
$2.3
$16.9
$2.3
$1.8
$2.7
$3.0
$58.8
Mid
$5.0
$3.2
$6.5
$102.4
$10.6
$54.0
$8.9
$3.2
$10.0
$10.2
$213.9
High
$11.1
$7.1
$14.3
$210.3
$22.3
$105.3
$18.2
$4.9
$20.3
$20.3
$434.2
a Totals not equal to sum of regional data because the WTP model estimates the national values independently rather than summing regional values
EPA Estimates
Table 11-21: Total National Benefits Under Option 2 by EPA Region (million 2008$)
EPA
Region
1
2
3
4
5
6
7
8
9
10
Total3
3% Discount Rate
Low
$2.1
$1.8
$3.4
$45.7
$4.9
$27.7
$4.0
$1.9
$4.2
$4.8
$100.5
Mid
$12.1
$11.6
$19.8
$164.7
$23.7
$80.1
$14.5
$3.7
$15.5
$14.4
$360.1
High
$26.9
$25.8
$43.7
$333.9
$50.6
$152.0
$29.3
$6.0
$31.5
$27.6
$727.4
7% Discount Rate
Low
$2.1
$1.8
$3.4
$45.5
$4.9
$27.4
$4.0
$1.9
$4.2
$4.8
$99.9
Mid
$12.1
$11.6
$19.8
$164.6
$23.7
$79.9
$14.5
$3.7
$15.5
$14.4
$359.8
High
$26.9
$25.8
$43.7
$333.9
$50.6
$152.0
$29.3
$6.0
$31.5
$27.6
$727.2
" Totals not equal to sum of regional data because the WTP model estimates the national values independently rather than summing regional values
EPA Estimates
Table 11-22: Total National Benefits Under Option 3 by EPA Region (million 2008$)
EPA
Region
1
2
3
4
5
6
7
8
9
10
Total3
3% Discount Rate
Low
$2.9
$2.7
$4.7
$52.3
$6.1
$32.2
$4.7
$2.1
$4.9
$5.5
$118.0
Mid
$16.7
$17.3
$27.8
$184.2
$29.8
$90.9
$16.4
$5.1
$18.3
$15.8
$422.3
High
$37.1
$38.5
$61.2
$371.2
$63.7
$171.3
$32.9
$9.1
$37.2
$30.0
$852.2
7% Discount Rate
Low
$2.9
$2.7
$4.7
$52.1
$6.0
$31.9
$4.6
$2.1
$4.9
$5.5
$117.4
Mid
$16.7
$17.3
$27.7
$184.0
$29.7
$90.7
$16.4
$5.1
$18.3
$15.8
$421.8
High
$37.1
$38.5
$61.2
$371.2
$63.7
$171.2
$32.9
$9.1
$37.2
$30.0
$852.0
" Totals not equal to sum of regional data because the WTP model estimates the national values independently rather than summing regional values
EPA Estimates
11-22
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 11: Benefits Analysis
Table 11-23: Total National Benefits Under Option 4 by EPA Region (million 2008$)
EPA
Region
1
2
3
4
5
6
7
8
9
10
Total3
3% Discount Rate
Low
$1.7
$1.8
$3.5
$47.3
$5.0
$30.5
$4.3
$1.9
$4.2
$4.1
$104.3
Mid
$10.4
$11.4
$20.4
$169.2
$24.2
$86.0
$15.4
$3.6
$15.6
$12.6
$368.9
High
$23.1
$25.5
$45.1
$342.4
$51.8
$161.8
$31.0
$5.8
$31.6
$24.4
$742.7
7% Discount Rate
Low
$1.7
$1.8
$3.5
$47.1
$5.0
$30.2
$4.3
$1.9
$4.2
$4.1
$103.7
Mid
$10.4
$11.4
$20.4
$169.1
$24.2
$85.8
$15.4
$3.6
$15.6
$12.6
$368.5
High
$23.1
$25.5
$45.1
$342.4
$51.8
$161.8
$31.0
$5.8
$31.6
$24.4
$742.5
a Totals not equal to sum of regional data because the WTP model estimates the national values independently rather than summing regional values
EPA Estimates
11.6 Sources of Uncertainty and Limitations
Total national benefit estimates of the C&D regulation are subject to the limitations and uncertainties inherent in
the valuation approaches used for assessing benefits to navigation, water storage, drinking water treatment, and
non-market benefits of water quality improvement. Because the combined effect of these limitations and
uncertainties is likely to underestimate national level of benefits of this regulation, the estimated benefits should
be interpreted in the context of these limitations. Additional uncertainties and limitations specific to each category
of monetized benefits are subsequently discussed.
11.6.1 Water Quality Model Limitations
To estimate benefits of reduced sediment loadings to surface water, EPA relied on SPARROW (SPAtially
Referenced Regressions On Watershed attributes). The SPARROW model for suspended sediments has a number
of limitations, some of which are inherent to the methodology and some the result of the particular model
application. The key model limitations are:
> Reliance on the Reach File 1 network. While the RF1 network provides reasonably comprehensive
national coverage of major rivers, streams and other surface water bodies, coverage is limited in certain
important respects. RF1 network coverage is limited to the conterminous United States, thus excluding
Alaska and Hawaii. In addition, while RF1 l:500,000-scale network reaches have associated data or
estimates of stream discharge and velocity that are required to specify the SPARROW model, the network
excludes the majority of the nation's total stream mileage, and smaller streams in particular. The linear
coverage of the RF1 network is approximately 700,000 miles
(www.epa.gov/waterscience/basins/metadata/rfl.htm). By contrast, coverage of the USGS National
Hydrographic Dataset, at 1:24,000 - 1:100,000 scale, is currently over 7 million miles (USGS 2007).
Given that RF1 accounts only for 10% of the total river miles, the impacts of construction-related
sediment on smaller stream reaches are likely to be significantly understated. As construction activities
may be concentrated along lower-order streams not included in the RF1 network, the relative share of
total sediments contributed by construction activities may be high on these reaches during active
construction phases. By contrast, the specific impacts of construction activities may diminish in
importance relative to contributions from spatially extensive and diffuse land uses, including agriculture,
at the level of RF1 reaches.
November 23, 2009
11-23
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 11: Benefits Analysis
> Estimation of changes in nutrient concentrations associated with changes in sediment loading. The
approach used to estimate changes in nutrient concentration resulting from reduction in sediment loadings
is based on modeled long-term relationships between sediment and nutrient loadings within each of the
modeled watersheds. This assumption follows observations from case studies discussed in Chapter 3 of
the Environmental Assessment Document, which suggest a correlation between sediment loadings from
construction sites and elevated nitrogen and phosphorus loadings. By using a fixed relationship, the
approach assumes that nutrients are bound to the sediments and that methods used to reduce sediment
runoff from construction sites are equally effective in reducing nitrogen and phosphorus runoff from these
sites. There is currently insufficient information to assess the extent to which actual reductions may differ
from this assumption. While phosphorus is often attached to the sediment and therefore may be more
readily addressed by control measures that retain sediments on site, nitrogen is typically found in soluble
forms, and sediment control measures may be less effective in reducing nitrogen loading.
> Omission of all ponds and lakes and reservoirs located off the RF1 network from water quality
analysis. All lakes, ponds, and reservoirs located off RF1 network are not included in the SPARROW
model and thus are excluded from estimation of monetized benefits. The 2002 National Water Quality
Inventory: Report to Congress (U.S. EPA 2007) reports 40.6 million acres of lakes and reservoirs in the
conterminous U.S. The RF1 network includes approximately 3.9 million acres or 9.5 % of the total lakes
and reservoir acres in the U.S.65 (U.S. EPA 2007). Omission of these water body types from the analysis
of monetized benefits is likely to lead to understatement of benefits in three benefit categories: (1)
nonmarket benefits of water quality improvements resulting from the C&D regulation, (2) reservoir
dredging, and (3) drinking water treatment.
> Restriction of the water quality analysis to the description of long-term mean water quality
conditions. Construction activities are, by definition, transient in nature, extending over weeks or months.
Construction activities (unlike agricultural activities) are spatially compact, so they are sub-grid
phenomena with respect to the specification of the national scale of the sparrow model. The restriction to
mean water quality conditions precludes an analysis accounting for the frequency with which conditions
of extreme sediment transport conditions occur (e.g., after a heavy storm event during the active
construction period). Although the predicted changes in average water quality conditions may be small,
the expected changes in sediment concentrations under extreme sediment transport conditions may be
significant. The analysis also predicts average water quality conditions in a reach that are representative
of the center line of that reach. TSS concentrations near shore are likely to be higher and the expected
changes in ambient water quality conditions near shore are likely to be greater.
11.6.2 Focus on Selected Pollutants of Concern (Sediment and Nutrients)
> Existing case studies of environmental impacts associated with construction activities demonstrated that a
number of pollutants are found in construction site discharges, including turbidity, BOD, metals, toxic
organics, trash and debris, and other pollutants. However, EPA's analysis of benefits from reduced
construction site discharges focuses only on water quality improvements resulting directly from
reductions in total suspended solid, turbidity, and nutrient loadings. It does not include improvements
resulting from reductions in other pollutant loadings, nor does it include improvements in water quality
indicators indirectly associated with pollutant loadings. This is likely to result in underestimation of the
expected water quality changes resulting from the proposed regulation because the combined impact of
several pollutants on ambient water quality conditions is likely to be greater than the sum of the
individual impacts of reducing concentrations of sediments and nutrients.
' The estimated total lake and reservoir acres do not include the Great Lakes.
11 -24 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 11: Benefits Analysis
11.6.3 Benefits to Navigation
> The USAGE dredging database identifies dredging jobs by name, which is usually the name of the water
body dredged. However, the data lack standardized naming conventions, so it is possible that the same
water body is dredged under different names. This may result in the exclusion of dredging job names that
only appear once in the database, but in fact were carried out in the same water bodies as a differently
named job, which would result in a downward bias in EPA's dredging frequency calculations and the
project costs.
> The navigable waterway data provide latitude/longitude information for some dredging jobs, which are
used to link dredging jobs to RF1 reaches, but these data are incomplete. In cases where latitude/longitude
information was not available for a particular job, EPA matched it to an RF1 reach using the job name.
This is a potential source of inaccuracy, as the job name is often the waterway name, and may not be very
specific (in cases such as the Mississippi or Colorado rivers). It is unclear whether this would lead to an
over- or underestimate of benefits.
11.6.4 Benefits to Water Storage
> There is uncertainty as to the uniformity of sediment density, as it is related to the type of soil in the area.
Using a single density to convert volume to weight for all sediment may reduce the accuracy of the
resulting cost estimates. However, the direction of this potential bias is uncertain.
> The lack of data on reservoir dredging results in uncertainty as to the types of reservoirs that are dredged
and the cost of this dredging.
> Though sediment pools are built to accumulate sediment and preserve the useful capacity of the reservoir,
they may also fill up more rapidly than anticipated at their initial construction, increasing the sediment
buildup in a reservoir and increasing the cost of dredging it. It is also possible that these sediment pools
themselves may be dredged. This analysis assumes that to maintain the current water storage capacity in
the United States, all influent sediment will have to be removed in some manner, or replaced. Building
replacement capacity is environmentally disruptive and may be more costly than sediment removal by
dredging, therefore this analysis assumes that dredging will be used to maintain reservoir capacity.
11.6.5 Benefits to Drinking Water Treatment
> Sediment filtration systems and pre-sedimentation (allowing water to sit and sediment to filter out before
treatment) at drinking water treatment facilities reduce the sediment concentration of the water before it
enters chemical treatment, so that the turbidity level of the water entering the facility is not the turbidity
level that is eventually treated with coagulants. Assuming that the differential between pre- and post-
compliance sediment concentration is proportional to the differential between pre- and post-compliance
turbidity treatment introduces uncertainty, as the lower sediment levels may be more or less affected by
the pre-sedimentation and filtration processes. EPA's analysis attempts to account for this uncertainty by
varying the effectiveness of pre-sedimentation basins, and thus amount of TSS and turbidity treated by a
drinking water treatment facility.
> If a drinking water treatment facility produces sludge that is toxic (due to other pollutants in the water
besides sediment), its disposal costs may be significantly higher because toxic sludge disposal is more
restricted and costly. If the facility cannot separate the sludge generated by sediment treatment from the
sludge generated by treatment of toxics (which is likely the case), then all of its sludge will be
characterized as toxic. This analysis will understate the cost of disposal (and thus understate the avoided
costs of smaller quantities of sludge to be disposed of) for facilities that generate toxic sludge.
November 23, 2009 11-25
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 11: Benefits Analysis
11.6.6 Omission of Several Benefit Categories from the Analysis of Monetized Benefits
Due to data limitations, EPA did not estimate benefits in several benefit categories. Although the magnitude of
benefits in the omitted categories is uncertain, they may be substantial. Chapter 4 of the Environmental
Assessment provides a qualitative discussion of the omitted benefit categories. A brief summary of the omitted
benefit categories is provided below:
> Market values of properties located near water bodies. Reducing sediment discharges from
construction sites is likely to increase market values of properties located in the vicinity of construction
sites by enhancing the aesthetic quality of the affected land and water resources (e.g., reducing erosion of
river banks and improving water clarity).66 This value would accrue to the owners of the benefiting
properties, but like the avoided costs such as reduced dredging expense, is nevertheless an economic
benefit to society.
> Flood damages. Reducing sediment discharges from construction sites is expected to reduce flooding
damages by decreasing sedimentation of river beds and improving river capacity. Clark et al. (1985)
estimated flooding damages attributable to sediment discharges to be $1.5 billion (2008$), annually.
Therefore, even a small reduction in the frequency and severity of flooding is likely to generate
significant benefits.
> Ditch maintenance. The proposed regulation is expected to reduce the costs of ditch maintenance by
reducing the amount of sediment deposited in ditches.
> Industrial water use. The proposed regulation is expected to benefit industrial water users, as high levels
of sediment increase wear on equipment. Reducing sediment concentrations in source waters will thus
increasing the useful life of industrial equipment using these waters.
> Agricultural water use. The proposed regulation is expected to benefit agricultural producers. High
sediment concentrations in surface water used for agricultural irrigation can harm crops by reducing
absorption, inhibiting soil aeration, and creating dried layers of silt that may prevent seedlings from
emerging. By reducing sediment discharges and, as a result, sediment deposition on farm land; this rule
would lead to improvements in land productivity and enhanced marketability of agricultural products.
> Commercial fishing: Sediment runoff from construction sites has been documented to reduce standing
fish crops and shellfish populations in receiving waterbodies, which may reduce the size of commercial
harvest with negative market implications for both firms and consumers. Reducing sediment discharges
can therefore allow for increased commercial harvests offish and shellfish.
11.6.7 Willingness to Pay Estimate
A number of issues are common to all benefit transfers. Benefit transfer involves adapting research conducted for
another purpose in the available literature to address the policy questions at hand. Because benefits analysis of
environmental regulations rarely affords enough time to develop original stated preference surveys that are
specific to valuing the policy effects, benefit transfer is often the only option to inform a policy decision. As a
result, they are nearly universal in benefit-cost analyses (Smith et al. 2002).
> Benefit transfers are by definition characterized by a difference between the context in which resource
values are estimated and that in which benefit estimates are desired (Rosenberger and Phipps 2007). The
ability of meta-analysis to adjust for the influence of study, economic, and resource characteristics on
66 The nonmarket component (i.e., increased satisfaction with the property) is implicitly accounted for in WTP for improvements in
environmental services provided by surface waters affected by construction site discharges.
11-26 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 11: Benefits Analysis
WTP can minimize, but not eliminate, potential biases (Rosenberger and Stanley 2006; Rosenberger and
Phipps 2007; Smith et al. 2002). As is typical in applied benefit transfers, the meta-analysis model used in
this analysis provides a close, but not perfect, match to the context in which values are desired. Some
related and additional limitations inherent to the meta-analysis model and the subsequent benefit transfer
include:
> It is difficult to identify accurately the beneficiary (human) population and characterize how household
values attenuate with distance from the resource. The population considered in the benefits analysis of the
C&D regulation does not represent all the households that are likely to hold values for water resources in
a given state. Residents of other states may hold values for water resources outside of their home state, in
particular if such resources have personal, regional or national significance.
> The Agency notes, as detailed by Loomis (1996; Loomis et al. 2000) and Bateman et al. (2006), among
others, that there are numerous uncertainties and associated assumptions required to aggregate WTP
across spatial jurisdictions. While these uncertainties are well known, the literature does not agree on
appropriate, standardized guidance for benefit aggregations, and applied benefit-cost analysis almost
universally requires simplifying assumptions in order to generate defensible welfare aggregations. In an
ideal context, analysts would have information necessary to estimate spatially referenced distance decay
relationships for all changes resulting from policies under consideration (cf. Bateman et al. 2006).
However, the Agency notes that even the most advanced literature provides only simple illustrations of
such issues, and none methodologically sufficient to support regulatory analysis. As a result, the
population considered in the benefits analysis of the C&D regulation does not represent all the households
that are likely to hold values for water resources in a given state. Residents of other states may hold
values for water resources outside of their home state, in particular if such resources have personal,
regional, or national significance.
^ Some resource valuation studies have found that respondents in the typical contingent market situation
may overstate their WTP compared to their likely behavior in a real-world situation. However, the
magnitude of hypothetical bias on the estimated WTP is uncertain. Following standard benefit transfer
approaches, including meta-analytic transfers, this analysis proceeds under the assumption that each
source study provides a valid, unbiased estimate of the welfare measure under consideration (cf. Moeltner
et al. 2007; Rosenberger and Phipps 2007). To minimize potential hypothetical bias EPA set independent
variable values to reflect best benefit transfer practices.
> The estimation of WTP may be sensitive to differences in the environmental water quality measures.
Studies that did not use the WQI were mapped to the WQI so a comparison could be made across studies.
The dummy variable (WQI) captures the effect of a study using (WQI=\) or not using the WQI (WQI=G).
It was found that studies that did not use the WQI had lower WTP values. This may indicate that there
may have been some systematic biases in the mapping of studies that did not use the WQI. In analyzing,
benefits of this regulation, EPA set WQI to one reduce uncertainty in WTP estimates associated with
studies that did not include WQI as a native survey instrument.
> Transfer error may occur when benefit estimates from a study site are adopted to forecast the benefits of a
policy site. Rosenberger and Stanley (2006) define transfer error as the difference between the transferred
and actual, generally unknown, value. While meta-analysis is fairly accurate for estimating a benefit
function, transfer error may be a problem in cases where the sample size is small. While meta-analyses
have been shown to outperform other function-based transfer methods in many cases, this result is not
universal (Shrestha et al. 2007). This notwithstanding, results reviewed by Rosenberger and Phipps
(2007) are "very promising" for the performance of meta-analytic benefit transfers relative to alternative
transfer methods.
November 23, 2009 11-27
-------
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 12: Social Cost & Benefits
12 Social Costs and Benefits of the Proposed Rule
This chapter brings together the total social costs, discussed in Chapter 9, and monetized total benefits, discussed
in Chapter 11, to directly compare the estimated costs and benefits of the regulatory options.
12.1 Summary of Social Cost
Total social costs include:
> The quantity-adjusted resource cost of compliance to the private sector and to governments;
> The additional social welfare loss of the rule due to construction market effects; and,
> Government administrative costs for reviewing and processing discharge monitoring reports (DMR) and
other start-up costs.
The resource cost to society of each regulatory option refers to the required cost of compliance having adjusted
for the expected C&D market contraction due to the regulation. The regulation may have the effect of reducing
C&D market output because the incremental cost of compliance for each option has the effect of increasing
builders' costs, causing an upward shift in the market's supply curve. Part of the increased costs may raise the
price of new housing, with the balance of increased costs being absorbed by the builder, depending on the relative
elasticities of supply and demand. The resulting shift in market equilibrium may reduce the quantity of
construction units produced. This quantity-adjusted measure of the resource cost of compliance is the primary
contributor to total social cost for all four regulatory options.
The C&D market adjustments that arise from incurring the resource cost of compliance have a number of
implications for the welfare of society. When the supply curve shifts as a result of incremental compliance costs,
consumers lose some of their benefits from the product. The result is called a change in consumer surplus, and
part of that loss eventually makes its way to the entities whose services are purchased to implement the
requirements of the rule, and part of that loss becomes the consumer contribution to the additional welfare loss of
the rule. There is also an analogous change in producer surplus. Some producer surplus is similarly transferred to
other producers whose services are purchased to implement the regulation due the partial absorption of
compliance costs, and another portion of producer surplus contributes to the additional welfare loss of the rule.
The last component of total social cost includes the administrative costs associated with state governments'
administration of federal rule requirements to regulated entities within their jurisdictions. EPA assumed for the
current analysis that the NPDES Phase I and Phase II stormwater permit programs are fully implemented and that
any new regulatory requirements would be superimposed on these programs. However, EPA does expect an
additional administrative burden to state government entities under the final rule. State governments will incur
costs for processing and analyzing discharge monitoring reports (DMR's) for projects that incur cost under the
rule as well as for other start-up activities discussed in Chapter 14.
As shown in Table 12-1, these three elements of cost sum to the total social cost of each regulatory option.
12.2 Summary of Partially Monetized Benefits
The reduction of sediment and other pollutants entering surface waters from construction sites as a result of the
C&D regulation will have a wide range of market and nonmarket benefits, as described in Chapter 11. As noted
previously in Chapter 11 and emphasized here, EPA's estimate of total monetized benefits does not represent the
November 23, 2009
12-1
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 12: Social Cost & Benefits
full-range and magnitude of benefits expected from this rule because certain categories of benefits are not
monetized.
EPA's partial monetization of benefits includes the following categories:
> Benefits to navigation;
> Benefits to water storage;
> Benefits to drinking water treatment; and,
> Benefits to water quality.
Benefits to navigation include reduced sediment settling in navigable channels, which in turn reduces the cost of
dredging in these channels. Benefits to water storage include reduced sediment settling in reservoirs, which in
turn reduces the cost of dredging in reservoirs that are currently dredged to recapture lost capacity. Benefits to
drinking water treatment include reduced sediment, a reduction in the amount of chemicals needed for treatment,
and a reduction in the amount of sludge generated from this treatment that must be disposed. Furthermore,
reducing sediment levels in U.S. waterways has the general effect of improving water quality, as suspended
sediment and turbidity are two of the determinants of water quality. Nutrients such as Nitrogen and Phosphorus
that are bound to sediment will also be reduced along with sediment levels, and these nutrients are also
determinants of water quality. Increased water quality has both explicit and implicit value to users of water
bodies, which was quantified using willingness-to-pay estimates from a meta-analysis of existing WTP studies for
water quality. The WTP estimate provides an estimate of the monetary value of use and nonuse benefits of water
quality improvements, including swimming, fishing, boating, and other outings. And while property value
increases stemming from water quality improvements and reduced flood risk due to decreased sediment were not
monetized, general satisfaction with property and living conditions are implicit in the WTP estimate. However, all
estimates of monetized benefits are subject to a degree of uncertainty resulting from limitations in the data EPA
obtained on current dredging activity and drinking water treatment, as well as uncertainty inherent in WTP
valuation. These uncertainties are described in detail in Chapter 11, Section 11.6. The estimates of monetized
benefits presented in Table 12-1, below, are mid-point estimates from the ranges presented previously in Table
2-12.
EPA did not include benefits to commercial fishing and shell fishing or benefits to industrial and agricultural
water use in its monetized benefits estimate due to insufficient data available, although these benefits may be
substantial. The following categories of benefits were not able to be monetized (see Chapter 11, Section 6.6, or
Chapter 4 of the Environemental Assessment Document for more detail):
> Increased real estate values of properties located near waterbodies
> Reduced flood risk and damages
> Ditch maintenance
> Industrial water use
> Agricultural water use
> Benefits to commercial fishing
12.3 Comparison of Social Cost and Monetized Benefits
The elements of social cost and monetized benefits and the net monetized benefits are presented in Table 12-1.
Anticipated social costs are greater than the monetized benefits for all options, except option 1. It is important to
emphasize once again that Chapter 11 discusses several other classes of benefits that could not be monetized but
12-2 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 12: Social Cost & Benefits
are likely to provide real social benefits, and therefore, the estimate of monetized benefits is not as complete an
estimate as that of total social cost.
Table 12-1: Comparison of Social Costs and the Monetized Portion of Benefits ($millions)
Option 1
Option 2
Option 3
Option 4
Social Costs
Resource Cost of Compliance
Government Administrative Cost
Additional Social Welfare Loss
Total Social Cost of the Regulation
$176
$0.0
$0.0
$176
$4,856
$2.2
$5.0
$4,863
$9,059
$6.2
$15.5
$9,081
$952
$6.2
$0.15
$959
Monetized Benefits3
Benefits to Navigation
Benefits to Water Storage
Benefits to Drinking Water Treatment
Avoided Cost Subtotal
Water Quality Benefits
Total Monetized Benefitsb
Net Benefit (Benefits minus Cost)
$1.3
$1.4
$1.2
$3.8
$210.3
$214.1
$38
$2.6
$2.9
$1.8
$7.2
$352.9
$360.1
-$4,503
$3.3
$3.6
$2.1
$8.9
$413.4
$422.3
-$8,659
$2.9
$3.2
$1.8
$7.9
$361.0
$368.9
-$590
Based on a 3% social discount rate, (see Chapter 11).
Totals may not sum due to rounding
Source: EPA Estimates
November 23, 2009
12-3
-------
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 13: RFA
13 Assessing the Impact of the C&D Regulatory Options on Small Entities -
Regulatory Flexibility Act (RFA) Analysis
The Regulatory Flexibility Act (RFA, 5 U.S.C. et seq., Public Law 96-354), amended by the 1996 Small Business
Regulatory Enforcement Fairness Act (SBREFA), requires EPA to consider the economic impact that a new rule
will have on small entities. The purpose of the RFA and SBREFA laws is to ensure that, in developing rules,
agencies identify and consider ways to avoid undue impacts on small entities that will be affected by the
regulation, whether as small entities that will be subject to regulatory requirements or as small governments that
will be responsible for complying with or administering the regulation. Impacts on small governments are
presented in the UMRA analysis, Chapter 14 in this document. While the RFA does not require an agency to
minimize a rule's impact on small entities if there are legal, policy, factual, or other reasons for not doing so, it
does require that agencies:
> Determine, to the extent feasible, the economic impact on small entities subject to the rule;
> Explore regulatory options for reducing any significant economic impact on a substantial number of such
entities; and,
> Explain the ultimate choice of regulatory approach.
For any notice-and-comment rule it promulgates, EPA must either certify that the rule "will not, if promulgated,
have a significant economic impact on a substantial number of small entities" ("SISNOSE") or prepare a
Regulatory Flexibility Analysis if the Agency cannot make this certification. Small entities include small
businesses and small organizations as defined by SB A, and governmental jurisdictions with populations of less
than 50,000.
To evaluate the potential impact of the regulation on small entities, EPA conducted an RFA/SBREFA Screening
Analysis, which includes:
> Determining the number of C&D firms subject to the rule within each NAICS industry and associated
revenue range; and
> Estimating the potential economic impacts on small entities based on a cost-to-revenue analysis.
13.1 Definition of Affected Small Entities
The RFA defines a "small entity" as a small business (which is defined at the parent or firm level, not the
establishment level), small not-for-profit organization, or small governmental jurisdiction. EPA expects that the
principal impact of the C&D options on small entities will fall on small businesses that undertake C&D activities
and small governmental units involved in complying with or permitting C&D activities.
The RFA provides that EPA generally define small businesses according to the size standards established by
SBA. SBA establishes criteria for identifying small businesses based on either the number of employees or annual
revenues (13 CFR 121). These size standards vary by NAICS (North American Industrial Classification
System)code. Qualifying revenue levels differ among NAICS industries, and within the C&D industry under
analysis are as follows:
> NAICS 236 (Construction of Buildings): $33.5 million
> NAICS 237 (Heavy and Civil Engineering Construction), except 2372: $33.5 million
> NAICS 2372 (Land Subdivision of NAICS 237): $7.0 million
November 23, 2009
13-1
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 13: RFA
13.2 Determining the Number of In-Scope Small C&D Firms
The SBA's Statistics of U.S. Businesses (SUSB) 2002 data provide the primary basis for estimating the number of
small businesses potentially subject to the rule. As described in the industry profile (Chapter 3), a number of
adjustments and exclusions were performed to determine the baseline universe of firms, revenue, employees, and
average firm revenue for the C&D sectors that EPA estimates will be affected by the regulation. The baseline
reflects only those sectors that can perform activities that result in land disturbance that are NPDES permitees and
those with sufficient data for analysis. Based on the estimates of the number of firms by revenue size range within
each of the relevant NAICS sectors, EPA used the small business revenue-size standards to estimate the number
of small firms that could be within the scope of the C&D rule. The reported estimates of small business firms by
NAICS sector are "best reasonable approximations" accounting for two considerations:
1. As described in Chapter 4, to support the the firm- and industry-level analysis, EPA allocated the Land
Subdivision sector (NAICS 23721) among the four primary building construction sectors: NAICS 236115 -
New single-family housing construction (except operative builders); NAICS 236116 - New multifamily
housing construction (except operative builders); NAICS 236210 - Industrial building construction; and
NAICS 236220 - Commercial and institutional building construction. As a result, this sector, which has a
lower small business size criterion of $7.0 million, is blended in with sectors with a higher small business size
criterion of $33.5 million. For the estimation of number of small entities potentially affected by the regulation
and the assessment of potential impacts on those entities, EPA used the $33.5 million cut-off for separating
small businesses and large businesses. As a result, EPA's implicit estimate of the number of small businesses
in the Land Subdivision will likely overstate the actual number of small businesses in this sector, by including
firms with revenue greater than $7.0 million in the small business count.
2. The small business size criterion used in this analysis ($33.5 million) lies within the SUSB/Economic Census
revenue range of $10 to $50 million. As a result, it is not possible to estimate precisely from the SUSB firm
data the number of those firms that are small businesses, according to the SBA business size criterion.
Including all of the relevant revenue size range in the small firm count will overstate the number of small
firms while including none of the relevant revenue size range in the small firm count will understate the small
firm count. If firms were distributed uniformly by revenue size within this revenue range, then approximately
59 percent of the firms would qualify as small business.67 However, based on the distribution of the reported
numbers of firms by the reported revenue ranges for these industries - in which the larger numbers of firms
lie in the lower revenue ranges - EPA expects that firms will not be uniformly distributed by revenue in this
revenue range, and instead that firms will be disproportionately concentrated at the lower end of the range.
Based on this expectation, for this analysis, EPA assumed that 75 percent of the firms in the $10 to $50
million revenue range would be small businesses.
As described in Chapter 3, a very large share of total C&D industry firms and a large absolute number of firms
are likely to be defined as small businesses and will likely undertake activities within the scope of the C&D rule.
Overall, EPA estimates that a total of 187,079 firms are in the C&D industry sectors of concern for this
regulation. Of this total, EPA estimates that approximately 182,545 firms, or nearly 98 percent, are defined as
small businesses (see Table 13-1, below).
Although a large percentage of C&D industry businesses are defined as small business, many of these firms work
only on projects too small to be subject to the regulatory requirements of this rule. EPA assessed whether small
businesses would likely perform projects of sufficient size to be within the scope of the C&D regulation using the
methods described in Chapter 6 for the firm- and industry-level analysis. EPA considers firms that are capable of
completing at least the theoretically easiest of the 144 model project-types (i.e., a 1-acre project over a 3-year
($33.5 million -$10 million) - ($50 million - $10 million) = 0.5875.
13-2 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 13: RFA
duration) to be within the potential scope of a C&D regulation. As detailed previously, this capability assessment
is performed for each model firm category, and is a function of the project size and duration, and also the model
firm's revenue, acreage intensity, and estimated number of projects going on at any one time. Table 13-1 lists the
total number of firms and small firms by sector, and also identifies the number of firms by sector and size
classification that EPA estimates are capable of performing this project, based on the above factors. As shown in
Table 13-1, EPA estimates that a much smaller number of small businesses, - approximately 77,115 firms - are
capable of performing in-scope projects than the total of small businesses - approximately 182,000 - in the total
C&D industry.
Table 13-1: Total Number of Small and Large Firms in the C&D Industry
NAICS
Code
Sector3
Small
Number
Percent of
Total
Firms in
NAICS
Large
Number
Percent of
Total
Firms in
NAICS
Total
All Firms in Potentially Affected C&D Sectors
236115
236116
236117
236210
236220
237310
Slew single-family housing construction (except operative builders)
STew multifamily housing construction (except operative builders)
STew housing operative builders
Industrial building construction
Commercial and institutional building construction
Highway, street, and bridge construction
Total
69,077
5,869
29,491
3,854
64,798
9,471
182,560
99.7%
97.7%
97.2%
92.6%
96.4%
94.3%
97.6%
215
141
861
309
2,440
576
4,540
0.3%
2.3%
2.8%
7.4%
3.6%
5.7%
2.4%
69,292
6,009
30,351
4,163
67,238
10,047
187,100
In-Scope Firms: Firms Estimated Capable of Completing a Single Project of at Least One Acre Size Over Three- Years or Lessb
236115
236116
236117
236210
236220
237310
Slew single-family housing construction (except operative builders)
Slew multifamily housing construction (except operative builders)
Slew housing operative builders
Industrial building construction
Commercial and institutional building construction
Highway, street, and bridge construction
Total
18,054
2,008
15,180
1,443
30,959
9,471
77,115
98.8%
93.5%
94.6%
82.4%
92.7%
94.3%
94.4%
215
141
861
309
2,440
576
4,540
1.2%
6.5%
5.4%
17.6%
7.3%
5.7%
5.6%
18,269
2,148
16,040
1,752
33,399
10,047
81,655
a Firms within NAICS 237210 - Land Subdivision - are allocated over the NAICS 236115, 236116, 236210, and 236220 building construction categories.
b.The in-scope test is based on an assumption of a 1-year lag between starting a new construction project (see Chapter 6 for additional detail)
Note: Numbers do not necessarily add to totals due to rounding.
Source: U.S. SBA (2004), U.S. SBA (2008), U.S. Census Bureau's Economic Census (2005a), and EPA Analysis
13.3 Estimating Economic Impacts on Small C&D Firms
EPA assessed the impacts on small businesses by examining the ratio of estimated compliance costs to firm-level
revenue based on model firm analysis of firm- and industry-level impacts. Impacts are determined by the number
and percentage of businesses incurring costs that exceed 1 percent and 3 percent of revenue. EPA believes that,
for the C&D industry, a SISNOSE determination should not be based primarily on the absolute number of small
entities affected due to the nature of this industry. This judgment is based on the fact that (1) this industry is
comprised of a very large number of firms and (2) virtually all of these firms (98 percent) are small firms,
according to SBA size criteria. Rather than rely on the absolute number of affected small firms, EPA believes the
percentage of small entities that are impacted provides a better basis for determining whether a given regulatory
option can meet the criteria for a «o-SISNOSE determination.
The potential for impacts to small businesses was an important consideration for EPA in developing and
analyzing regulatory options for the C&D rule. In the end, the regulatory options that EPA focused on as the
principal candidates for the final regulation are all expected to exclude the majority of C&D industry small
entities from direct regulatory requirements and incurrence of costs to comply with the rule. For all four of the
options presented in this analysis, no more than 35 percent of the estimated 77,115 in-scope small businesses are
November 23, 2009
13-3
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 13: RFA
expected to incur costs. These small businesses comprise about 15 percent of all small businesses in the regulated
construction sectors.
Finally, EPA emphasizes that the final regulation includes no requirements - in terms either of regulatory
coverage or of the technical requirements for compliance - that would affect small firms more adversely than
large firms: that is, the regulation does not confer a competitive advantage to large firms. There are no significant
economies of scale associated with the compliance technologies, and small firms are generally expected to have
more opportunity to utilize BMPs since they tend to work on more small projects compared to large firms.
EPA's methodology for estimating the percentages of firms within each revenue range that are estimated to incur
compliance costs exceeding one or three percent of revenue is detailed in Chapter 6. In that analysis, the cost-to-
revenue calculation is performed in two ways:
1. Using the unadjusted compliance cost. This metric indicates the potential burden of compliance costs in
relation to revenue, without accounting for EPA's assessment that some of the compliance cost will be offset
by increased revenue as some costs may be passed on.
2. Using the compliance cost adjusted by the increase in revenue that is estimated to occur from passing on a
part of the compliance cost increase to customers as a price increase. This measure may provide a more
meaningful measure of potential compliance cost burden. In this calculation, the total compliance cost is
reduced by the increase in revenue resulting from cost pass-through. The resulting comparison is of net
compliance cost burden (i.e., after the offsetting revenue increase) to baseline revenue.
In both instances, the analysis assumes that some of the compliance cost will be passed through to consumers and
thus offset by increased revenue. However in the first instance, the calculation of the cost-to-revenue ratio does
not account for this effect; in the second instance, the calculation does account for the estimated revenue increase
as an offset to compliance cost.
Table 13-2, presents the findings from the small business impact assessment. In addition to presenting the results
from the cost-to-revenue analysis, Table 13-2, also presents results for two other measures of firm-level effects:
(1) the number and percent of small firms potentially incurring "financial stress" because of compliance
requirements and (2) the number and percent of small firms whose business value is expected to become negative
because of the regulation. These analyses are similar to those described in Chapter 6, except that the analysis here
is only for the set of small firms.
As reported in Table 13-2, the cost to small business of the regulation is less than the total cost of the regulation as
reported in the preceding chapter. As reported in Chapter 6, total annual costs for all firms under Option 4 are
approximately $953 million. In comparison, the total estimated costs for small businesses under Option 4 is
approximately $403 million (42 percent of the all-firms total). That is, less than half of the total compliance costs
would be borne by small firms, despite the fact that small firms comprise 98 percent of the industry.
The impacts of the final regulatory option on small businesses are summarized below:
> For Option 4, EPA estimates that approximately 27,420 small businesses may incur costs, representing
about 15 percent of all estimated small businesses in the affected C&D sectors and 36 percent of those
small businesses estimated capable of performing the minimal model project (in terms of size and
duration) within the scope of the final regulation. EPA estimates that none of these small businesses incur
costs exceeding 1 or 3 percent of revenue when the expected increased revenue offset to compliance costs
is accounted for in the cost-to-revenue comparison. Without accounting for this cost-pass-through effect,
EPA estimates that 230 small firms will incur costs exceeding 1 percent of revenue, but no small firms are
expected to incur costs exceeding 3 percent of revenue. In these 27,420 firms, EPA estimates that 135 will
potentially incur financial stress as a result of the regulation and 122 would potentially incur negative net
13-4 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 13: RFA
business value - an indicator of potential closure. Some of the firms estimated to incur financial stress
may also be estimated to experience negative business value, and as a result, these two measures of
financial impact are not additive. The number of small businesses estimated to incur financial stress or
potential closure, represent less than 0.1 percent of the total small businesses in the C&D sectors and
about 0.2 percent of those estimated potentially in-scope small businesses.
Overall, EPA estimates the small business impacts of the regulation are neither significant nor substantial on the
basis of the small percentages of total small businesses and estimated small businesses that would potentially be
adversely affected by the regulation. Although EPA estimates that Option 4 may cause approximately up to 230
firms to incur costs exceeding 1 percent of revenue, EPA does not judge this impact to be so substantial or so
significant as to warrant a SISNOSE finding. The number of affected firms represents a small percentage of all
small businesses (0.1 percent) and all small in-scope businesses (0.3 percent) in the C&D industry sectors of
concern. The estimated effects relative to the 3 percent of revenue threshold is zero firms. Thus, EPA does not
judge the number of adversely affected small businesses to be substantial. Moreover, if the expected pass-through
of these compliance costs is accounted for in the cost-to-revenue analysis, then the number of adversely affected
firms falls to zero under both cost-to-revenue impact thresholds. On this basis, EPA further concludes that the
adverse impact is not significant.
Table 13-2: Summary of Small Business Cost and Impact Analysis for C&D Rule Options
Impact Analysis Concept
Option 1 | Option 2 | Option 3 | Option 4
Resource Cost of Compliance and Affected Acreage and Firms
Total Costs in Small Businesses (Smillions)
Total Small Business Activity Acreage Incurring Cost
Number of Small Firms
All Small Firms
Small Firms In-Scope
Small Firms Incurring Cost
$74
332,981
182,560
77,115
27,420
$1,498
332,981
182,560
77,115
27,420
$3,827
332,981
182,560
77,115
27,420
$403
332,981
182,560
77,115
27,420
Small Firms with Compliance Cost Exceeding Percentages of Revenue Judged Potentially Indicative of Adverse Impact
Costs Unadjusted for Effect of Cost Pass-Through
Costs Exceeding 1% of Revenue
Costs Exceeding 3% of Revenue
Slumber Incurring Effect
% of All Small Firms
% of Small Firms In-Scope
Slumber Incurring Effect
% of All Small Firms
% of Small Firms In-Scope
0
0.0%
0.0%
0
0.0%
0.0%
3,454
1.9%
4.5%
1,843
1.0%
2.4%
11,889
6.5%
15.4%
8,106
4.4%
10.5%
230
0.1%
0.3%
0
0.0%
0.0%
Costs Adjusted for Effect of Cost Pass-Through"
Costs Exceeding 1% of Revenue
Costs Exceeding 3% of Revenue
Slumber Incurring Effect
% of All Small Firms
% of Small Firms In-Scope
Slumber Incurring Effect
% of All Small Firms
% of Small Firms In-Scope
0
0.0%
0.0%
0
0.0%
0.0%
593
0.3%
0.8%
60
0.0%
0.1%
3,008
1.6%
3.9%
187
0.1%
0.2%
0
0.0%
0.0%
0
0.0%
0.0%
Small Firms Estimated to Incur Financial Stress From Deterioration in Measures of Financial Performance
Small Firms Incurring Financial Stress
Slumber Incurring Effect
% of All Small Firms
% of Small Firms In-Scope
24
0.0%
0.0%
1,024
0.6%
1.3%
5,112
2.8%
6.6%
135
0.1%
0.2%
Small Firms whose Net Business Value Becomes Negative as a Result of Compliance (Potential Closures)
Small Firms with Negative Business Value
Because of Regulation (Potential Closures)
Slumber Incurring Effect
% of All Small Firms
% of Small Firms In-Scope
25
0.0%
0.0%
301
0.2%
0.4%
1,007
0.6%
1.3%
122
0.1%
0.2%
a Assumes cost pass-through rate of 85% for residential sectors and 71% for non-residential and non-building sectors.
EPA Estimates
November 23, 2009
13-5
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 13: RFA
13.4 Consideration of Small Entity Impacts in Regulatory Option Selection
As described above, EPA carefully considered the potential impact of the regulation on small businesses in
developing and analyzing regulatory options. In particular, EPA set aside from further consideration those
regulatory options that would have extended regulatory coverage to project sizes that would more likely be within
the performance capability of small businesses (e.g., acreage thresholds below 10 acres, such as 1, 3 and 5 acres).
The result of this effort is a Final Option that EPA judges will have a small effect, overall, on small businesses
based on any of the relevant measures of small business impact assessment. For example, the results for Option 4
indicate the following:
> Number and percentage of small businesses estimated to incur compliance costs out of the total of small
businesses in the C&D industry and potential in-scope small businesses:
• Approximately 27,420 small businesses are estimated to incur costs, which represent 15 percent of all
estimated small businesses in the affected C&D sectors and 36 percent of potentially in-scope small
businesses.
> Number and percentage of small businesses estimated to incur compliance costs exceeding cost-to-
revenue impact thresholds out of the total of potential in-scope small businesses and of the total of small
businesses estimated to be within the scope of the regulation:
• 230 small businesses are estimated to incur costs exceeding 1 percent of revenue, or only 0.1 percent
of all small C&D sector firms and 0.3 percent of estimated potentially in-scope small businesses
• 0 small businesses are estimated to costs exceeding 3 percent of revenue.
> Number and percentage of small businesses estimated to incur other measures of adverse economic
impact - financial stress and/or potential business closure - again out of the total of in-scope small
businesses and of the total of small businesses estimated to incur compliance costs from the regulation:
• 135 small businesses are estimated to potentially incur financial stress, or less than 0.1 percent of all
small C&D sector firms, and 0.2 percent of in-scope small firms.
• 122 small businesses are assessed as potential closures, or again less than 0.1 percent of all small
C&D sector firms, and 0.2 percent of in-scope small firms.
13-6 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 14: UMRA
14 Assessing the C&D Regulatory Options in Accordance with Unfunded
Mandates Reform Act (UMRA) Requirements
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), P.L. 104-4, requires federal agencies to assess
the effects of their regulatory actions on state, local, and tribal governments and the private sector. Under section
202 of UMRA, EPA generally prepares a written statement, including a cost-benefit analysis, for proposed and
final rules with "federal mandates" that may result in expenditures by state, local, and tribal governments, in the
aggregate, or by the private sector, of $100 million or more in any one year.
Before EPA promulgates a rule for which a written statement is needed, section 205 of UMRA directs EPA to
consider a reasonable number of regulatory alternatives and adopt the least costly, most cost-effective or least
burdensome alternative that achieves the objectives of the rule. The provisions of section 205 do not apply when
they are inconsistent with applicable law. Moreover, section 205 allows EPA to adopt an alternative other than the
least costly, most cost-effective or least burdensome alternative if the Administrator publishes with the proposed
rule an explanation of why that alternative was not adopted.
In addition, before EPA establishes any regulatory requirements that might significantly or uniquely affect small
governments, including tribal governments, the Agency is to develop a small government agency plan pursuant to
section 203 of UMRA. The purpose of the plan is to provide for notifying potentially affected small governments,
thus enabling officials of affected small governments to have meaningful and timely input in the development of
EPA regulatory proposals with significant federal mandates, and informing, educating, and advising small
governments on compliance with the regulatory requirements.
Lastly, UMRA requires the statutory authority for the rule to be cited. A detailed discussion of the objectives and
legal basis for the proposed rule will be presented in the Federal Register preamble for the final regulation.
In accordance with these UMRA requirements, EPA evaluated the impact of the Final C&D regulation on (1)
government entities, (2) small governments, and (3) private entities.
14.1 Assessing Costs to Government Entities
The purpose of this part of the UMRA analysis is to estimate the regulatory burden of the C&D regulation on
State, Local, and Tribal governments. For this assessment, EPA considered two concepts of government burden:
> Administrative Costs. Administrative costs are those costs associated with state governments'
administration of federal rule requirements to regulated entities within their jurisdictions.
> Compliance Costs. Governments build or hire contractors to perform construction and development
activities on a material quantity of developed space in any given year. These government projects will
need to comply with the final rule just as private sector projects will, and therefore, governments are
assumed to incur some incremental compliance costs.
The total of the incremental administrative costs and the compliance costs estimated to apply to government are the
total costs to government.
The following sections discuss EPA's methodology for assessing these costs to governments.
November 23, 2009
14-1
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 14: UMRA
14.1.1 Administrative Costs
EPA assumed for the current analysis that the NPDES Phase I and Phase II stormwater permit programs are fully
implemented and that any new regulatory requirements from this rule would be superimposed on these programs.
However, EPA expects an additional administrative burden to state government entities under the final rule. State
governments will incur costs for:
1. Processing and analyzing discharge monitoring reports (DMRs) for projects that incur cost under the
final rule, and
2. Reviewing the regulation, developing a plan for implementation, dissemminating information to relevant
parties, and potentially updating DMR data management systems.
The cost to state governments for processing and analyzing DMRs is a function of the following:
> Number of projects requiring DMRs. Option 1 does not include a DMR requirement. Option 2 requires a
monthly DMR for each project greater than 30 acres in size that incurs cost under the final rule. EPA's
analysis indicates that, in the steady state, there are approximately 6,045 of these projects per year. Option
3 and Option 4 require a monthly DMR for each project greater than 10 acres in size that incurs cost
under the final rule. EPA's analysis indicates that, in the steady state, there are approximately 21,279 such
projects started each year.
> Number of DMRs expected per project. The numer of monthly DMRs per project is a function of the
duration of each project. However, since a monthly DMR is not expected to be required for every month
of a construction project, Table 14-1 presents EPA assumed number DMRs expected per project by
project duration category.68
Table 14-1 : Number of DMR-Months per Project,
by Duration Category
Project Duration (months)
1
2
4
7
10
13
16
19
22
27
32
36
Number of DMRs per Project
1
2
4
6
8
16
13
15
16
21
26
30
> Hourly burden and labor rate for processing each DMR. EPA assumes the processing each DMR will
require an average of 0.55 labor hours. The labor rate for state government employees, $39.25 per hour, is
based on the Department of Labor's Bureau of Labor Statistics Employer Costs for Employee
Compensation (U.S. DOL, 2008).
EPA also estimated the cost to state governments associated with expected start-up activities on an average annual
basis over a ten year period. This component of state government cost includes:
68 DMRs are not expected to be required during every month for some projects because EPA assumes the quantity of acreage disturbed
on the site will not exceed the regulatory threshold for the entire duration.
14-2 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 14: UMRA
> Data management systems upgrades. Although not all state government entities will need to upgrade their
data management systems for managing DMRs, EPA made the conservative assumption that all entities
would incur $25,000 of equipment costs (this cost was annualized over a ten year period).
> Regulation review and training. EPA assumed that each state government would also incur 160 hours of
review and training to implement the rule, where each hour is assigned the state employee wage of $39.25
per hour.
Table 14-2 presents the 10-year average annual state government administrative cost, by regulatory option,
including both the DMR and start-up cost component.
Table 14-2: Average Annual State Government Administrative Burden ($million)
Annual State Government Cost
Annual State Government Burden Hours
Option 1
$0.0
0
Option 2
$2.2
52,823
Option 3
$6.2
153,854
Option 4
$6.2
153,854
Source: U.S. EPA (2005), U.S. DOL (2008), FedJobs (2009), and EPA Estimates
14.1.2 Compliance Costs
Governments will likely bear some of the compliance costs associated with the final regulation, assuming that
these costs are passed on from developers and builders. EPA estimated the compliance costs potentially incurred
by government entities based on the value of construction work done by government agencies (federal, state, and
local) as a percentage of the total value of construction, as reported in the U.S. Census publication, Construction
Spending for 2002. Table 14-3 shows total compliance costs by general construction activity category, and broken
between the private sector and various public sectors. Table 14-4 provides the same breakout of total acreage
incurring costs.
November 23, 2009
14-3
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 14: UMRA
Table 14-3: Total Compliance Costs3 ($millions)
Option 1
Option 2
Option 3
Option 4
Total Compliance Costs by Government Unit and by General Industry Sector
Residential Sector
Private
Public
Federal
State and Local
Total
$59.5
$0.9
$0.3
$0.6
$60.4
$2,303.1
$34.8
$9.7
$25.0
$2,337.9
$4,178.0
$63.1
$17.7
$45.4
$4,241.1
$428.8
$6.5
$1.8
$4.7
$435.3
Non-Residential Sector
Private
Public
Federal
State and Local
Total
$55.9
$32.1
$2.8
$29.3
$88.0
$1,216.4
$698.9
$61.2
$637.7
$1,915.3
$2,461.2
$1,414.1
$123.9
$1,290.2
$3,875.3
$259.3
$149.0
$13.0
$135.9
$408.2
Transportation Sector
Private
Public
Federal
State and Local
Total
$2.2
$25.1
$0.7
$24.4
$27.4
$48.8
$553.9
$16.2
$537.7
$602.7
$76.4
$866.7
$25.3
$841.4
$943.0
$8.8
$100.0
$2.9
$97.1
$108.9
Total Compliance Costs by Government Unit and Across All Industry Sectors
Private
Public
Federal
State and Local
Total
$117.6
$58.1
$3.8
$54.3
$175.7
$3,568.3
$1,287.6
$87.1
$1,200.4
$4,855.9
$6,715.6
$2,343.9
$166.9
$2,177.0
$9,059.5
$696.9
$255.5
$17.7
$237.7
$952.4
a Based on the value of construct
Source: U.S. Census (2008a),
ion work done by government entity
U.S. Census Bureau's Government Organization (2002), EPA Estimates
Table 14-4: Total Acreage Incurring Cost
Option 1
Option 2
Option 3
Option 4
Total Acreage by Government Unit and by General Industry Sector
Residential Sector
Private
Public
Federal
State and Local
Total
314,002
4,739
1,327
3,412
318,741
312,955
4,723
1,323
3,401
317,679
312,101
4,711
1,319
3,392
316,811
313,868
4,737
1,326
3,411
318,605
Non-Residential Sector
Private
Public
Federal
State and Local
Total
290,804
167,082
14,635
152,447
457,886
290,718
167,032
14,631
152,401
457,750
290,628
166,981
14,626
152,355
457,609
290,789
167,073
14,634
152,439
457,863
Transportation Sector
Private
Public
Federal
State and Local
Total
6,156
69,832
2,036
67,796
75,988
6,156
69,832
2,036
67,796
75,988
6,156
69,832
2,036
67,796
75,988
6,156
69,832
2,036
67,796
75,988
Total Acreage by Government Unit and Across All Industry Sectors
All Industry Sectors
Private
Public
Federal
State and Local
TOTAL
610,962
241,653
17,998
223,655
852,615
609,829
241,588
17,990
223,598
851,417
608,885
241,523
17,982
223,542
850,409
610,814
241,643
17,997
223,645
852,456
a Based on the value of construction work done by government entity
Source: U.S. Census (2008a), U.S. Census Bureau's Government Organization (2002), EPA Estimates
14-4
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 14: UMRA
14.1.3 Total Government Costs and Impacts
Table 14-5 reports total compliance and administrative costs estimated to be incurred by Federal, State and Local
government entities. Table 14-6 reports the findings from comparing the total compliance and administrative costs
with three baseline measures: total government revenue, capital outlay, and capital outlay for construction only.
Table 14-5: Total Government Compliance and Administrative Costs ($millions)
Option 1
Option 2
Option 3
Option 4
Compliance Costs
Federal
State*
Locala
$3.8
$8.1
$46.2
$87.1
$178.1
$1,022.3
$166.9
$323.0
$1,854.0
$17.7
$35.3
$202.4
Administrative Costs
State
$0.0
$2.2
$6.2
$6.2
Total Costs
Federal
Statea
Local"
$3.8
$8.1
$46.2
$87.1
$180.3
$1,022.3
$166.9
$329.2
$1,854.0
$17.7
$41.5
$202.4
a State and Local compliance costs were split-out from the State and Local total based on the proportion of total project value in state and local
governments from Reed Construction Data.
Source: Reed (2008), U.S. Census Bureau's Government Organization (2002), EPA Estimates
Table 14-6: Impacts of Regulatory Option Compliance and Administrative Costs on State and Local
Government Baseline Revenues ($millions)
Option 1
Option 2
Option 3
Option 4
State Governments Impact Analysis Concepts
Total Revenues
Total Costs as % of Total Revenues
Capital Outlay
Total Costs as % of Total Capital Outlay
Construction Outlay Only
Total Costs as % of Total Construction Outlay
1,097,829
0.00%
89,919
0.01%
71,035
0.01%
1,097,829
0.02%
89,919
0.20%
71,035
0.25%
1,097,829
0.03%
89,919
0.37%
71,035
0.46%
1,097,829
0.00%
89,919
0.05%
71,035
0.06%
Local Governments Impact Analysis Concepts
Total Revenues
Total Costs as % of Total Revenues
Capital Outlay
Total Costs as % of Total Capital Outlay
Construction Outlay Only
Total Costs as % of Total Construction Outlay
1,083,129
0.00%
142,209
0.03%
107,588
0.04%
1,083,129
0.09%
142,209
0.72%
107,588
0.95%
1,083,129
0.17%
142,209
1.30%
107,588
1.72%
1,083,129
0.02%
142,209
0.14%
107,588
0.19%
Source: Reed (2008), U.S. Census Bureau's Compendium of Government Finances (2005c), U.S. Census Bureau's Government
Organization (2002), EPA Estimates
14.2 Assessing Costs and Impacts on Small Government Entities
In addition to looking at total outlays by governments for the final C&D regulation, in accordance with UMRA
requirements, EPA also considered the extent to which these outlays would fall specifically on small
governmental entities and the potential impact on these entities. The assessment of impacts on small
governmental entities involved two steps: (1) identifying small government entities (i.e., those serving
populations of less than 50,000, (5 USC 601[5])), (2) estimating the share of total government costs for the
regulatory options that is incurred by small governments, and (3) estimating the potential impact from these costs
based on comparison of small government outlays with small government revenue and outlays.
November 23, 2009
14-5
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Chapter 14: UMRA
The smallest unit of government potentially affected by the rule is at the sub-county (i.e., municipal or township)
government level. The evaluation of potential impact on these entities began by estimating the share of local-
government compliance and administrative costs (as described in previous section) incurred by small
governments, as follows:
> EPA identified the sub-set of local-government entities determined to be small government entities. The
determination is based on a national estimate - from the U.S. Census - of the population served by local
jurisdictions with fewer than 50,000 population (i.e., of the total population in local jurisdictions, the
percentage of that population in local jurisdictions with fewer than 50,000 people);
> Based on the proportion of population served by small governments out of total population in local
jurisdictions, EPA allocated local-government compliance and administrative costs to the sub-set of local-
government entities determined to be small. This allocation assumes that government construction
activity and incurrence of compliance and administrative costs are proportional to population.
Approximately 92 percent of the total U.S. population in 2002 lived in areas governed by a municipality
or town/township. Of those served by these sub-county governments, approximately 51 percent lived in
areas served by municipal or town/township governments with populations of less than 50,000.
Therefore, EPA estimated that 51 percent of local government compliance costs affect projects
undertaken by small government entities.
> EPA compared the local government share of compliance and administrative costs against several
baseline indicators to assess the extent of potential impacts on small governmental entities. The indicators
include total government revenue, capital outlay, and capital outlay for construction only. The comparisons
indicate how material the compliance and administrative outlays are in relation to the baseline government
revenue and outlay levels.
Table 14-7 reports total compliance and administrative costs estimated to be incurred by small government
entities and the findings from comparing these outlays with the three baseline measures.
Table 14-7: Impacts of Regulatory Option Compliance and Administrative Costs on Small Government
Units ($millions)
Option 1
Option 2
Option 3
Option 4
Compliance Costs
Federal
State"
Local3
Small Government Entities
$3.8
$8.1
$46.2
$21.7
$87.1
$178.1
$1,022.3
$480.5
$166.9
$323.0
$1,854.0
$871.4
$17.7
$35.3
$202.4
$95.1
Administrative Costs
State
Small Government Entities
$0.0
$0.0
$2.2
$0.0
$6.2
$0.0
$6.2
$0.0
Total Costs
Federal
State*
Local*
Small Government Entities
$3.8
$8.1
$46.2
$21.7
$87.1
$180.3
$1,022.3
$480.5
$166.9
$329.2
$1,854.0
$871.4
$17.7
$41.5
$202.4
$95.1
Small Government Impact Analysis Concepts
Total Revenues
Total Costs as % of Total Revenues
Capital Outlay
Total Costs as % of Total Capital Outlay
Construction Outlay Only
Total Costs as % of Total Construction Outlay
$125,515
0.02%
$13,455
0.16%
$8,529
0.25%
$125,515
0.38%
$13,455
3.57%
$8,529
5.63%
$125,515
0.69%
$13,455
6.48%
$8,529
10.22%
$125,515
0.08%
$13,455
0.71%
$8,529
1.12%
a State and Local compliance costs were broken out from the State and Local total based on the proportion of total project value in state and local
governments from Reed Construction Data.
Source: Reed (2008), U.S. Census Bureau's Compendium of Government Finances (2005c), U.S. Census Bureau's Government
Organization (2002), EPA Estimates
14-6
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Chapter 14: UMRA
For Option 4, the total of administrative and compliance costs to small government entitites is $95.1 million
annually. This represents less than one-tenth of one percent of total government revenue, less than one-tenth of
one percent of total capital outlays, and just over one percent of construction outlays. As such, EPA does not
consider these costs to impose a substantial impact on a significant number of small government entitites.
14.3 Assessing Costs and Impacts on Private Entities
The potential economic impacts for private entities that were analyzed were divided into two major groups:
> Impacts on the individual projects, establishments, and firms in the construction industries, and
> Impacts at the national level and on the national economy.
EPA's analysis of impacts on private entities are detailed previously detailed in Chapter 6.
November 23, 2009 14-7
-------
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Appendix A: Adverse Case
Appendix A: Adverse Analysis Case Results for the Firm- and Industry-
Level Impact Analysis
EPA estimated firm- and industry-level impacts under an adverse analysis case, which is intentded to illustrate
the potential industry-level impact of the regulatory options during periods when the C&D industry is operating
under adverse business conditions. The adverse analysis case differs from the primary analysis case as follows
(see also Section 4.5 of Chapter 4):
1. Model firms are defined on the basis of financial statements taken from an adverse performance period, as
outlined below. The baseline financial condition and performance are thus weaker than the baseline condition
and performance as used for the primary analysis case.
2. Model firms are assigned a higher cost of capital, reflecting more difficult credit and equity financing
conditions during a period of business weakness, than the cost of capital used in the primary analysis case.
3. Model firms are assumed to recover none of the cost of compliance through product price increases (i.e., no
cost pass-through).
4. The total operating level of the C&D industry and total construction activity subject to regulatory
requirements are assumed to be less than the baseline activity estimates, as described in this appendix.
Defining Adverse Model Firm Financial Condition
To perform this analysis, EPA adjusted the baseline financial statements for each of the model firms, by C&D
sector and revenue range to reflect relatively adverse business conditions.
Residential
Developing an Adjustment to the RMA Baseline Financial Data to Reflect the Current Financial Performance in
the C&D Industry
To support its analysis of the potential economic impact of the final regulation, EPA collected financial statement
data from Risk Management Association's (RMA) eStatement Studies to provide the baseline financial
statements. EPA assigned baseline financial characteristics - balance sheet, income statement, and metrics of
financial performance and condition - to each of the model firms as defined by NAICS sector and revenue size
range, from financial statement information reported by RMA.69 To develop the Adverse Business Conditions
case models, RMA data from the worst financial performance year in the 6-year period 2002 through 2007, as
indicated in the RMA data for each sector, were used initially as the basis of the firm-level model financial
statements. For the residential construction sectors, 2006 began a period of weakness; RMA data with fiscal
closing dates of April 2007 through March 2008 was initially collected for this case.70 However, the residential
sector experienced even worse business conditions during 2008 while residential spending continued to fall.
Chapter 4 provides more details regarding the assignment of baseline financial information to firms.
For the non-residential sectors, 2003 began a period of weakness; RMA data with fiscal closing dates of April 2003 through March
2004 was used for this case, as described more fully later in this appendix.
November 23, 2009
A-1
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Appendix A: Adverse Case
Because the RMA data currently available only grasps a small portion of the 2008 conditions for a fraction of the
reporting firms,71 EPA looked to additional data sources to extend the residential RMA financial data into 2008.
Description of the Value Line Dataset Used to Determine Adjustment Factors
The dataset chosen by EPA to adjust the adverse residential sector baseline financial statement data to reflect the
current financial performance in this sector was the Value Line Investment Survey (VL). The general company
dataset of VL reports summary financial information for nearly all (approximately 7,000) publicly traded
companies in the United States for a 16-year period, 1993-2008.72 By including financial results for full-year
2008, the dataset comes as close as possible to the present and thus would provide a basis for adjusting facility
baseline financial data to essentially current conditions.73
VL identifies and groups companies in a business content classification scheme that approximates 4-digit NAICS
classifications. These business classifications support identification of firms within the Construction and
Development industries at a level of sector detail sufficient for this analysis. The dataset is by company instead of
by aggregate groups and the business classifications are defined by practical business content instead of in a rigid
SIC or NAICS classification scheme. The VL dataset reports key accounting items that will readily support
calculation of the five financial metrics, net worth to total capital, sales to total assets, debt to net worth, pre-tax
profit to total assets, and earnings before interest and taxes, that match the principal financial metrics underlying
the Construction and Development impact analysis.
EPA recognizes that the VL dataset, by definition, excludes firms that are not publicly traded. The studied
industries include private, non-publicly traded firms, for which no comparable database of financial information is
available. As a result, use of the VL dataset in this analysis could yield findings that are not representative of the
overall industry, including the non-publicly traded firms, to the extent that non-public firms in the studied
industries faced materially different business conditions or achieved materially different business performance
than publicly traded firms in the same industries. Overall, EPA expects that the business conditions faced by, and
performance achieved by, non-public firms in the studied industries are not likely to have been materially
different from those of the public firms. As a result, EPA judges that use of the VL dataset for this analysis is
appropriate and likely to yield reasonably representative findings for to overall industries, including publicly
traded and non-traded firms.
As discussed above, VL organizes firms by industry groups, which, in most instances, approximate 4-digit
NAICS classifications. From review of the VL industry groups and the Construction and Development industries,
EPA selected two VL industry groups - Homebuilding and Heavy Construction - and the 44 firms within these
industry groups as candidates for this analysis.74 Following review of the firms within these industry groups, EPA
retained 33 firms for use in this analysis. Key considerations in selecting the firms are as follows:
RMA's 2008-2009 eStatement Studies data reports financial data for companies with fiscal closing dates ranging from April 1, 2007
to March 31,2008. Therefore, the earliest 12-month period covered is April 1, 2006 to March 31, 2007 and the latest 12-month period
covered is April 1,2007 to March 31,2008. Among the six years of data and six NAICS codes, an average of approximately 83
percent of firms have fiscal closing dates in the latter 6-month period of the range (October 1, 2007 to March 31, 2008). Therefore,
most data covers the calendar year of 2007.
At any time, VL reports only 10 years of data for firms in its data serves. The dataset used for this analysis reflects two separate VL
datasets that were combined to provide data for the 16 years of analysis.
The firms in the VL dataset report data for each fiscal year, 2008 being the latest. Of the 33 firms under analysis, 22 of the firms report
a fiscal closing date of 12/31/2008. Ten of the remaining 11 firms report a fiscal closing date within 3 months of 12/31/2008 and one
firm reports a fiscal closing date within 6 months of 12/31/2008.
EPA also selected one company, Tutor Perini Corp., from the VL Industrial Services industry.
November 23, 2009 A-2
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Appendix A: Adverse Case
> Within the industry groups, only those firms whose business operations reasonably match the profile of
business activities of the two Construction and Development industries, Building Construction and Heavy
Construction, were considered candidates for the analysis. In the industry groups, some firms included in
the VL industry groups were excluded from the analysis because they were not engaging in the activities
applicable to the scope of the Construction and Development regulation.
> EPA retained only those firms that are based in the United States.
> EPA retained only those firms for which the necessary data were available for 2007 and 2008. In addition,
for the debt to net worth, pre-tax profit to total assets, and earnings before interest and taxes metrics,
firms that did not report the necessary values for either 2007 or 2008 were not included in the adjustment
calculation for that metric.
EPA organized the 33 firms selected for the analysis into two industry groups: the Residential Construction
industry includes 22 firms and the Non-Residential/Non-Building Construction industry includes 11 firms. The
Residential Construction industry is comprised of single-family and multifamily designers, developers,
homebuilders, and sellers. The Non-Residential/Non Building Construction industry is comprised of companies
specializing in the design, engineering, project management, and construction of non-residential buildings and
infrastructure.
Description of the Residential Adjustment Concept
The general objective of this analysis was to develop an adjustment to the 2007 RMA baseline net worth to total
capital, sales to total assets, debt to net worth, pre-tax profit to total assets, and earnings before interest and taxes
to yield values for the firm impact analysis that more closely reflect current financial performance in the
residential sector of the C&D industry. The overall approach to the analysis was to analyze, for this industry
group, the trend of financial performance over the 2007-2008 analysis period. The 2007 to 2008 change in the
financial metrics were then compared with the 2007 RMA values to determine the extent to which the RMA data
should be adjusted to reflect the current financial performance in this C&D sector. Table A-l presents the
calculations and the use of the adjustment factors applied to the 2007 RMA-reported values to develop the
"Adverse Business Conditions" Case financial statement values.
November 23, 2009 A-3
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Appendix A: Adverse Case
Table A-1: Calculation and Use of Adjustments Applied to 2007 RMA-Reported Values to Develop "Adverse Business Conditions"
Case Financial Statement Values for Use in Firm Impact Analysis
Variable
Net Worth /
Total Capital
Sales / Total
Assets
Debt /Net
Worth
Pre-Tax Profit/
Total Assets
Earnings Before
Interest and
Taxes / Interest
Calculation to Determine
Variable from VL Data
Ratio calculated by dividing
Shareholder Equity by Total
Assets
Ratio calculated by dividing
Revenue by Total Assets
Ratio calculated by dividing
Long-Term Debt by Shareholder
Equity
Ratio calculated by dividing Pre-
Tax Profit (Net Profit / (1 -
Income Tax Rate)) by Total
Assets
Operating Income used a direct
variable
Calculation of Adjustment Factors
Calculated as 2008 value divided by 2007 value
for each company. The revenue-weighted average
adjustment factors were determined for each
industry.
Calculated as 2008 value divided by 2007 value.
The revenue- weighted average adjustment factors
were determined for each industry.
Calculated as 2008 value divided by 2007 value.
The revenue- weighted average adjustment factors
were determined for each industry.
Calculated as 2007 value minus 2008 value. The
revenue- weighted average adjustment factors
were determined for each industry.
Calculated as 2008 value divided by 2007 value.
The revenue- weighted average adjustment factors
were determined for each industry.
Use of Adjustment Factors Applied to 2007 RMA Data
Adjustment applied as multiplicative factor to net worth
percentage from RMA; other capital components were then
adjusted to offset decrease in new worth.
Adjustment applied as multiplicative factor to Sales / Total
Assets values, by quartile, from RMA.
Adjustment applied as multiplicative factor to Debt / Net Worth
values, by quartile, from RMA. If pre-adjustment RMA value
was negative, no adjustment was applied.
Adjustment applied as an additive factor to Pre-Tax Profit / Total
Assets values, by quartile, from RMA, to allow adjustment to
negative pre-adjustment RMA values.
Adjustment applied as multiplicative factor to Earnings Before
Interest and Taxes (EBIT) / Interest values, by quartile, from
RMA. If pre-adjustment RMA value was negative, no adjustment
was applied. This adjustment assumes that Interest expense is
constant, year-to-year, and that all change in EBIT / Interest is
due to change in Pre-Interest Income.
November 23, 2009
A-4
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Appendix A: Adverse Case
In the calculation of the revenue-weighted adjustment factors, EPA retained only those firms for which the
necessary data were available for 2007 and 2008. Four firms did not report any of the data necessary for the
calculation of the variables for either 2007 or 2008. In addition, for the debt to net worth, pre-tax profit to total
assets, and earnings before interest and taxes metrics, firms that did not report the necessary values for either
2007 or 2008 were not included in the adjustment calculation for that metric.75
Given the calculations as presented above, the below table presents the revenue weighted adjustment factors
developed from the VL data that were applied to the 2007 RMA-reported values for the residential construction
sectors. Given that the Non-Residential and Non-Building sectors were found to have financial performance
during the selected adverse RMA data period (2003) that was worse than the current period and the predicted
trend financial performance for the 2008 period, EPA concluded that the Value Line adjustment factors would
only be applied to the residential 2007 RMA financial statements.
Table A-2: Revenue Weighted Adjustment Factors Applied to RMA-Reported Values from 2007
Ratios
Industry Description
Residential Construction
Net Worth/ Total
Capital
0.77
Sales/ Total
Assets
0.77
Debt/ Net Worth
1.89
Pre-Tax Profit /
Total Assets
-4.9
Earnings Before
Interest and
Taxes/ Interest
0.93
Source: VL, 2009 and EPA Analysis
Non-Residential and Non-Building
For the non-residential sector, EPA used value of construction data from the Census for each from 1990 to 2007
to select the adverse business conditions year underlying the model firm financial statements and also to estimate
an average deviation from trend during adverse performance years.76
Figure A-1 through Figure A-2 present the actual and estimated trend values77 of construction from 1990 to 2007
for the non-residential and non-building sector. Figure A-3 through Figure A-4 present the average annual growth
of construction and the actual percent change in construction value from the previous year from 1990 to 2007 for
the non-residential and non-building sector. As described previously, Risk Management Association provides
financial statement data by industry sector and revenue range for the data years following the line drawn during
the 2002 period. The yellow-highlighted data years -2003 for both the non-residential and non-building sectors -
are the RMA data-years used to define the model firm financial statements for the adverse analysis case.
Two, twelve, and one firms did not report either the 2007 or 2008 necessary data to determine the variables debt to net -worth, pre-tax
profit to total assets, and earnings before interest and taxes, respectively.
For the non-residential and non-building sector, 2008 was an above-trend year and therefore this year is not a candidate for selection
among the below-trend years for these sectors (also see Figures 4-2 and 4-3 in Chapter 4 for illustration).
Based on an estimated exponential growth trend of constant dollar activity.
November 23, 2009
A-5
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Appendix A: Adverse Case
Figure A-1: Non-Residential Actual and Estimated Trend Values of Construction Put in Place (2006 $Millions)
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
$0
•Non-Residential Construction
•Trend of the Value of Non-Residential Construction
JP JZ>
Source: U.S. Census Bureau's Construction Spending (2008a)
Figure A-2: Non-Building Actual and Estimated Trend Values of Construction Put in Place (2006 $Millions)
$180,000
Non-Building Construction
Trend of the Value of Non-Building Construction
Source: U.S. Census Bureau's Construction Spending (2008a)
A-6
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Appendix A: Adverse Case
Figure A-3: Non-Residential Actual and Average Annual Growth of Construction Put in Place
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
Non-Residential Construction
Average Annual Growth
S & 8 fe
X X X X
0)0)0)0)
Source: U.S. Census Bureau's Construction Spending (2008a)
Figure A-4: Non-Building Actual and Average Annual Growth of Construction Put in Place
10.00%
8.00%
6.00%
4.00%
•Non-Building Construction
-Average Annual Growth
-6.00%
Source: U.S. Census Bureau's Construction Spending (2008a)
November 23, 2009
A-7
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Appendix A: Adverse Case
Table A-3 through Table A-4 present the data used to determine the adverse analysis case variables for the non-
residential and non-building sector. RMA provides financial statement data for the years in bold. The highlighted
data year (i.e. 2003) is the year used to define the adverse analysis case.
Each table presents, by year, the actual value of construction as reported by Census. EPA estimated an
exponential trend line from the actual values and, for each year, determined the percent deviation from the trend
based on the difference between the actual value and the estimated trend line value. EPA then assigned years into
categories of at trend, above trend, and below trend based on a deviation from trend value that assigned an
approximately equal number of years from the 18-year period into each of the performance categories. This
assignment is the primary basis for determining the adverse performance years.
EPA also looked at the difference in actual year-to-year growth from average growth over the period as a
secondary indicator of adverse performance years. In the same way as described for the difference from trend
determination, EPA assigned years into at trend growth, above trend growth, and below trend growth categories
based on a deviation from trend value that assigned an approximately equal number of years from the 17 years of
year-to-year growth values into each of the performance categories. The average growth rate for each sector is
reported in Table A-5.7S Similar to determining whether a data year is at, above, or below the trend line, a
deviation variable allowing for an approximately equal distribution of at, above, and below data years is
introduced to determine the years that are at, above, or below average growth.
Based on this information, EPA elected chose 2003 as the adverse analysis case year for the non-residential and
non-building sectors. Each of years 2002, 2003, and 2004 show weak performance for the non-residential sector
and the non-building sector's performance is relatively on-trend for the entire RMA data period. EPA based its
choice of 2003 as the adverse case year for the non-residential and non-building sectors on inspection of the RMA
data and determination that this year generally showed the weakest financial performance and condition metrics
for all of the revenue ranges in these sectors.
The average growth rate is an average of the annual percent change in the actual value of construction from 1990-1991 to 2006-2007.
A-8 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Appendix A: Adverse Case
Table A-3: Actual and Estimated Trend Values for the Non-Residential Construction Sector (2006 $Millions)
Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Actual Value of
Construction
$205,026
$160,914
$142,558
$142,067
$155,343
$174,668
$193,580
$212,423
$230,435
$230,989
$242,740
$230,329
$186,938
$190,196
$199,745
$209,743
$234,414
$264,459
Estimated Trend
Line Value of
Construction
$162,215
$165,990
$169,852
$173,803
$177,847
$181,985
$186,219
$190,552
$194,985
$199,522
$204,164
$208,914
$213,775
$218,749
$223,839
$229,046
$234,376
$239,829
Deviation from
Trend Line
26.4%
-3.1%
-16.1%
-18.3%
-12.7%
-4.0%
4.0%
11.5%
18.2%
15.8%
18.9%
10.3%
-12.6%
-13.1%
-10.8%
-8.4%
0.0%
10.3%
Annual Percent
Change in the Actual
Value of Construction
-21.52%
-11.41%
-0.34%
9.35%
12.44%
10.83%
9.73%
8.48%
0.24%
5.09%
-5.11%
-18.84%
1.74%
5.02%
5.01%
11.76%
12.82%
Difference from Annual Percent
Change in the Actual Value of
Construction to Average Growth
of2.08%
-23.59%
-13.48%
-2.42%
7.27%
10.36%
8.75%
7.66%
6.40%
-1.83%
3.01%
-7.19%
-20.91%
-0.33%
2.94%
2.93%
9.69%
10.74%
At, Above, or
Below Trend Line3
Above
At
Below
Below
Below
At
At
Above
Above
Above
Above
At
Below
Below
Below
At
At
Above
At, Above, or Below
Average Growth1"
Below
Below
At
Above
Above
Above
Above
Above
At
At
Below
Below
At
At
At
Above
Above
a Given a deviation variable of 10.26 percent; i.e. if the deviation from the trend line was ± 10
b Given a deviation variable of 3.5 percent; i.e. if the difference from the annual percent chan:
average growth.
Source: U.S. Census Bureau's Construction Spending (2008a) and EPA Estimates
26 percent from zero, the year was considered to be "at" the trend.
;e in the actual value of construction to the average was ±3.5 percent from zero, the year was considered to be "at"
November 23, 2009
A-9
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Appendix A: Adverse Case
Table A-4: Actual and Estimated Trend Values for the Non-Building Construction Sector (2006 $Millions)
Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Actual Value of
Construction
$91,242
$86,556
$88,873
$88,897
$91,369
$91,349
$94,136
$98,757
$98,940
$106,904
$112,055
$120,267
$121,232
$126,033
$125,904
$132,588
$141,548
$154,087
Estimated
Trend Line
Value of
Construction
$81,478
$84,203
$87,020
$89,930
$92,938
$96,047
$99,259
$102,579
$106,010
$109,556
$113,220
$117,007
$120,920
$124,965
$129,145
$133,464
$137,928
$142,541
Deviation
from Trend
Line
12.0%
2.8%
2.1%
-1.1%
-1.7%
-4.9%
-5.2%
-3.7%
-6.7%
-2.4%
-1.0%
2.8%
0.3%
0.9%
-2.5%
-0.7%
2.6%
8.1%
Annual Percent
Change in the
Actual Value of
Construction
-5.14%
2.68%
0.03%
2.78%
-0.02%
3.05%
4.91%
0.19%
8.05%
4.82%
7.33%
0.80%
3.96%
-0.10%
5.31%
6.76%
8.86%
Difference from Annual
Percent Change in the Actual
Value of Construction to
Average Growth of 3.19%
-8.33%
-0.51%
-3.16%
-0.41%
-3.21%
-0.14%
1.72%
-3.01%
4.86%
1.63%
4.14%
-2.39%
0.77%
-3.29%
2.12%
3.57%
5.67%
At, Above, or
Below Trend
Line3
Above
Above
Above
At
At
Below
Below
Below
Below
Below
At
Above
At
At
Below
At
Above
Above
At, Above, or Below
Average Growth1"
Below
At
Below
At
Below
At
At
Below
Above
At
Above
Below
At
Below
Above
Above
Above
a Given a deviation variable of 2 percent; i.e. if the deviation from the trend line was ± 2 percent from zero.
b Given a deviation variable of 2 percent; i.e. if the difference from the annual percent change in the actual
was considered to be "at" average growth.
Source: U.S. Census Bureau's Construction Spending (2008a) and EPA Estimates
the year was considered to be "at" the trend.
value of construction to the average was ± 2 percent from zero, the year
A-10
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Appendix A: Adverse Case
Defining the Aggregate Level of C&D Activity for the Adverse Business Conditions Case
Under adverse business conditions, EPA assumes that the total operating level of the C&D industry and total
construction activity subject to regulatory requirements will be less than the 2008-trend baseline activity
estimates. This section describes how EPA developed an estimate of the aggregate level of activity that reflects
what the industry might have looked like during 2008 if all three broad C&D sectors were experiencing adverse
business conditions.
The approach for estimating the level of industry activity under adverse 2008 conditions mirrors the approach for
estimating the 2008-trend level of activity detailed in Section 4.1 of Chapter 4. The one material difference in
these approaches concerns the assumed value of construction performed by sector, which forms part of the basis
for estimating an activity level.
For the non-residential and non-building sectors - which were not in particularly adverse condition during 2008 -
EPA draws on the same data presented above in Table A-3 and Table A-4. These data were also used to determine
the average percentage deviation from the trend in the below trend line years by sector. EPA used these
percentage values, presented in Table A-5, in the adverse analysis case to adjust downward the baseline level of
activity for the non-residential and non-building sector (i.e., to simulate adverse conditions during 2008 in these
sectors, the percentages were applied as a deviation from the 2008-trend level of activity).
Table A-5: Average Growth, Estimated Trend, and the Typical Deviation in Below Trend Years
Average Growth
Estimated Trend
Average Deviation in Below Trend Years
Non-Residential
2.08%
2.30%
-13.89%
Non-Building
3.19%
3.29%
-4.23%
Source: U.S. Census Bureau 's Construction Spending (2008a) and EPA Estimates
For the residential construction sector, rather than rely on the average annual deviation from trend during
relatively adverse years, EPA elected to simply use the reported value of construction during 2008 for this sector.
This value results in a more adverse condition for this sector (i.e., less activity) than would be generated if EPA
relied on the deviation from trend method.
Once the value of construction is specified for each sector, the approach for estimating aggregate acreage is
identical to the approach utilized in Section 4.1 of Chapter 4. That is, value is combined with acreage intensity to
produce an estimate of aggregate acreage, by sector, in the 2008-adverse year. Table A-6 indicates that the
aggregate quantity of acreage used to support the adverse analysis case is approximately 592,000 acres.79
Table A-6: Value of Construction Basis for Estiamting Adverse-Case Level of C&D Activity
Residential
Commercial
Industrial
Non-Building
Value of
Construction Basis
$230,216
$3Ysf848
$29™649"
$8™8i"i
Year Basis
2008 actual
^^^••Y3;g9%^gy^-0^'g0'm^2oo8-tre^
-^— Ł— YJ-"^
Negative" "423% "deviation '^^QQ^g^
Acreage Intensity
0.860
0.911
0.911
3.522
Acres
223,721
309™oi2
28™645
31™028
Source: U.S. Census Bureau's Construction Spending (2008a) and EPA Estimates
Recall that the Proposed Rule economic analysis was a 2002 analysis with respect to the composition of the C&D industry, and
performed on the basis of approximately 590,000 acres, which reflects the average annual level of acreage developed during the
period 1991 -2001. Thus, the level of activity developed to support the current adverse analysis case, coincentially, implies a level of
activity on par with what was occurring during approximately the mid-1990s.
November 23, 2009
A-11
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Appendix A: Adverse Case
Next, to complete the definition of industry activity for the adverse analysis case, EPA followed the following
process:
1. The quantity of 2008-adverse acreage is distributed across states and C&D industry sectors using the same
approach for distributing the 2008-trend quantity, as described in Section 4.2.1 of Chapter 4. In this case, the
activity allocation factors were based on the 2008-adverse firm universe developed by EPA (number 4
below).
2. The quantity of 2008-adverse acreage is distributed across 144 model project categories for which compliance
costs were estimated in developing the C&D final rule. The approach for this step is the same as that
described previously in Section 4.2.2 of Chapter 4.
3. The intial acreage distribution results were then adjusted, using the approach described in Section 4.2.3 of
Chapter 4.
4. The 2002 C&D firm universe data set was adjusted to reflect 2008-adverse conditions using the same
approach to adjust this data set to 2008-trend conditions, as described in Section 4.4 of Chapter 4.
Adverse Analysis Case Results
As described above, the adverse analysis case assumes that firms in the C&D industry pass through none of the
incremental compliance costs and uses the adverse business conditions case definition for model C&D firms. In
addition, the adverse analysis case also reflects a lower overall level of activity in the C&D industry relative to the
steady-state, general conditions analysis case. As a result of the contraction in the number of firms and total
activity, total estimated compliance costs and economic impacts are lower than those under the general conditions
analysis case when there is an assumption of no cost pass-through. Essentially, the contraction in industry activity
estimated under the adverse business conditions case outweighs the effect of poorer firm financial performance
and the cost pass-through effect. Relative to the general conditions analysis case with cost pass-through,
economic impacts under the adverse conditions analysis case are larger. The results for the adverse analysis case
are presented in Table A-7.
With respect to the firms incurring costs that exceed 1 and 3 percent of revenues, the impacts under the adverse
analysis case are exactly the same regardless of whether one accounts for the effect of cost pass-through. This is
simply because the cost pass-through fraction is assumed to be 0% in the adverse case, and thus, the effect is the
same as though cost pass-through had not been taken into account.
A-12 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Appendix A: Adverse Case
Table A-7: Summary of Analysis for Final Rule Options - Adverse Business Conditions Analysis
Impact Analysis Concept
Option 1
Option 2
Option 3
Option 4
Resource Cost of Compliance and Affected Acreage and Firms3
Total Costs (Smillions)
Total Acreage Incurring Costa
Number of Firms
All Firms
Firms In-Scope
Firms Incurring Cost
$125
591,772
154,048
58,931
17,491
$3,316
591,772
154,048
58,931
17,491
$6,184
591,772
154,048
58,931
17,491
$654
591,772
154,048
58,931
17,491
Firms with Compliance Cost Exceeding Percentages of Revenue Judged Potentially Indicative of Adverse Impact
Costs Unadjusted for Effect of Cost Pass-Through
Costs Exceeding 1% of Revenue
Costs Exceeding 3% of Revenue
Slumber Incurring Effect
% of All Firms
% of Firms In-Scope
Slumber Incurring Effect
% of All Firms
% of Firms In-Scope
0
0.0%
0.0%
0
0.0%
0.0%
2,037
1.3%
3.5%
751
0.5%
1.3%
6,960
4.5%
11.8%
3,401
2.2%
5.8%
105
0.1%
0.2%
0
0.0%
0.0%
Costs Adjusted for Effect of Cost Pass-Through
Costs Exceeding 1% of Revenue
Costs Exceeding 3% of Revenue
Slumber Incurring Effect
% of All Firms
% of Firms In-Scope
Slumber Incurring Effect
% of All Firms
% of Firms In-Scope
0
0.0%
0.0%
0
0.0%
0.0%
2,037
1.3%
3.5%
751
0.5%
1.3%
6,960
4.5%
11.8%
3,401
2.2%
5.8%
105
0.1%
0.2%
0
0.0%
0.0%
Firms Estimated to Incur Financial Stress From Deterioration in Measures of Financial Performance
Firms Incurring Financial Stress
Slumber Incurring Effect
% of All Firms
% of Firms In-Scope
71
0.0%
0.1%
3,163
2.1%
5.4%
8,168
5.3%
13.9%
315
0.2%
0.5%
Firms whose Net Business Value Becomes Negative as a Result of Compliance (Potential Closures)
Firms with Negative Business Value
Because of Regulation
Slumber Incurring Effect
% of All Firms
% of Firms In-Scope
180
0.1%
0.3%
1,041
0.7%
1.8%
2,966
1.9%
5.0%
547
0.4%
0.9%
EPA Estimates
> For Option 1, the least costly of the four options, EPA estimates total annual costs of $125 million. A
total of about 17,500 firms are estimated to incur compliance costs under this option. Out of these firms,
none are estimated to incur costs exceeding 1 or 3 percent of revenue, while 71 firms are estimated to
incur financial stress. A total of 180 firms are estimated to experience negative business value as a result
of regulatory requirements. Some of the firms estimated to incur financial stress may also be estimated to
experience negative business value, and as a result, these two measures of financial impact may not be
additive.
> For Option 2, EPA estimates total annual costs of $3,316 million. Out of the 17,500 firms estimated to
incur costs, 2,037 are estimated to incur costs exceeding 1 percent of revenue, and 751 are estimated to
incur costs exceeding 3 percent of revenue. A total of 3,163 firms are estimated to incur financial stress as
a result of regulatory requirements, and a total of 1,041 firms are estimated to experience negative
business value as a result of regulatory requirements. Some of the firms estimated to incur financial stress
may also be estimated to experience negative business value, and as a result, these two measures of
financial impact may not be additive.
> For Option 3, the most costly option, EPA estimates total annual costs of $6,184 million. Out of these
17,500 firms estimated to incur costs, 6,960 are estimated to incur costs exceeding 1 percent of revenue,
and 3,401 are estimated to incur costs exceeding 3 percent of revenue. A total of 8,168 firms are
estimated to incur financial stress as a result of regulatory requirements, and a total of 2,966 firms are
estimated to experience negative business value as a result of regulatory requirements. Some of the firms
estimated to incur financial stress may also be estimated to experience negative business value, and as a
result, these two measures of financial impact may not be additive.
November 23, 2009
A-13
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Appendix A: Adverse Case
> For Option 4, EPA estimates total costs of $654 million under the adverse business conditions case. Out
of the 17,500 firms estimated to incur costs, 105 are estimated to incur costs exceeding 1 percent of
revenue, and zero are estimated to incur costs exceeding 3 percent of revenue. A total of 315 firms are
estimated to incur financial stress as a result of regulatory requirements, and 547 firms are estimated to
experience negative business value as a result of regulatory requirements. Some of the firms estimated to
incur financial stress may also be estimated to experience negative business value, and as a result, these
two measures of financial impact may not be additive.
A-14 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Appendix B: Firm Results
Appendix B: Detailed Results for the Firm- and Industry-Level Analysis
Table B-l through Table B-8 report the detailed results for the firm- and industry-level impact analysis for Options 1, 2, 3, and 4. The results reported are
for the general business conditions case.
Table B-1: Option 1 Results by Firm Revenue Size Range and Estimated Total for All Firms in NAICS Sectors
Firm Revenue Size
$100
$1,000
Total Firms in Revenue Ranges (from SUSB and Economic Census)
Number of Firms 1 10,381
Total Revenue in Range (millions $2008) $49,4 1 5
Estimated Employment 315,430
Total Firms in Revenue Ranges Estimated to Incur Costs
Number of Firms
Total Annual Compliance Acreage and Cost
Total Indicated Compliance Acreage
Total Indicated Cost (millions $2008)
2,788
2,023
$0.5
$1,000
$3,000
38,237
$67,110
282,052
6,958
20,101
$4.3
Range, Based on SUSB/Economic Census Data ($000)
$3,000 $5,000 $10,000 $50,000 $100,000
$5,000 $10,000 $50,000 $100,000 $1,000,000
19,197 8,475 8,341
$72,150 $69,532 $190,276
235,071 192,867 413,537
8,406
53,179
$12.0
4,756
69,554
$15.5
6,017
250,831
$55.3
Percent and Number of Firms Falling Below NAICS Sector 1st Quartile Values for Financial Performance Measures
Composite Result (calculated as the greater of the separate estimate values)
Estimated Number of Firms 1 3 6 0 18
Percentage of All Firms 0.0% 0.0% 0.0% 0.0% 0.2%
Percentage of Firms Incurring Costs 0.0% 0.1% 0.1% 0.0% 0.3%
Cost-to-Revenue Comparisons (based on distribution of in-scope acreage of activity
with Compliance Costs Reduced by Cost Pass-Through Increase in Revenue
Number exceeding 1.0% of Revenue 0 0
Percentage of All Firms 0.0% 0.0%
Percentage of Firms Incurring Costs 0.0% 0.0%
Number exceeding 3.0% of Revenue
Percentage of All Firms
Percentage of Firms Incurring Costs
with Compliance Costs Unadjusted for Cost Pass-Through Effect
Number exceeding 1.0% of Revenue
Percentage of All Firms
Percentage of Firms Incurring Costs
Number exceeding 3.0% of Revenue
Percentage of All Firms
Percentage of Firms Incurring Costs
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
per $ million
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
of in-scope
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
revenue)
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
1,021
$71,202
123,226
634
82,101
$16.8
1
0.1%
0.1%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
1,427
$307,191
587,652
950
374,860
$71.3
1
0.1%
0.1%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
All
Firms
187,079
$826,875
2,149,835
30,508
852,649
$175.8
31
0.0%
0.1%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
Small
Firms
182,545
$400,914
1,335,572
27,420
332,981
$73.8
24
0.0%
0.1%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
Change in Business Value (valued on the basis of cash flow to total capital)
November 23, 2009
B-1
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Appendix B: Firm Results
Table B-1: Option 1 Results by Firm Revenue Size Range and Estimated Total for All Firms in NAICS Sectors
Firm Revenue Size Range, Based on SUSB/Economic Census Data ($000)
$100 $1,000 $3,000 $5,000 $10,000 $50,000 $100,000
All
$1,000 $3,000 $5,000 $10,000 $50,000 $100,000 $1,000,000 Firms
Small
Firms
Firms With Negative Net Worth Because of Regulation
Number of Firms
Percentage of All Firms
Percentage of Firms Incurring Costs
Number of Employees in Firms with Negative Business
Value
0
0.0%
0.0%
1
3
0.0%
0.0%
20
6
0.0%
0.1%
79
7
0.1%
0.1%
161
11
0.1%
0.2%
563
1
0.1%
0.2%
119
1
0.1%
0.1%
521
30
0.0%
0.1%
1464
25
0.0%
0.1%
683
B-2
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Appendix B: Firm Results
Table B-2: Option 1 Results by NAICS Sector Aggregated over Firm Revenue Size Ranges
NAICS Sectors
236115 236116
Total Firms in Sectors (from SUSB and Economic Census)
Number of Firms 69,288 6,005
Total Revenue in Sector (millions $2008) $115,846 $28,356
Estimated Employment 283,166 51,753
Total Firms in Sectors Estimated to Incur Costs
Number of Firms
Total Annual Compliance Acreage and Cost, based on Adjusted Total Firms
Total Indicated Compliance Acreage
Total Indicated Cost (millions $2008)
11,570
in Sectors
118,632
$22.5
933
27,303
$5.3
236117 236210
30,347 4,159
$166,722 $56,447
305,734 232,245
5,994
172,834
$32.6
Percent and Number of Firms Falling Below NAICS Sector 1st Quartile Values for Financial Performance Measures
Composite Result (calculated as the greater of the separate estimate values)
Estimated Number of Firms 40 2
Percentage of All Firms 0.0% 0.0% 0.0%
Percentage of Firms Incurring Costs 0.0% 0.0% 0.0%
Cost-to-Revenue Comparisons (based on distribution of in-scope acreage of activity per $
with Compliance Costs Reduced by Cost Pass-Through Increase in Revenue
Number exceeding 1.0% of Revenue 0
Percentage of All Firms 0.0%
Percentage of Firms Incurring Costs 0.0%
Number exceeding 3.0% of Revenue
Percentage of All Firms
Percentage of Firms Incurring Costs
with Compliance Costs Unadjusted for Cost Pass-Through Effect
Number exceeding 1.0% of Revenue
Percentage of All Firms
Percentage of Firms Incurring Costs
Number exceeding 3.0% of Revenue
Percentage of All Firms
Percentage of Firms Incurring Costs
Change in Business Value (valued on the basis of cash flow to total capital)
Firms With Negative Net Worth Because of Regulation
Number of Firms
Percentage of All Firms
Percentage of Firms Incurring Costs
Number of Employees in Firms with Negative Business Value
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
6
0.0%
0.0%
23
million
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.1%
4
of in-scope revenue)
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
3
0.0%
0.0%
25
623
57,548
$11.2
1
0.0%
0.2%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
1
0.0%
0.1%
44
236220
67,235
$385,876
1,005,280
10,408
400,344
$76.8
30
0.0%
0.3%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
18
0.0%
0.2%
276
237310
10,044
$73,628
271,657
980
75,988
$27.4
4
0.0%
0.4%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
2
0.0%
0.2%
63
All
Sectors
187,079
$826,875
2,149,835
30,508
852,649
$175.8
43
0.0%
0.1%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
30
0.0%
0.1%
436
November 23, 2009
B-3
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Appendix B: Firm Results
Table B-3: Option 2 Results by Firm Revenue Size Range and Estimated Total for
All Firms
in NAICS
Sectors
Firm Revenue Size Range, Based on SUSB/Economic Census Data
($000)
$100
$1,000
Total Firms in Revenue Ranges (from SUSB and Economic Census)
Number of Firms 1 10,381
Total Revenue in Range (millions $2008) $49,4 1 5
Estimated Employment 315,430
Total Firms in Revenue Ranges Estimated to Incur Costs
Number of Firms
Total Annual Compliance Acreage and Cost
Total Indicated Compliance Acreage
Total Indicated Cost (millions $2008)
2,788
2,023
$0.5
$1,000
$3,000
38,237
$67,110
282,052
6,958
20,101
$9.3
$3,000
$5,000
19,197
$72,150
235,071
8,406
53,179
$102.8
$5,000
$10,000
8,475
$69,532
192,867
4,756
69,554
$240.0
Percent and Number of Firms Falling Below NAICS Sector 1st Quartile Values for Financial Performance
Composite Result (calculated as the greater of the separate estimate values)
Estimated Number of Firms 1 7 34 788
Percentage of All Firms 0.0% 0.0% 0.2% 9.3%
Percentage of Firms Incurring Costs 0.0% 0.1% 0.4% 16.6%
Cost-to-Revenue Comparisons (based on distribution of in-scope acreage of activity
with Compliance Costs Reduced by Cost Pass-Through Increase in Revenue
Number exceeding 1.0% of Revenue 0 15
Percentage of All Firms 0 . 0% 0.0%
Percentage of Firms Incurring Costs 0.0% 0.2%
Number exceeding 3.0% of Revenue
Percentage of All Firms
Percentage of Firms Incurring Costs
with Compliance Costs Unadjusted for Cost Pass-Through Effect
Number exceeding 1.0% of Revenue
Percentage of All Firms
Percentage of Firms Incurring Costs
Number exceeding 3.0% of Revenue
Percentage of All Firms
Percentage of Firms Incurring Costs
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
Change in Business Value (valued on the basis of cash flow to total capital)
Firms With Negative Net Worth Because of Regulation
Number of Firms 0
Percentage of All Firms 0.0%
Percentage of Firms Incurring Costs 0.0%
Number of Employees in Firms with Negative Business Value 1
0
0.0%
0.0%
65
0.2%
0.9%
56
0.1%
0.8%
5
0.0%
0.1%
39
$10,000
$50,000
8,341
$190,276
413,537
6,017
250,831
$1,526.8
Measures
259
3.1%
4.3%
per $ million of in-scope revenue)
11 107 613
0.1% 1.3% 7.4%
0.1% 2.2% 10.2%
0
0.0%
0.0%
788
4.1%
9.4%
349
1.8%
4.1%
53
0.3%
0.6%
650
10
0.1%
0.2%
971
11.5%
20.4%
512
6.0%
10.8%
45
0.5%
0.9%
1,021
66
0.8%
1.1%
2,173
26.1%
36.1%
1,234
14.8%
20.5%
264
3.2%
4.4%
13,076
$50,000
$100,000
1,021
$71,202
123,226
634
82,101
$504.1
37
3.6%
5.9%
35
3.5%
5.6%
1
0.1%
0.2%
271
26.6%
42.8%
75
7.3%
11.8%
25
2.5%
4.0%
3,073
$100,000
$1,000,000
1,427
$307,191
587,652
950
374,860
$2,482.4
55
3.8%
5.8%
91
6.4%
9.6%
3
0.2%
0.4%
448
31.4%
47.2%
172
12.1%
18.2%
37
2.6%
3.9%
15,184
All
Firms
187,079
$826,875
2,149,835
30,508
852,649
$4,865.9
1,181
0.6%
3.9%
873
0.5%
2.9%
81
0.0%
0.3%
4,717
2.5%
15.5%
2,399
1.3%
7.9%
430
0.2%
1.4%
33,044
Small
Firms
182,545
$400,914
1,335,572
27,420
332,981
$1,497.7
1,024
0.6%
3.7%
593
0.3%
2.2%
60
0.0%
0.2%
3,454
1.9%
12.6%
1,843
1.0%
6.7%
301
0.2%
1.1%
11,518
B-4
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Appendix B: Firm Results
Table B-4: Option 2 Results by NAICS Sector Aggregated over Firm Revenue Size Ranges
NAICS Sectors
236115 236116
Total Firms in Sectors (from SUSB and Economic Census)
Number of Firms 69,288 6,005
Total Revenue in Sector (millions $2008) $1 15,846 $28,356
Estimated Employment 283,166 51,753
Total Firms in Sectors Estimated to Incur Costs
Number of Firms
Total Annual Compliance Acreage and Cost, based on Adjusted Total Firms
Total Indicated Compliance Acreage
Total Indicated Cost (millions $2008)
11,570
in Sectors
118,632
$866.9
933
27,303
$216.2
236117
30,347
$166,722
305,734
5,994
172,834
$1,264.1
236210
4,159
$56,447
232,245
623
57,548
$233.5
Percent and Number of Firms Falling Below NAICS Sector 1st Quartile Values for Financial Performance Measures
Composite Result (calculated as the greater of the separate estimate values)
Estimated Number of Firms 84 5 38 18
Percentage of All Firms 0.1% 0.1% 0.1% 0.4%
Percentage of Firms Incurring Costs 0.7% 0.6% 0.6% 2.9%
Cost-to-Revenue Comparisons (based on distribution of in-scope acreage of activity per $
with Compliance Costs Reduced by Cost Pass-Through Increase in Revenue
Number exceeding 1.0% of Revenue 86
Percentage of All Firms 0. 1%
Percentage of Firms Incurring Costs 0.7%
Number exceeding 3.0% of Revenue
Percentage of All Firms
Percentage of Firms Incurring Costs
with Compliance Costs Unadjusted for Cost Pass-Through Effect
Number exceeding 1.0% of Revenue
Percentage of All Firms
Percentage of Firms Incurring Costs
Number exceeding 3.0% of Revenue
Percentage of All Firms
Percentage of Firms Incurring Costs
Change in Business Value (valued on the basis of cash flow to total capital)
Firms With Negative Net Worth Because of Regulation
Number of Firms
Percentage of All Firms
Percentage of Firms Incurring Costs
Number of Employees in Firms with Negative Business Value
0
0.0%
0.0%
2,131
3.1%
18.4%
1,015
1.5%
8.8%
89
0.1%
0.8%
362
million
7
0.1%
0.8%
0
0.0%
0.0%
160
2.7%
17.2%
72
1.2%
7.7%
7
0.1%
0.8%
64
of in-scope revenue)
56 37
0.2% 0.9%
0.9% 6.0%
0
0.0%
0.0%
994
3.3%
16.6%
480
1.6%
8.0%
42
0.1%
0.7%
421
2
0.0%
0.3%
80
1.9%
12.9%
44
1.1%
7.0%
11
0.3%
1.7%
590
236220
67,235
$385,876
1,005,280
10,408
400,344
$1,682.6
228
0.3%
2.2%
448
0.7%
4.3%
11
0.0%
0.1%
1,050
1.6%
10.1%
534
0.8%
5.1%
229
0.3%
2.2%
3,418
237310
10,044
$73,628
271,657
980
75,988
$602.7
78
0.8%
7.9%
239
2.4%
24.4%
69
0.7%
7.0%
302
3.0%
30.8%
254
2.5%
25.9%
53
0.5%
5.4%
1,427
All
Sectors
187,079
$826,875
2,149,835
30,508
852,649
$4,865.9
451
0.2%
1.5%
873
0.5%
2.9%
81
0.0%
0.3%
4,717
2.5%
15.5%
2,399
1.3%
7.9%
430
0.2%
1.4%
6,282
November 23, 2009
B-5
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Appendix B: Firm Results
Table B-5: Option 3 Results by Firm Revenue Size Range and Estimated Total for
All Firms
in NAICS
Sectors
Firm Revenue Size Range, Based on SUSB/Economic Census Data
($000)
$100
$1,000
Total Firms in Revenue Ranges (from SUSB and Economic Census)
Number of Firms 1 10,381
Total Revenue in Range (millions $2008) $49,4 1 5
Estimated Employment 315,430
Total Firms in Revenue Ranges Estimated to Incur Costs
Number of Firms
Total Annual Compliance Acreage and Cost
Total Indicated Compliance Acreage
Total Indicated Cost (millions $2008)
2,788
2,023
$1.8
$1,000
$3,000
38,237
$67,110
282,052
6,958
20,101
$135.7
$3,000
$5,000
19,197
$72,150
235,071
8,406
53,179
$686.9
$5,000
$10,000
8,475
$69,532
192,867
4,756
69,554
$801.9
Percent and Number of Firms Falling Below NAICS Sector 1st Quartile Values for Financial Performance
Composite Result (calculated as the greater of the separate estimate values)
Estimated Number of Firms 4 97 317 4,297
Percentage of All Firms 0.0% 0.3% 1.7% 50.7%
Percentage of Firms Incurring Costs 0.1% 1.4% 3.8% 90.3%
Cost-to-Revenue Comparisons (based on distribution of in-scope acreage of activity
with Compliance Costs Reduced by Cost Pass-Through Increase in Revenue
Number exceeding 1.0% of Revenue 40 462
Percentage of All Firms 0 . 0% 1.2%
Percentage of Firms Incurring Costs 1.4% 6.6%
Number exceeding 3.0% of Revenue
Percentage of All Firms
Percentage of Firms Incurring Costs
with Compliance Costs Unadjusted for Cost Pass-Through Effect
Number exceeding 1.0% of Revenue
Percentage of All Firms
Percentage of Firms Incurring Costs
Number exceeding 3.0% of Revenue
Percentage of All Firms
Percentage of Firms Incurring Costs
14
0.0%
0.5%
47
0.0%
1.7%
47
0.0%
1.7%
Change in Business Value (valued on the basis of cash flow to total capital)
Firms With Negative Net Worth Because of Regulation
Number of Firms 1
Percentage of All Firms 0.0%
Percentage of Firms Incurring Costs 0.0%
Number of Employees in Firms with Negative Business Value 3
28
0.1%
0.4%
1,536
4.0%
22.1%
1,331
3.5%
19.1%
68
0.2%
1.0%
505
$10,000
$50,000
8,341
$190,276
413,537
6,017
250,831
$2,934.5
Measures
531
6.4%
8.8%
per $ million of in-scope revenue)
703 781 1,362
3.7% 9.2% 16.3%
8.4% 16.4% 22.6%
20
0.1%
0.2%
4,297
22.4%
51.1%
2,916
15.2%
34.7%
263
1.4%
3.1%
3,217
35
0.4%
0.7%
2,860
33.7%
60.1%
1,971
23.3%
41.5%
248
2.9%
5.2%
5,637
119
1.4%
2.0%
4,199
50.3%
69.8%
2,455
29.4%
40.8%
570
6.8%
9.5%
28,240
$50,000
$100,000
1,021
$71,202
123,226
634
82,101
$813.5
65
6.4%
10.3%
67
6.6%
10.6%
2
0.2%
0.3%
432
42.3%
68.1%
132
12.9%
20.7%
45
4.4%
7.1%
5,428
$100,000
$1,000,000
1,427
$307,191
587,652
950
374,860
$3,716.2
88
6.2%
9.3%
158
11.1%
16.6%
6
0.4%
0.7%
651
45.6%
68.5%
275
19.3%
28.9%
59
4.2%
6.2%
24,412
All
Firms
187,079
$826,875
2,149,835
30,508
852,649
$9,090.4
5,398
2.9%
17.7%
3,573
1.9%
11.7%
225
0.1%
0.7%
14,021
7.5%
46.0%
9,126
4.9%
29.9%
1,254
0.7%
4.1%
67,443
Small
Firms
182,545
$400,914
1,335,572
27,420
332,981
$3,827.1
5,112
2.8%
18.6%
3,008
1.6%
11.0%
187
0.1%
0.7%
11,889
6.5%
43.4%
8,106
4.4%
29.6%
1,007
0.6%
3.7%
30,542
B-6
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Appendix B: Firm Results
Table B-6: Option 3 Results by NAICS Sector Aggregated over Firm Revenue Size Ranges
NAICS Sectors
236115
Total Firms in Sectors (from SUSB and Economic Census)
Number of Firms 69,288
Total Revenue in Sector (millions $2008) $ 1 1 5,846
Estimated Employment 283,166
Total Firms in Sectors Estimated to Incur Costs
Number of Firms
11,570
236116
6,005
$28,356
51,753
933
Total Annual Compliance Acreage and Cost, based on Adjusted Total Firms in Sectors
Total Indicated Compliance Acreage 118,632 27,303
Total Indicated Cost (millions $2008) $1,575.7 $400.5
Percent and Number of Firms Falling Below NAICS Sector 1st Quartile Values for
Composite Result (calculated as the greater of the separate estimate values)
Estimated Number of Firms 280
Percentage of All Firms 0.4%
Percentage of Firms Incurring Costs 2.4%
Cost-to-Revenue Comparisons (based on distribution of in-scope acreage of activity
with Compliance Costs Reduced by Cost Pass-Through Increase in Revenue
Number exceeding 1 . 0% of Revenue 718
Percentage of All Firms 1.0%
Percentage of Firms Incurring Costs 6.2%
Number exceeding 3.0% of Revenue
Percentage of All Firms
Percentage of Firms Incurring Costs
with Compliance Costs Unadjusted for Cost Pass-Through Effect
Number exceeding 1.0% of Revenue
Percentage of All Firms
Percentage of Firms Incurring Costs
Number exceeding 3.0% of Revenue
Percentage of All Firms
Percentage of Firms Incurring Costs
Change in Business Value (valued on the basis of cash flow to total capital)
Firms With Negative Net Worth Because of Regulation
Number of Firms
Percentage of All Firms
Percentage of Firms Incurring Costs
Number of Employees in Firms with Negative Business Value
14
0.0%
0.1%
6,269
9.0%
54.2%
3,923
5.7%
33.9%
290
0.4%
2.5%
1,184
236117
30,347
$166,722
305,734
5,994
172,834
$2,293.2
236210
4,159
$56,447
232,245
623
57,548
$479.2
Financial Performance Measures
20 189 45
0.3% 0.6% 1.1%
2.1% 3.1% 7.3%
per $ million
46
0.8%
5.0%
0
0.0%
0.0%
453
7.5%
48.5%
259
4.3%
27.8%
25
0.4%
2.7%
216
of in-scope
425
1.4%
7.1%
0
0.0%
0.0%
3,161
10.4%
52.7%
2,218
7.3%
37.0%
88
0.3%
1.5%
886
revenue)
126
3.0%
20.2%
11
0.3%
1.7%
212
5.1%
34.0%
142
3.4%
22.7%
26
0.6%
4.1%
1,425
236220
67,235
$385,876
1,005,280
10,408
400,344
$3,398.8
651
1.0%
6.3%
1,766
2.6%
17.0%
48
0.1%
0.5%
3,346
5.0%
32.1%
2,071
3.1%
19.9%
730
1.1%
7.0%
10,915
237310
10,044
$73,628
271,657
980
75,988
$943.0
150
1.5%
15.3%
491
4.9%
50.1%
152
1.5%
15.5%
580
5.8%
59.2%
513
5.1%
52.3%
96
1.0%
9.8%
2,588
All
Sectors
187,079
$826,875
2,149,835
30,508
852,649
$9,090.4
1,336
0.7%
4.4%
3,573
1.9%
11.7%
225
0.1%
0.7%
14,021
7.5%
46.0%
9,126
4.9%
29.9%
1,254
0.7%
4.1%
17,213
November 23, 2009
B-7
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Appendix B: Firm Results
Table B-7: Option 4 Results by Firm Revenue Size Range and Estimated Total for All Firms in NAICS Sectors
Firm Revenue Size Range, Based on SUSB/Economic Census Data ($000)
$100
$1,000
Total Firms in Revenue Ranges (from SUSB and Economic Census)
Number of Firms 110,381
Total Revenue in Range (millions $2008) $49,4 1 5
Estimated Employment 3 1 5,430
Total Firms in Revenue Ranges Estimated to Incur Costs
Number of Firms
Total Annual Compliance Acreage and Cost
Total Indicated Compliance Acreage
Total Indicated Cost (millions $2008)
2,788
2,023
$0.6
$1,000 $3,000
$3,000 $5,000
38,237 19,197
$67,110 $72,150
282,052 235,071
6,958
20,101
$14.5
8,406
53,179
$66.6
$5,000
$10,000
8,475
$69,532
192,867
4,756
69,554
$85.8
$10,000
$50,000
8,341
$190,276
413,537
6,017
250,831
$314.1
Percent and Number of Firms Falling Below NAICS Sector 1st Quartile Values for Financial Performance Measures
Composite Result (calculated as the greater of the separate estimate values)
Estimated Number of Firms 1 10 27 25 95
Percentage of All Firms 0.0% 0.0% 0.1% 0.3% 1.1%
Percentage of Firms Incurring Costs 0.0% 0.1% 0.3% 0.5% 1.6%
Cost-to-Revenue Comparisons (based on distribution of in-scope acreage of activity per $
with Compliance Costs Reduced by Cost Pass-Through Increase in Revenue
Number exceeding 1.0% of Revenue 0 0
Percentage of All Firms 0.0% 0.0%
Percentage of Firms Incurring Costs 0.0% 0.0%
Number exceeding 3.0% of Revenue
Percentage of All Firms
Percentage of Firms Incurring Costs
with Compliance Costs Unadjusted for Cost Pass-Through Effect
Number exceeding 1.0% of Revenue
Percentage of All Firms
Percentage of Firms Incurring Costs
Number exceeding 3.0% of Revenue
Percentage of All Firms
Percentage of Firms Incurring Costs
0
0.0%
0.0%
28
0.0%
1.0%
0
0.0%
0.0%
Change in Business Value (valued on the basis of cash flow to total capital)
Firms With Negative Net Worth Because of Regulation
Number of Firms 0
Percentage of All Firms 0 . 0%
Percentage of Firms Incurring Costs 0.0%
Number of Employees in Firms with Negative Business Value 1
0
0.0%
0.0%
29
0.1%
0.4%
0
0.0%
0.0%
8
0.0%
0.1%
59
million
0
0.0%
0.0%
0
0.0%
0.0%
25
0.1%
0.3%
0
0.0%
0.0%
33
0.2%
0.4%
404
of in-scope
0
0.0%
0.0%
0
0.0%
0.0%
41
0.5%
0.9%
0
0.0%
0.0%
36
0.4%
0.8%
821
revenue)
0
0.0%
0.0%
0
0.0%
0.0%
144
1.7%
2.4%
0
0.0%
0.0%
59
0.7%
1.0%
2,919
$50,000 $100,000
$100,000 $1,000,000
1,021
$71,202
123,226
634
82,101
$86.1
5
0.5%
0.7%
0
0.0%
0.0%
0
0.0%
0.0%
2
0.2%
0.3%
0
0.0%
0.0%
5
0.5%
0.7%
558
1,427
$307,191
587,652
950
374,860
$385.0
6
0.4%
0.6%
0
0.0%
0.0%
0
0.0%
0.0%
8
0.5%
0.8%
0
0.0%
0.0%
6
0.4%
0.6%
2,494
All
Firms
187,079
$826,875
2,149,835
30,508
852,649
$952.7
169
0.1%
0.6%
0
0.0%
0.0%
0
0.0%
0.0%
276
0.1%
0.9%
0
0.0%
0.0%
147
0.1%
0.5%
7,257
Small
Firms
182,545
$400,914
1,335,572
27,420
332,981
$403.1
135
0.1%
0.5%
0
0.0%
0.0%
0
0.0%
0.0%
230
0.1%
0.8%
0
0.0%
0.0%
122
0.1%
0.4%
3,475
B-8
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Appendix B: Firm Results
Table B-8: Option 4 Results by NAICS Sector Aggregated over Firm Revenue Size Ranges
NAICS Sectors
236115 236116
Total Firms in Sectors (from SUSB and Economic Census)
Number of Firms 69,288 6,005
Total Revenue in Sector (millions $2008) $115,846 $28,356
Estimated Employment 283,166 51,753
Total Firms in Sectors Estimated to Incur Costs
Number of Firms
11,570 933
Total Annual Compliance Acreage and Cost, based on Adjusted Total Firms in Sectors
Total Indicated Compliance Acreage 118,632 27,303
Total Indicated Cost (millions $2008) $162.6 $40.4
236117
30,347
$166,722
305,734
5,994
172,834
$232.6
236210
4,159
$56,447
232,245
623
57,548
$50.6
Percent and Number of Firms Falling Below NAICS Sector 1st Quartile Values for Financial Performance Measures
Composite Result (calculated as the greater of the separate estimate values)
Estimated Number of Firms 26 2 16 4
Percentage of All Firms 0.0% 0.0% 0.1% 0.1%
Percentage of Firms Incurring Costs 0.2% 0.2% 0.3% 0.7%
Cost-to-Revenue Comparisons (based on distribution of in-scope acreage of activity per $ million
with Compliance Costs Reduced by Cost Pass-Through Increase in Revenue
Number exceeding 1.0% of Revenue 0 0
Percentage of All Firms 0 . 0% 0.0%
Percentage of Firms Incurring Costs 0.0% 0.0%
Number exceeding 3.0% of Revenue
Percentage of All Firms
Percentage of Firms Incurring Costs
with Compliance Costs Unadjusted for Cost Pass-Through Effect
Number exceeding 1.0% of Revenue
Percentage of All Firms
Percentage of Firms Incurring Costs
Number exceeding 3.0% of Revenue
Percentage of All Firms
Percentage of Firms Incurring Costs
Change in Business Value (valued on the basis of cash flow to total capital)
Firms With Negative Net Worth Because of Regulation
Number of Firms
Percentage of All Firms
Percentage of Firms Incurring Costs
Number of Employees in Firms with Negative Business Value
0 0
0.0% 0.0%
0.0% 0.0%
41 1
0.1% 0.0%
0.4% 0.1%
0 0
0.0% 0.0%
0.0% 0.0%
38 3
0.1% 0.0%
0.3% 0.3%
155 22
of in-scope
0
0.0%
0.0%
0
0.0%
0.0%
12
0.0%
0.2%
0
0.0%
0.0%
17
0.1%
0.3%
170
revenue)
0
0.0%
0.0%
0
0.0%
0.0%
6
0.1%
0.9%
0
0.0%
0.0%
3
0.1%
0.5%
181
236220
67,235
$385,876
1,005,280
10,408
400,344
$357.6
104
0.2%
1.0%
0
0.0%
0.0%
0
0.0%
0.0%
18
0.0%
0.2%
0
0.0%
0.0%
73
0.1%
0.7%
1,099
237310
10,044
$73,628
271,657
980
75,988
$108.9
19
0.2%
2.0%
0
0.0%
0.0%
0
0.0%
0.0%
197
2.0%
20.1%
0
0.0%
0.0%
13
0.1%
1.3%
349
All
Sectors
187,079
$826,875
2,149,835
30,508
852,649
$952.7
172
0.1%
0.6%
0
0.0%
0.0%
0
0.0%
0.0%
276
0.1%
0.9%
0
0.0%
0.0%
147
0.1%
0.5%
1,977
November 23, 2009
B-9
-------
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Appendix C: Firm Sensitivity
Appendix C: Sensitivity Analysis of Industry-Level Financial Impacts
This appendix presents the results of analyses EPA performed to test the sensitivity of firm- and industry-level
impacts to alternate configurations of the in-scope firm criteria described in Section 6.2. The definition and
configuration of in-scope firms affects the way that model projects are assigned to model firms, and therefore
affects the incidence of firms incurring compliance costs.
Model Firm Project Performance Criteria
Recall that EPA's model project-to-firm allocation algorithm does not randomly assign model projects to firms,
but instead, recognizes key constraints such as the capability of individual model firms to perform a given type of
model project, and the relative performance capacity across model firms, accounting for the number of firms by
sector and state. To summarize, the primary assignment of model projects (and associated compliance costs) to
model firms involves the following steps (see Section 6.2 for full details):
1. Assess feasibility of model project performance by individual model firms, based on model firm in-scope
revenue and operating model, and annual project value per model project acre;
2. Rank projects (defined by size and duration) according to total industry performance capacity for each
type of project - from least capacity to most;
3. Successively assign projects to model firms in proportion to performance capacity of individual model
firm categories; and,
4. As project assignments are made, adjust available performance capacity to account for the aggregate
number of firms whose capacity is fully assigned, and also account for the quantity of model project
demand that has already been assigned to firms.
This sensitivity analysis focuses on criteria set forth in Step 1, which is discussed in more detail below.
The first step in assigning model projects to model firms is to assess the feasibility of model firms to perform the
individual model projects present for a given state and construction sector. The test of performance feasibility is
required because not all model firms are capable of performing the full slate of model projects present for a given
state and construction activity sector. The test of performance feasibility involves comparing:
> For a given model firm, the steady state maximum project acreage, on an annual performance basis, that
the model firm is estimated capable of performing - assuming that the model firm performs only in-scope
projects of a given duration
with
> For a given model project, the annual effective performance requirement of the project.
If the model firm's steady state maximum annual project acreage exceeds the model project's annual performance
requirement, then the model firm is assumed capable of performing the model project. These comparisons are
performed for all possible combinations of model projects and model firms for a given state and construction
activity sector. The feasibility determination is independent of the actual number of model projects that will need
to be assigned to model firms, and likewise is independent of the actual number of model firms to which the
model projects will be assigned.
The model firm's steady state annual project performance acreage is a function of:
November 23, 2009
C-1
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Appendix C: Firm Sensitivity
> The model firm's baseline in-scope revenue. In-scope revenue, together with the other factors described
below, is a key determinant of a model firm's project performance capacity. All else equal, the larger the
model firm's revenue, the larger will be the size of project that the firm is capable of performing.
> The acreage intensity of the model project category. As described previously in Chapter 4, acreage
intensity is the acreage quantity per dollar of construction project value (which is assumed to translate to
business revenue) and was estimated by EPA for the principal construction activities - single-family
housing construction, multifamily housing construction, commercial project construction, and industrial
project construction - estimated to be within the scope of the C&D rule. Acreage intensity is used as the
translator between a firm's in-scope revenue and the annual effective project acreage that the model firm
is capable of performing.
> The assumed steady state operating model of the firm, in terms of the lag between annual project starts.
This factor interacts with the duration of the model project under analysis to determine the total number
of model projects that a firm will have ongoing in a single analysis year - accounting both for the model
project (or bundle of model projects) started in that year and for the model projects (or single-year project
bundles) that may have started in prior years but remain ongoing (and continuing to generate compliance
costs) in the current analysis year.
> Duration of the model project. Model project duration interacts with the project start lag to determine the
number of model projects ongoing in a given analysis year - including both the projects from the current
year and projects continuing from prior years. For projects of greater than one year duration, EPA
assumed that the model project, and its value, could be spread uniformly over the project's duration for
determining the annual effective performance requirement of the model project. When the number of
projects ongoing includes projects from prior years, the model firm's annual effective project acreage that
is available for performing new model projects is reduced to account for the project performance capacity
that is being used for those projects from prior years.
These in-scope firm feasibility critieria, together with the remaining steps in the overall allocation algorithm, are
critical for determining which firms are assigned which projects, and therefore compliance cost. EPA judges that
an allocation process governed by these assumptions is reasonable in that it enables the full set of project demands
to be met by the industry without violating basic constraints implicit in the data with regard to firm capabilities.
Sensitivity Test of Model Firm Project Performance Criteria: Firm Specialization
EPA tested two alternative configurations of the basic model firm project performance criteria outlined above
(and detailed in Chapter 6).
The first sensitivity test maintains the overall structure of the primary algorithm with respect to how a firm's
capability to perform projects is evaluated, but then incorporates the Census' concept of firm specialization. The
firm specialization fraction reports the average fraction of a firm's revenues in a sector that arise from the sector's
primary business activity. This data allows EPA to exclude the fraction of firm revenue that, on average, is not
associated with new construction (e.g., set aside the fraction of a firm's revenue associated with out-of-scope
acitivity such as additions or maintenance work). Table C-l reports the specialization fraction, by sector. To
implement this sensitivity test, EPA reduced the model firm revenue for firms in each sector by one minue the
specialization fraction (e.g., model firm revenue in NAICS 236115 is reduced by 3%).
C-2 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Appendix C: Firm Sensitivity
Table C-1: C&D Firm Specialization, by Sector
NAICS
236115
236116
236117
236210
236220
237310
C&D Sector Name
New single-family housing construction
New multifamily housing construction
New housing operative builders
Industrial building construction
Commercial and institutional building construction
Highway, street, and bridge construction
Firm Specialization, by Value
97%
86%
95%
72%
84%
88%
Source: 2002 Economic Census
By reducing the revenue in-scope for each model firm, each individual model firm is estimated to perform a lower
quantity of new construction activity annually relative to the base case where all of the firm's revenue is assumed
to be in-scope (i.e., associated with new construction activity). In turn, because the in-scope capacity of each
individual firm is less, the allocation algorithm has to assign projects (and therefore cost) to a larger number of
firms relative to the base case in order to clear the demand for each type of project. The results of this Firm
Specialization case are reported in Table 6-3.
Table C-2: Summary of Cost and Economic Impact Analysis for Firm Specialization Test
Impact Analysis Concept
Option 4 with Specialization [Option 4 without Specialization]
Resource Cost of Compliance and Affected Acreage and Firms (before market adjustments)
Total Costs (Smillions)
Total Acreage Incurring Cost
Number of Firms
All Firms
Firms In-Scope
Firms Incurring Cost
$953
852,649
187,100
81,665
35,706
$953
852,649
187,100
81,665
30,508
Firms with Compliance Cost Exceeding Percentages of Revenue Judged Potentially Indicative of Adverse Impact
Costs Unadjusted for Effect of Cost Pass-Through
Costs Exceeding 1% of Revenue
Costs Exceeding 3% of Revenue
Number Incurring Effect
% of All Firms
% of Firms In-Scope
Number Incurring Effect
% of All Firms
% of Firms In-Scope
219
0.1%
0.3%
0
0.0%
0.0%
276
0.1%
0.3%
0
0.0%
0.0%
Costs Adjusted for Effect of Cost Pass-Through"
Costs Exceeding 1% of Revenue
Costs Exceeding 3% of Revenue
Number Incurring Effect
% of All Firms
% of Firms In-Scope
Number Incurring Effect
% of All Firms
% of Firms In-Scope
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
Firms Estimated to Incur Financial Stress From Deterioration in Measures of Financial Performance
Firms Incurring Financial Stress
Number Incurring Effect
% of All Firms
% of Firms In-Scope
162
0.1%
0.2%
169
0.1%
0.2%
Firms whose Net Business Value Becomes Negative as a Result of Compliance (Potential Closures)
Firms with Negative Business Value
(Potential Closures)
Number Incurring Effect
% of All Firms
% of Firms In-Scope
144
0.1%
0.2%
147
0.1%
0.2%
a Assumes cost pass-through rate of 85% for residential sectors and 71% for non-residential and non-building sectors.
EPA Estimates
As expected, the results show that if firm specialization is included, then a larger number of firms are assigned
project activity (and therefore compliance cost) to offset the decrease in capacity of each individual firm. Under
the primary analysis, about 30,500 firms incur costs, and under the specialization test, approximately 35,700 firms
are estimated to incur costs. At the same time, because the same amount of activity (and cost) is now allocated
November 23, 2009
C-3
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Appendix C: Firm Sensitivity
across a slightly larger number of firms (and each firm's total revenue has not decreased), the economic impacts
per firm have decreased slightly. Note, however, that it is not necessarily always the case the economic impacts
will decrease as the cost of regulation is spread across a larger number of firms. For example, as shown in the next
sensitivity case, if projects (and costs) are assigned to firms without regard for the basic constraints that govern
expectations about which firms can perform which projects, then aggregate impacts can increase.
Because firm specialization is a reality, EPA recognizes that including specialization may be conceptually better
than excluding specialization. However, EPA elected to exclude specialization from the primary analysis because
that assumption is more conservative with respect to potential economic impacts per C&D firm.
Sensitivity Test of Model Firm Project Performance Criteria: All Firms In-Scope
EPA's second sensitivity test of the model firm project performance critieria effectively disregards the overall
structure of the primary algorithm with respect to how a firm's capability to perform projects is evaluated. In this
case EPA specifies that all model firms are capable of performing all of the model projects, and are therefore
candidates to be assigned project acreage from any type of project. The key criteria that remain, and limit the
quantity of a project (and cost) assigned to a firm, include the aggregate demand for each type of project and the
relative quantity of capacity across model firms, accounting for the number of firms by sector and state.
The results of this^4//-/« case are presented in Table C-3.
Table C-3: Summary of Cost and Economic Impact Analysis for the All-in Test
Impact Analysis Concept
Option 4, All Firms In-Scope
for All Projects
Option 4, Primary Case
Resource Cost of Compliance and Affected Acreage and Firms (before market adjustments)
Total Costs (Smillions)
Total Acreage Incurring Cost
Number of Firms
All Firms
Firms In-Scope
Firms Incurring Cost
$953
852,649
187,100
187,100
134,978
$953
852,649
187,100
81,665
30,508
Firms with Compliance Cost Exceeding Percentages of Revenue Judged Potentially Indicative of Adverse Impact
Costs Unadjusted for Effect of Cost Pass-Through
Costs Exceeding 1% of Revenue
Costs Exceeding 3% of Revenue
Number Incurring Effect
% of All Firms
% of Firms In-Scope
Number Incurring Effect
% of All Firms
% of Firms In-Scope
12,013
6.4%
6.4%
69
0.0%
0.0%
276
0.1%
0.3%
0
0.0%
0.0%
Costs Adjusted for Effect of Cost Pass-Through"
Costs Exceeding 1% of Revenue
Costs Exceeding 3% of Revenue
Number Incurring Effect
% of All Firms
% of Firms In-Scope
Number Incurring Effect
% of All Firms
% of Firms In-Scope
27
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
Firms Estimated to Incur Financial Stress From Deterioration in Measures of Financial Performance
Firms Incurring Financial Stress
Number Incurring Effect
% of All Firms
% of Firms In-Scope
441
0.2%
0.2%
169
0.1%
0.2%
Firms whose Net Business Value Becomes Negative as a Result of Compliance (Potential Closures)
Firms with Negative Business Value
(Potential Closures)
Number Incurring Effect
% of All Firms
% of Firms In-Scope
275
0.1%
0.1%
147
0.1%
0.2%
a Assumes cost pass-through rate of 85% for residential sectors and 71% for non-residential and non-building sectors.
EPA Estimates
C-4
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Appendix C: Firm Sensitivity
Key findings from this sensitivity test include:
> As expected, because the firm project performance critieria were removed, this case shows a very large
increase in the number of firms incurring cost - rising to about 135,000 versus about 30,500 in the base
case.
> EPA judges this case to be somewhat unrealistic and extreme with respect to the assignment of projects
(and costs) to small firms, and therefore illustrative of the overall affordability of the rule for C&D firms:
• The large increase in the number of firms incurring costs results in a large increase in the number of
firms with costs exceeding 1% of revenues, but only a very small increase in the number of firms
incurring costs in excess of 3% of revenues. This case, together with results from the primary
analysis, therefore demonstrates that it is very unlikely that a significant number of firms will incur
compliance costs in excess of 3% of revenue.
• In addition, as seen in the small-firm impacts table for this case (Table C-4), even this extreme project
assignment case does not result in economic impacts that would trigger a definitive SISNOSE
finding.
Table C-4: Summary
Of
Small-Firm
Cost
and
Economic Impacts for the All-in
Impact Analysis Concept
Option 4, All Firms In-Scope
for All Projects
Test
Option 4,
Primary
Case
Resource Cost of Compliance and Affected Acreage and Firms (before market adjustments)
Total Costs (Smillions)
Total Acreage Incurring Cost
Number of Firms
All Firms
Firms In-Scope
Firms Incurring Cost
$561
465,144
182,560
182,560
132,538
$403
332,981
182,560
77,115
27,420
Firms with Compliance Cost Exceeding Percentages of Revenue Judged Potentially Indicative of Adverse Impact
Costs Unadjusted for Effect of Cost Pass-Through
Costs Exceeding 1% of Revenue
Costs Exceeding 3% of Revenue
Number Incurring Effect
% of All Firms
% of Firms In-Scope
Number Incurring Effect
% of All Firms
% of Firms In-Scope
11,976
6.6%
6.6%
69
0.0%
0.0%
230
0.1%
0.3%
0
0.0%
0.0%
Costs Adjusted for Effect of Cost Pass-Through"
Costs Exceeding 1% of Revenue
Costs Exceeding 3% of Revenue
Number Incurring Effect
% of All Firms
% of Firms In-Scope
Number Incurring Effect
% of All Firms
% of Firms In-Scope
27
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
Firms Estimated to Incur Financial Stress From Deterioration in Measures of Financial Performance
Firms Incurring Financial Stress
Number Incurring Effect
% of All Firms
% of Firms In-Scope
413
0.2%
0.2%
135
0.1%
0.2%
Firms whose Net Business Value Becomes Negative as a Result of Compliance (Potential Closures)
Firms with Negative Business Value
(Potential Closures)
Number Incurring Effect
% of All Firms
% of Firms In-Scope
255
0.1%
0.1%
122
0.1%
0.2%
a Assumes cost pass-through rate of 85% for residential sectors and 71% for non-residential and non-building sectors.
EPA Estimates
November 23, 2009
C-5
-------
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Appendix D: Affordability Results
Appendix D: Detailed Results for the Housing Affordability Analysis
November 23, 2009
D-1
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Appendix D: Affordability Results
Table D-1: Price Change per Median Priced Home, by State (2008$)*
State
Alaska
Alabama
Arkansas
Arizona
California
Colorado
Connecticut
D. of Columbia
Delaware
Florida
Georgia
Hawaii
Iowa
Idaho
Illinois
Indiana
Kansas
Kentucky
Louisiana
Massachusetts
Maryland
Maine
Michigan
Minnesota
Missouri
Mississippi
Montana
North Carolina
North Dakota
Nebraska
New Hampshire
New Jersey
New Mexico
Nevada
New York
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
Vermont
Washington
Wisconsin
West Virginia
Wyoming
U.S. Average
2008 Weighted-
Average Median
Home Price*
$341,709
$201,888
$190,135
$302,175
$638,616
$351,615
$515,818
$600,875
$368,663
$325,265
$239,477
$680,778
$231,239
$266,955
$324,385
$222,184
$215,404
$204,801
$210,672
$427,051
$521,237
$268,094
$257,528
$303,302
$235,786
$187,894
$266,952
$227,189
$197,495
$227,183
$373,995
$529,581
$259,660
$392,469
$472,791
$247,789
$206,229
$359,575
$316,294
$402,183
$211,957
$187,729
$214,528
$182,931
$343,469
$430,476
$241,557
$400,953
$293,041
$184,607
$251,810
$355,893
EPA Option 1
Price
Change**
$52
$59
$59
$46
$54
$54
$66
$66
$66
$59
$59
$66
$52
$41
$66
$66
$52
$59
$59
$66
$66
$66
$66
$66
$59
$59
$44
$59
$51
$52
$66
$66
$50
$43
$66
$66
$59
$54
$66
$66
$59
$52
$59
$54
$46
$59
$66
$54
$66
$59
$51
$59
Percent
Change
0.02%
0.03%
0.03%
0.02%
0.01%
0.02%
0.01%
0.01%
0.02%
0.02%
0.02%
0.01%
0.02%
0.02%
0.02%
0.03%
0.02%
0.03%
0.03%
0.02%
0.01%
0.02%
0.03%
0.02%
0.03%
0.03%
0.02%
0.03%
0.03%
0.02%
0.02%
0.01%
0.02%
0.01%
0.01%
0.03%
0.03%
0.02%
0.02%
0.02%
0.03%
0.03%
0.03%
0.03%
0.01%
0.01%
0.03%
0.01%
0.02%
0.03%
0.02%
0.02%
EPA Option 2
Price
Change**
$2,611
$3,099
$2,801
$1,259
$1,577
$1,690
$2,087
$2,089
$2,111
$3,529
$2,753
$3,243
$3,458
$1,455
$1,906
$2,186
$4,019
$1,872
$3,808
$2,065
$2,094
$1,993
$1,490
$1,613
$2,388
$3,069
$1,513
$2,178
$1,579
$2,982
$1,712
$2,326
$1,397
$1,137
$1,954
$1,851
$2,434
$2,583
$2,007
$2,252
$2,472
$2,358
$2,159
$4,220
$1,380
$1,856
$1,739
$2,244
$1,758
$1,517
$1,705
$2,231
Percent
Change
0.76%
1.53%
1.47%
0.42%
0.25%
0.48%
0.40%
0.35%
0.57%
1.09%
1.15%
0.48%
1.50%
0.55%
0.59%
0.98%
1.87%
0.91%
1.81%
0.48%
0.40%
0.74%
0.58%
0.53%
1.01%
1.63%
0.57%
0.96%
0.80%
1.31%
0.46%
0.44%
0.54%
0.29%
0.41%
0.75%
1.18%
0.72%
0.63%
0.56%
1.17%
1.26%
1.01%
2.31%
0.40%
0.43%
0.72%
0.56%
0.60%
0.82%
0.68%
0.63%
EPA Option 3
Price
Change**
$3,380
$5,020
$4,562
$1,916
$2,476
$2,611
$4,859
$4,859
$4,906
$5,789
$4,506
$6,782
$4,274
$1,936
$4,539
$5,054
$4,873
$3,354
$6,197
$4,813
$4,872
$4,716
$3,818
$4,177
$3,932
$4,914
$2,002
$3,822
$2,124
$3,786
$4,368
$5,336
$2,216
$1,737
$4,637
$4,645
$3,999
$3,702
$4,699
$5,187
$4,069
$2,979
$3,717
$5,512
$2,138
$3,326
$4,425
$3,361
$4,465
$2,905
$2,271
$4,093
Percent
Change
0.99%
2.49%
2.40%
0.63%
0.39%
0.74%
0.94%
0.81%
1.33%
1.78%
1.88%
1.00%
1.85%
0.73%
1.40%
2.27%
2.26%
1.64%
2.94%
1.13%
0.93%
1.76%
1.48%
1.38%
1.67%
2.62%
0.75%
1.68%
1.08%
1.67%
1.17%
1.01%
0.85%
0.44%
0.98%
1.87%
1.94%
1.03%
1.49%
1.29%
1.92%
1.59%
1.73%
3.01%
0.62%
0.77%
1.83%
0.84%
1.52%
1.57%
0.90%
1.15%
EPA Option 4
Price
Change**
$425
$382
$378
$290
$346
$323
$514
$505
$508
$419
$388
$404
$408
$302
$466
$494
$431
$371
$410
$506
$505
$503
$455
$448
$348
$392
$306
$366
$333
$392
$497
$525
$328
$268
$483
$486
$337
$446
$502
$516
$372
$335
$374
$409
$321
$358
$470
$422
$460
$365
$327
$415
Percent
Change
0.12%
0.19%
0.20%
0.10%
0.05%
0.09%
0.10%
0.08%
0.14%
0.13%
0.16%
0.06%
0.18%
0.11%
0.14%
0.22%
0.20%
0.18%
0.19%
0.12%
0.10%
0.19%
0.18%
0.15%
0.15%
0.21%
0.11%
0.16%
0.17%
0.17%
0.13%
0.10%
0.13%
0.07%
0.10%
0.20%
0.16%
0.12%
0.16%
0.13%
0.18%
0.18%
0.17%
0.22%
0.09%
0.08%
0.19%
0.11%
0.16%
0.20%
0.13%
0.12%
* Weighted average based on the number of households and home prices across MSAs
** These are national avg price changes estimated from the national avg engineering estimate of per acre compliance cost converted to the equivalent of
compliance costs per housing unit. Price changes for MSAs are estimated individually using engineering estimates of state-level compliance costs.
EPA Estimates
D-2
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Appendix D: Affordability Results
Table D-2: Price Change per Lower Quartile Priced Home, by State (2008$)*
Using Median Lot Size (0.07 acres) for Attached New Single-Family Housing as Basis for Compliance Cost
State
Alaska
Alabama
Arkansas
Arizona
California
Colorado
Connecticut
D. of Columbia
Delaware
Florida
Georgia
Hawaii
Iowa
Idaho
Illinois
Indiana
Kansas
Kentucky
Louisiana
Massachusetts
Maryland
Maine
Michigan
Minnesota
Missouri
Mississippi
Montana
North Carolina
North Dakota
Nebraska
New Hampshire
New Jersey
New Mexico
Nevada
New York
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
Vermont
Washington
Wisconsin
West Virginia
Wyoming
U.S. Average
2008 Weighted-
Average Lower
Quartile Home
Price*
$251,621
$123,641
$124,082
$209,646
$471,255
$264,185
$369,325
$435,225
$246,148
$216,716
$169,085
$449,590
$165,740
$194,131
$222,637
$155,438
$146,130
$142,415
$132,604
$327,820
$357,278
$193,001
$178,665
$236,113
$157,531
$115,939
$187,766
$151,679
$140,567
$170,507
$283,152
$373,406
$162,193
$282,030
$337,161
$174,655
$136,720
$257,881
$211,005
$306,197
$133,209
$133,026
$143,723
$122,806
$252,191
$306,306
$177,534
$285,372
$218,675
$120,349
$186,541
$251,471
EPA Option 1
Price
Change**
$17
$20
$20
$16
$18
$18
$22
$22
$22
$20
$20
$22
$17
$14
$22
$22
$17
$20
$20
$22
$22
$22
$22
$22
$20
$20
$15
$20
$17
$17
$22
$22
$17
$14
$22
$22
$20
$18
$22
$22
$20
$17
$20
$18
$16
$20
$22
$18
$22
$20
$17
$20
Percent
Change
0.01%
0.02%
0.02%
0.01%
0.00%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.00%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.02%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.02%
0.01%
0.01%
EPA Option 2
Price
Change**
$872
$1,035
$936
$420
$527
$564
$697
$698
$705
$1,179
$920
$1,083
$1,155
$486
$636
$730
$1,342
$625
$1,272
$690
$699
$666
$498
$539
$798
$1,025
$505
$727
$527
$996
$572
$777
$467
$380
$653
$618
$813
$863
$670
$752
$826
$788
$721
$1,410
$461
$620
$581
$750
$587
$507
$569
$745
Percent
Change
0.35%
0.84%
0.75%
0.20%
0.11%
0.21%
0.19%
0.16%
0.29%
0.54%
0.54%
0.24%
0.70%
0.25%
0.29%
0.47%
0.92%
0.44%
0.96%
0.21%
0.20%
0.34%
0.28%
0.23%
0.51%
0.88%
0.27%
0.48%
0.38%
0.58%
0.20%
0.21%
0.29%
0.13%
0.19%
0.35%
0.59%
0.33%
0.32%
0.25%
0.62%
0.59%
0.50%
1.15%
0.18%
0.20%
0.33%
0.26%
0.27%
0.42%
0.31%
0.30%
EPA Option 3
Price
Change**
$1,129
$1,677
$1,524
$640
$827
$872
$1,623
$1,623
$1,639
$1,933
$1,505
$2,265
$1,427
$646
$1,516
$1,688
$1,628
$1,120
$2,070
$1,608
$1,627
$1,575
$1,275
$1,395
$1,313
$1,641
$669
$1,277
$709
$1,265
$1,459
$1,782
$740
$580
$1,549
$1,551
$1,336
$1,236
$1,569
$1,732
$1,359
$995
$1,241
$1,841
$714
$1,111
$1,478
$1,123
$1,491
$970
$759
$1,367
Percent
Change
0.45%
1.36%
1.23%
0.31%
0.18%
0.33%
0.44%
0.37%
0.67%
0.89%
0.89%
0.50%
0.86%
0.33%
0.68%
1.09%
1.11%
0.79%
1.56%
0.49%
0.46%
0.82%
0.71%
0.59%
0.83%
1.42%
0.36%
0.84%
0.50%
0.74%
0.52%
0.48%
0.46%
0.21%
0.46%
0.89%
0.98%
0.48%
0.74%
0.57%
1.02%
0.75%
0.86%
1.50%
0.28%
0.36%
0.83%
0.39%
0.68%
0.81%
0.41%
0.54%
EPA Option 4
Price
Change**
$142
$128
$126
$97
$115
$108
$172
$169
$170
$140
$129
$135
$136
$101
$156
$165
$144
$124
$137
$169
$169
$168
$152
$150
$116
$131
$102
$122
$111
$131
$166
$175
$110
$90
$161
$162
$112
$149
$168
$172
$124
$112
$125
$137
$107
$120
$157
$141
$154
$122
$109
$139
Percent
Change
0.06%
0.10%
0.10%
0.05%
0.02%
0.04%
0.05%
0.04%
0.07%
0.06%
0.08%
0.03%
0.08%
0.05%
0.07%
0.11%
0.10%
0.09%
0.10%
0.05%
0.05%
0.09%
0.09%
0.06%
0.07%
0.11%
0.05%
0.08%
0.08%
0.08%
0.06%
0.05%
0.07%
0.03%
0.05%
0.09%
0.08%
0.06%
0.08%
0.06%
0.09%
0.08%
0.09%
0.11%
0.04%
0.04%
0.09%
0.05%
0.07%
0.10%
0.06%
0.06%
! Weighted average based on the number of households and home prices across MSAs
** These are national average price changes estimated from the national average engineering estimate of per acre compliance cost converted to the equivalent of
compliance costs per housing unit. Price changes for MSAs are estimated individually using engineering estimates of state-level compliance costs.
EPA Estimates
November 23, 2009
D-3
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Appendix D: Affordability Results
Table D-3: Price Change per $100k Lowest Priced Home, by State (2008$)*
State
Alaska
Alabama
Arkansas
Arizona
California
Colorado
Connecticut
D. of Columbia
Delaware
Florida
Georgia
Hawaii
Iowa
Idaho
Illinois
Indiana
Kansas
Kentucky
Louisiana
Massachusetts
Maryland
Maine
Michigan
Minnesota
Missouri
Mississippi
Montana
North Carolina
North Dakota
Nebraska
New Hampshire
New Jersey
New Mexico
Nevada
New York
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
Vermont
Washington
Wisconsin
West Virginia
Wyoming
U.S. Average
** These are national
compliance costs per
EPA Estimates
Lowest Home
Price*
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
EPA Option 1
Price
Change**
$17
$20
$20
$16
$18
$18
$22
$22
$22
$20
$20
$22
$17
$14
$22
$22
$17
$20
$20
$22
$22
$22
$22
$22
$20
$20
$15
$20
$17
$17
$22
$22
$17
$14
$22
$22
$20
$18
$22
$22
$20
$17
$20
$18
$16
$20
$22
$18
$22
$20
$17
$20
Percent
Change
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
0.01%
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
0.01%
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
0.01%
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
0.02%
EPA Option 2
Price
Change* *
$872
$1,035
$936
$420
$527
$564
$697
$698
$705
$1,179
$920
$1,083
$1,155
$486
$636
$730
$1,342
$625
$1,272
$690
$699
$666
$498
$539
$798
$1,025
$505
$727
$527
$996
$572
$777
$467
$380
$653
$618
$813
$863
$670
$752
$826
$788
$721
$1,410
$461
$620
$581
$750
$587
$507
$569
$745
Percent
Change
0.87%
1.03%
0.94%
0.42%
0.53%
0.56%
0.70%
0.70%
0.71%
1.18%
0.92%
1.08%
1.15%
0.49%
0.64%
0.73%
1.34%
0.63%
1.27%
0.69%
0.70%
0.67%
0.50%
0.54%
0.80%
1.03%
0.51%
0.73%
0.53%
1.00%
0.57%
0.78%
0.47%
0.38%
0.65%
0.62%
0.81%
0.86%
0.67%
0.75%
0.83%
0.79%
0.72%
1.41%
0.46%
0.62%
0.58%
0.75%
0.59%
0.51%
0.57%
0.75%
EPA Option 3
Price
Change**
$1,129
$1,677
$1,524
$640
$827
$872
$1,623
$1,623
$1,639
$1,933
$1,505
$2,265
$1,427
$646
$1,516
$1,688
$1,628
$1,120
$2,070
$1,608
$1,627
$1,575
$1,275
$1,395
$1,313
$1,641
$669
$1,277
$709
$1,265
$1,459
$1,782
$740
$580
$1,549
$1,551
$1,336
$1,236
$1,569
$1,732
$1,359
$995
$1,241
$1,841
$714
$1,111
$1,478
$1,123
$1,491
$970
$759
$1,367
average price changes estimated from the national average engineering estimate of per acre compl
housing unit. Price changes for MSAs are estimated individually using engineering estimates ofstatt
Percent
Change
1.13%
1.68%
1.52%
0.64%
0.83%
0.87%
1.62%
1.62%
1.64%
1.93%
1.51%
2.27%
1.43%
0.65%
1.52%
1.69%
1.63%
1.12%
2.07%
1.61%
1.63%
1.58%
1.28%
1.39%
1.31%
1.64%
0.67%
1.28%
0.71%
1.26%
1.46%
1.78%
0.74%
0.58%
1.55%
1.55%
1.34%
1.24%
1.57%
1.73%
1.36%
1.00%
1.24%
1.84%
0.71%
1.11%
1.48%
1.12%
1.49%
0.97%
0.76%
1.37%
EPA Option 4
Price
Change**
$142
$128
$126
$97
$115
$108
$172
$169
$170
$140
$129
$135
$136
$101
$156
$165
$144
$124
$137
$169
$169
$168
$152
$150
$116
$131
$102
$122
$111
$131
$166
$175
$110
$90
$161
$162
$112
$149
$168
$172
$124
$112
$125
$137
$107
$120
$157
$141
$154
$122
$109
$139
Percent
Change
0.14%
0.13%
0.13%
0.10%
0.12%
0.11%
0.17%
0.17%
0.17%
0.14%
0.13%
0.14%
0.14%
0.10%
0.16%
0.17%
0.14%
0.12%
0.14%
0.17%
0.17%
0.17%
0.15%
0.15%
0.12%
0.13%
0.10%
0.12%
0.11%
0.13%
0.17%
0.18%
0.11%
0.09%
0.16%
0.16%
0.11%
0.15%
0.17%
0.17%
0.12%
0.11%
0.12%
0.14%
0.11%
0.12%
0.16%
0.14%
0.15%
0.12%
0.11%
0.14%
ance cost converted to the equivalent of
'-level compliance costs.
D-4
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Appendix D: Affordability Results
Table D-4: Price Change per $50k Lowest Priced Home, by State (2008$)*
State
Alaska
Alabama
Arkansas
Arizona
California
Colorado
Connecticut
D. of Columbia
Delaware
Florida
Georgia
Hawaii
Iowa
Idaho
Illinois
Indiana
Kansas
Kentucky
Louisiana
Massachusetts
Maryland
Maine
Michigan
Minnesota
Missouri
Mississippi
Montana
North Carolina
North Dakota
Nebraska
New Hampshire
New Jersey
New Mexico
Nevada
New York
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
Vermont
Washington
Wisconsin
West Virginia
Wyoming
U.S. Average
Lowest Home
Price*
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
EPA Option 1
Price
Change**
$17
$20
$20
$16
$18
$18
$22
$22
$22
$20
$20
$22
$17
$14
$22
$22
$17
$20
$20
$22
$22
$22
$22
$22
$20
$20
$15
$20
$17
$17
$22
$22
$17
$14
$22
$22
$20
$18
$22
$22
$20
$17
$20
$18
$16
$20
$22
$18
$22
$20
$17
$20
Percent
Change
0.03%
0.04%
0.04%
0.03%
0.04%
0.04%
0.04%
0.04%
0.04%
0.04%
0.04%
0.04%
0.03%
0.03%
0.04%
0.04%
0.03%
0.04%
0.04%
0.04%
0.04%
0.04%
0.04%
0.04%
0.04%
0.04%
0.03%
0.04%
0.03%
0.03%
0.04%
0.04%
0.03%
0.03%
0.04%
0.04%
0.04%
0.04%
0.04%
0.04%
0.04%
0.03%
0.04%
0.04%
0.03%
0.04%
0.04%
0.04%
0.04%
0.04%
0.03%
0.04%
EPA Option 2
Price
Change**
$872
$1,035
$936
$420
$527
$564
$697
$698
$705
$1,179
$920
$1,083
$1,155
$486
$636
$730
$1,342
$625
$1,272
$690
$699
$666
$498
$539
$798
$1,025
$505
$727
$527
$996
$572
$777
$467
$380
$653
$618
$813
$863
$670
$752
$826
$788
$721
$1,410
$461
$620
$581
$750
$587
$507
$569
$745
Percent
Change
1.74%
2.07%
1.87%
0.84%
1.05%
1.13%
1.39%
1.40%
1.41%
2.36%
1.84%
2.17%
2.31%
0.97%
1.27%
1.46%
2.68%
1.25%
2.54%
1.38%
1.40%
1.33%
1.00%
1.08%
1.60%
2.05%
1.01%
1.45%
1.05%
1.99%
1.14%
1.55%
0.93%
0.76%
1.31%
1.24%
1.63%
1.73%
1.34%
1.50%
1.65%
1.58%
1.44%
2.82%
0.92%
1.24%
1.16%
1.50%
1.17%
1.01%
1.14%
1.49%
EPA Option 3
Price
Change**
$1,129
$1,677
$1,524
$640
$827
$872
$1,623
$1,623
$1,639
$1,933
$1,505
$2,265
$1,427
$646
$1,516
$1,688
$1,628
$1,120
$2,070
$1,608
$1,627
$1,575
$1,275
$1,395
$1,313
$1,641
$669
$1,277
$709
$1,265
$1,459
$1,782
$740
$580
$1,549
$1,551
$1,336
$1,236
$1,569
$1,732
$1,359
$995
$1,241
$1,841
$714
$1,111
$1,478
$1,123
$1,491
$970
$759
$1,367
Percent
Change
2.26%
3.35%
3.05%
1.28%
1.65%
1.74%
3.25%
3.25%
3.28%
3.87%
3.01%
4.53%
2.85%
1.29%
3.03%
3.38%
3.26%
2.24%
4.14%
3.22%
3.25%
3.15%
2.55%
2.79%
2.63%
3.28%
1.34%
2.55%
1.42%
2.53%
2.92%
3.56%
1.48%
1.16%
3.10%
3.10%
2.67%
2.47%
3.14%
3.46%
2.72%
1.99%
2.48%
3.68%
1.43%
2.22%
2.96%
2.25%
2.98%
1.94%
1.52%
2.73%
EPA Option 4
Price
Change**
$142
$128
$126
$97
$115
$108
$172
$169
$170
$140
$129
$135
$136
$101
$156
$165
$144
$124
$137
$169
$169
$168
$152
$150
$116
$131
$102
$122
$111
$131
$166
$175
$110
$90
$161
$162
$112
$149
$168
$172
$124
$112
$125
$137
$107
$120
$157
$141
$154
$122
$109
$139
Percent
Change
0.28%
0.26%
0.25%
0.19%
0.23%
0.22%
0.34%
0.34%
0.34%
0.28%
0.26%
0.27%
0.27%
0.20%
0.31%
0.33%
0.29%
0.25%
0.27%
0.34%
0.34%
0.34%
0.30%
0.30%
0.23%
0.26%
0.20%
0.24%
0.22%
0.26%
0.33%
0.35%
0.22%
0.18%
0.32%
0.32%
0.22%
0.30%
0.34%
0.34%
0.25%
0.22%
0.25%
0.27%
0.21%
0.24%
0.31%
0.28%
0.31%
0.24%
0.22%
0.28%
* Weighted average based on the number of households and home prices across MSAs
** These are national average price changes estimated from the national average engineering estimate of per acre compliance cost converted to the equivalent of
compliance costs per housing unit. Price changes for MSAs are estimated individually using engineering estimates of state-level compliance costs.
EPA Estimates
November 23, 2009
D-5
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Appendix D: Affordability Results
Table D-5: Number of Households Whose Purchasing Decision for a New Single-Family Median Priced
Home Would Be Affected by a Regulation-Induced Increase in Housing Prices, by State - based on
Owner Occupied Households that Recently Purchased a New, Option In-Scope, Home
State
Alaska
Alabama
Arkansas
Arizona
California
Colorado
Connecticut
D. of Columbia
Delaware
Florida
Georgia
Hawaii
Iowa
Idaho
Illinois
Indiana
Kansas
Kentucky
Louisiana
Massachusetts
Maryland
Maine
Michigan
Minnesota
Missouri
Mississippi
Montana
North Carolina
North Dakota
Nebraska
New Hampshire
New Jersey
New Mexico
Nevada
New York
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
Vermont
Washington
Wisconsin
West Virginia
Wyoming
U.S. Total
EPA Option 1
Number
1
5
3
4
9
4
2
0
1
15
9
0
3
1
9
7
3
4
4
4
3
2
12
6
7
3
1
10
1
2
1
3
1
1
10
13
4
3
12
1
4
1
6
23
2
5
1
4
6
2
0
239
As%ofSF
home buyers
qualifying for
the new,
option-in-
scope, home
0.03%
0.02%
0.03%
0.02%
0.02%
0.02%
0.03%
0.02%
0.03%
0.03%
0.02%
0.02%
0.02%
0.02%
0.03%
0.03%
0.02%
0.02%
0.02%
0.03%
0.02%
0.03%
0.03%
0.03%
0.03%
0.02%
0.02%
0.02%
0.03%
0.03%
0.03%
0.02%
0.02%
0.02%
0.03%
0.03%
0.03%
0.03%
0.03%
0.02%
0.02%
0.02%
0.03%
0.02%
0.02%
0.02%
0.03%
0.02%
0.03%
0.02%
0.02%
0.03%
EPA Option 2
Number
35
248
147
116
268
124
68
8
21
899
425
15
199
36
271
240
206
139
249
139
100
56
266
154
262
149
25
349
23
104
32
110
42
39
298
371
160
131
354
20
186
36
237
1,795
46
146
24
168
158
49
15
9,757
As%ofSF
home buyers
qualifying for
the new,
option-in-
scope, home
1.50%
1.20%
1.20%
0.54%
0.64%
0.77%
1.03%
0.58%
0.83%
1.61%
1.04%
1.14%
1.62%
0.69%
0.73%
0.88%
1.74%
0.74%
1.42%
0.80%
0.79%
1.03%
0.71%
0.73%
1.06%
1.28%
0.78%
0.90%
0.79%
1.48%
0.75%
0.78%
0.59%
0.58%
0.82%
0.89%
1.10%
1.43%
1.00%
0.82%
0.95%
1.01%
0.94%
1.89%
0.67%
0.73%
0.80%
1.01%
0.88%
0.57%
0.68%
1.05%
EPA Option 3
Number
46
401
242
175
420
192
164
19
49
1,467
694
31
246
47
645
555
249
249
404
324
230
131
681
399
431
238
34
612
31
131
82
252
66
60
706
931
262
188
826
46
306
46
407
2,344
72
261
62
252
401
93
20
17,222
As%ofSF
home buyers
qualifying for
the new,
option-in-
scope, home
1.94%
1.94%
1.97%
0.82%
1.00%
1.19%
2.49%
1.34%
1.93%
2.64%
1.70%
2.38%
2.01%
0.92%
1.74%
2.03%
2.11%
1.32%
2.32%
1.85%
1.82%
2.42%
1.82%
1.90%
1.74%
2.05%
1.04%
1.58%
1.06%
1.88%
1.91%
1.78%
0.93%
0.88%
1.94%
2.24%
1.80%
2.05%
2.34%
1.90%
1.56%
1.27%
1.62%
2.47%
1.04%
1.30%
2.03%
1.52%
2.23%
1.09%
0.91%
1.86%
EPA Option 4
Number
6
31
20
27
59
24
17
2
5
107
60
2
23
7
66
54
22
28
27
34
24
14
81
43
38
19
5
59
5
14
9
25
10
9
74
98
22
23
89
5
28
5
41
174
11
28
7
32
42
12
3
1,667
As%ofSF
home buyers
qualifying for
the new,
option-in-
scope, home
0.24%
0.15%
0.16%
0.12%
0.14%
0.15%
0.25%
0.14%
0.20%
0.19%
0.15%
0.14%
0.19%
0.14%
0.18%
0.20%
0.19%
0.15%
0.15%
0.19%
0.19%
0.26%
0.22%
0.20%
0.16%
0.16%
0.16%
0.15%
0.17%
0.19%
0.22%
0.18%
0.14%
0.14%
0.20%
0.23%
0.15%
0.25%
0.25%
0.19%
0.14%
0.14%
0.16%
0.18%
0.16%
0.14%
0.22%
0.19%
0.23%
0.14%
0.13%
0.18%
EPA Estimates
D-6
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Appendix D: Affordability Results
Table D-6: Number of Households Whose Purchasing Decision for a New Single-Family Lower Quartile
Priced Home Would Be Affected by a Regulation-Induced Increase in Housing Prices, by State - based
on Owner Occupied Households that Recently Purchased a New, Option In-Scope, Home
Using Median Lot Size (0.07 acres) for Attached New Single-Family Housing as Basis for Compliance Cost
State
Alaska
Alabama
Arkansas
Arizona
California
Colorado
Connecticut
D. of Columbia
Delaware
Florida
Georgia
Hawaii
Iowa
Idaho
Illinois
Indiana
Kansas
Kentucky
Louisiana
Massachusetts
Maryland
Maine
Michigan
Minnesota
Missouri
Mississippi
Montana
North Carolina
North Dakota
Nebraska
New Hampshire
New Jersey
New Mexico
Nevada
New York
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
Vermont
Washington
Wisconsin
West Virginia
Wyoming
U.S. Total
EPA Option 1
Number
0
2
1
2
5
1
1
0
0
7
3
0
1
0
5
3
1
2
2
2
2
1
4
2
2
1
0
3
0
1
1
2
1
1
5
5
2
1
5
0
2
0
2
9
1
2
0
2
2
1
0
98
As % of SF home
buyers qualifying
for the new, option-
in-scope, home
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
EPA Option 2
Number
10
88
50
42
159
44
34
5
10
401
154
13
66
13
135
88
78
51
97
71
53
21
97
51
91
55
10
124
8
36
15
72
16
16
154
136
63
55
157
13
73
16
86
674
18
73
8
81
67
14
5
3,969
As % of SF home
buyers qualifying
for the new, option-
in-scope, home
0.30%
0.32%
0.31%
0.14%
0.20%
0.20%
0.29%
0.20%
0.25%
0.46%
0.30%
0.37%
0.41%
0.19%
0.23%
0.25%
0.50%
0.21%
0.42%
0.28%
0.23%
0.27%
0. 19%
0.19%
0.27%
0.36%
0.21%
0.24%
0.20%
0.40%
0.23%
0.27%
0.16%
0.15%
0.25%
0.24%
0.32%
0.37%
0.28%
0.33%
0.28%
0.34%
0.26%
0.55%
0.18%
0.22%
0.21%
0.30%
0.26%
0.13%
0.19%
0.30%
EPA Option 3
Number
14
142
81
65
250
68
79
13
24
658
251
26
82
18
322
202
95
92
158
164
124
50
248
131
150
88
13
218
10
46
38
165
25
25
365
342
103
79
368
29
121
20
149
880
28
130
21
121
169
26
7
7,095
As % of SF home
buyers qualifying
for the new, option-
in-scope, home
0.38%
0.52%
0.51%
0.21%
0.32%
0.30%
0.68%
0.46%
0.58%
0.75%
0.48%
0.77%
0.51%
0.25%
0.55%
0.58%
0.60%
0.38%
0.69%
0.64%
0.53%
0.64%
0.48%
0.48%
0.45%
0.57%
0.28%
0.43%
0.27%
0.51%
0.60%
0.61%
0.25%
0.23%
0.58%
0.60%
0.53%
0.54%
0.64%
0.76%
0.46%
0.43%
0.45%
0.72%
0.27%
0.40%
0.53%
0.45%
0.65%
0.25%
0.26%
0.53%
EPA Option 4
Number
2
11
7
10
35
8
8
1
3
48
22
2
8
3
33
20
8
10
10
17
13
5
30
14
13
7
2
21
2
5
4
16
4
4
38
36
9
10
39
3
11
2
15
65
4
14
2
15
17
3
1
690
As%ofSFhome
buyers qualifying
for the new, option-
in-scope, home
0.05%
0.04%
0.04%
0.03%
0.04%
0.04%
0.07%
0.05%
0.06%
0.05%
0.04%
0.05%
0.05%
0.04%
0.06%
0.06%
0.05%
0.04%
0.05%
0.07%
0.06%
0.07%
0.06%
0.05%
0.04%
0.05%
0.04%
0.04%
0.04%
0.05%
0.07%
0.06%
0.04%
0.04%
0.06%
0.06%
0.04%
0.06%
0.07%
0.08%
0.04%
0.05%
0.05%
0.05%
0.04%
0.04%
0.06%
0.06%
0.07%
0.03%
0.04%
0.05%
EPA Estimates
November 23, 2009
D-7
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Appendix D: Affordability Results
Table D-7: Number of Households Whose Purchasing Decision for a New Single-Family $100k Lowest
Priced Home Would Be Affected by a Regulation-Induced Increase in Housing Prices, by State - based on
Owner Occupied Households that Recently Purchased a New, Option In-Scope, Home
State
Alaska
Alabama
Arkansas
Arizona
California
Colorado
Connecticut
D. of Columbia
Delaware
Florida
Georgia
Hawaii
Iowa
Idaho
Illinois
Indiana
Kansas
Kentucky
Louisiana
Massachusetts
Maryland
Maine
Michigan
Minnesota
Missouri
Mississippi
Montana
North Carolina
North Dakota
Nebraska
New Hampshire
New Jersey
New Mexico
Nevada
New York
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
Vermont
Washington
Wisconsin
West Virginia
Wyoming
U.S. Total
EPA Option 1
Number
0
2
1
2
4
1
1
0
0
7
3
0
1
0
4
3
1
2
2
2
1
1
4
2
2
1
0
3
0
1
0
2
1
1
6
5
2
1
5
0
2
0
2
9
0
2
0
2
2
1
0
97
As % of SF
home buyers
qualifying for
the new, option-
in-scope, home
0.00%
0.01%
0.01%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.01%
0.00%
0.00%
0.01%
0.00%
0.01%
0.01%
0.01%
0.01%
0.01%
0.00%
0.00%
0.01%
0.01%
0.00%
0.01%
0.01%
0.00%
0.01%
0.01%
0.01%
0.00%
0.00%
0.01%
0.00%
0.00%
0.01%
0.01%
0.00%
0.01%
0.00%
0.01%
0.01%
0.01%
0.01%
0.00%
0.00%
0.01%
0.00%
0.01%
0.01%
0.01%
0.00%
EPA Option 2
Number
8
93
56
44
129
40
31
4
7
444
138
4
70
14
126
89
75
51
99
56
44
18
99
42
87
60
8
127
7
38
11
86
17
14
186
137
62
53
155
12
74
14
86
684
14
65
7
72
66
20
7
3,953
As % of SF
home buyers
qualifying for
the new, option-
in-scope, home
0.15%
0.32%
0.32%
0.11%
0.06%
0.11%
0.12%
0.07%
0.11%
0.34%
0.22%
0.04%
0.35%
0.15%
0.15%
0.21%
0.41%
0.19%
0.39%
0.12%
0.10%
0.18%
0.15%
0.11%
0.22%
0.37%
0.13%
0.21%
0.16%
0.33%
0.11%
0.15%
0.14%
0.08%
0.15%
0. 19%
0.28%
0.22%
0. 19%
0.17%
0.26%
0.27%
0.23%
0.52%
0.09%
0.12%
0.14%
0.16%
0.17%
0.17%
0.18%
0.20%
EPA Option 3
Number
10
151
91
68
207
62
71
10
17
728
225
8
87
19
299
207
91
92
161
132
101
43
253
108
143
96
11
222
9
48
29
198
27
22
442
344
103
76
364
27
123
18
149
893
23
118
18
108
167
38
9
7,064
As%ofSF
home buyers
qualifying for
the new, option-
in-scope, home
0.19%
0.52%
0.52%
0.16%
0.09%
0.18%
0.28%
0.17%
0.27%
0.56%
0.36%
0.09%
0.44%
0.20%
0.36%
0.50%
0.50%
0.34%
0.63%
0.28%
0.24%
0.42%
0.38%
0.27%
0.36%
0.59%
0.18%
0.37%
0.22%
0.41%
0.28%
0.34%
0.22%
0.12%
0.35%
0.47%
0.46%
0.31%
0.44%
0.38%
0.42%
0.34%
0.39%
0.67%
0.14%
0.21%
0.35%
0.24%
0.42%
0.33%
0.23%
0.36%
EPA Option 4
Number
1
12
8
10
28
8
8
1
2
53
19
0
8
3
31
20
8
10
11
14
11
5
30
12
13
8
2
21
1
5
3
19
4
3
46
36
9
9
39
3
11
2
15
66
3
12
2
14
17
5
1
680
As % of SF
home buyers
qualifying for
the new, option-
in-scope, home
0.02%
0.04%
0.04%
0.02%
0.01%
0.02%
0.03%
0.02%
0.03%
0.04%
0.03%
0.01%
0.04%
0.03%
0.04%
0.05%
0.04%
0.04%
0.04%
0.03%
0.02%
0.04%
0.04%
0.03%
0.03%
0.05%
0.03%
0.04%
0.03%
0.04%
0.03%
0.03%
0.03%
0.02%
0.04%
0.05%
0.04%
0.04%
0.05%
0.04%
0.04%
0.04%
0.04%
0.05%
0.02%
0.02%
0.04%
0.03%
0.04%
0.04%
0.03%
0.03%
EPA Estimates
D-8
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Appendix D: Affordability Results
Table D-8: Number of Households Whose Purchasing Decision for a New Single-Family $50k Lowest
Priced Home Would Be Affected by a Regulation-Induced Increase in Housing Prices, by State - based
on Owner Occupied Households that Recently Purchased a New, Option In-Scope, Home
State
Alaska
Alabama
Arkansas
Arizona
California
Colorado
Connecticut
D. of Columbia
Delaware
Florida
Georgia
Hawaii
Iowa
Idaho
Illinois
Indiana
Kansas
Kentucky
Louisiana
Massachusetts
Maryland
Maine
Michigan
Minnesota
Missouri
Mississippi
Montana
North Carolina
North Dakota
Nebraska
New Hampshire
New Jersey
New Mexico
Nevada
New York
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
Vermont
Washington
Wisconsin
West Virginia
Wyoming
U.S. Total
EPA Option 1
Number
0
0
0
0
2
0
0
0
0
1
1
0
0
0
1
0
0
0
0
0
0
0
1
0
0
0
0
1
0
0
0
1
0
0
2
1
0
0
1
0
0
0
0
3
0
0
0
0
0
0
0
22
As%ofSF
home buyers
qualifying for
the new,
option-in-
scope, home
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
EPA Option 2
Number
1
23
13
8
46
8
6
1
2
83
25
2
14
2
28
16
15
10
25
13
8
4
20
7
18
15
2
27
3
11
2
20
4
2
50
29
13
10
38
3
15
2
18
217
2
12
1
13
14
5
1
928
As % of SF
home buyers
qualifying for
the new,
option-in-
scope, home
0.03%
0.07%
0.07%
0.02%
0.02%
0.02%
0.02%
0.01%
0.03%
0.06%
0.04%
0.03%
0.07%
0.02%
0.03%
0.04%
0.08%
0.04%
0.09%
0.03%
0.02%
0.03%
0.03%
0.02%
0.04%
0.08%
0.03%
0.04%
0.06%
0.08%
0.02%
0.03%
0.03%
0.01%
0.04%
0.04%
0.05%
0.04%
0.04%
0.04%
0.05%
0.04%
0.04%
0.15%
0.01%
0.02%
0.03%
0.03%
0.03%
0.04%
0.02%
0.04%
EPA Option 3
Number
2
38
20
12
73
12
14
2
5
137
40
5
18
3
67
39
19
19
41
31
19
9
57
20
29
24
2
48
4
13
6
46
6
3
119
74
22
14
92
7
24
3
31
284
3
22
4
19
41
10
1
1,652
As%ofSF
home buyers
qualifying for
the new,
option-in-
scope, home
0.03%
0.12%
0.11%
0.03%
0.03%
0.03%
0.06%
0.03%
0.07%
0.10%
0.06%
0.05%
0.08%
0.03%
0.08%
0.09%
0.10%
0.06%
0.15%
0.06%
0.04%
0.08%
0.08%
0.05%
0.07%
0.13%
0.04%
0.08%
0.09%
0.11%
0.06%
0.08%
0.05%
0.02%
0.09%
0.09%
0.09%
0.06%
0.10%
0.09%
0.08%
0.05%
0.08%
0. 19%
0.02%
0.04%
0.07%
0.04%
0.10%
0.08%
0.02%
0.08%
EPA Option 4
Number
0
3
2
2
10
1
2
0
0
10
3
0
2
0
7
4
1
2
3
3
2
1
6
2
3
2
0
5
1
1
1
4
1
1
12
7
2
2
10
1
2
0
3
21
1
2
0
2
3
1
0
155
As % of SF
home buyers
qualifying for
the new,
option-in-
scope, home
0.00%
0.01%
0.01%
0.00%
0.00%
0.00%
0.01%
0.00%
0.01%
0.01%
0.01%
0.00%
0.01%
0.00%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.00%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.00%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.00%
0.01%
0.01%
0.00%
0.00%
0.01%
0.01%
0.01%
0.01%
0.00%
0.01%
EPA Estimates
November 23, 2009
D-9
-------
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Appendix E: Home Price Effect
Appendix E: Distribution of Single-Family Home Price Increases
This appendix presents EPA's estimate of the distribution of single-family home price increases due to the final
regulation, accounting for a wide range of single-family home prices and lot sizes.
To develop the home price impact distribution, EPA began by developing a national-level distribution of the cost
per acre incurred by project size and duration. The national-level cost per acre for any given project size and
duration is simply the sum of the total cost (i.e., cost per project times the number of projects) for the model
project across all states and sectors, divided by the total quantity of acres for the model project across all states
and sectors. Using this set of cost-per-acre values, EPA developed the distribution of cost-per-acre reflecting the
probability of each value's occurrence based the fraction of total acreage assigned to each cost value.
Independent of the cost-per-acre distribution, EPA secondly used data from the Census of Construction to develop
a probability distribution describing the fraction of single-family housing units constructed across a range of home
price and lot size ranges. Table E-l presents this distribution, showing the fraction of homes within each of
Census' nine home-price and five lot-size ranges.
Table E-1: Distribution of Homes by Price Range and Lot Size
H
Lower-Bound
$125,000
$125,000
$150,000
$200,000
$250,000
$300,000
$400,000
$500,000
$750,000
ome Price Ranj
Upper-Bound
$125,000
$149,999
$199,999
$249,999
$299,999
$399,999
$499,999
$749,999
$750,000
je
Mid-Point
$125,000
jl^QQ
$175^000
$225,000
$275,000
$350,000
$450,000
$625,000
$750,000
Total
Lot Size Mid-Point (acres)
0.16
4.31%
4.52%
7.66%
4.90%
3.74%
4.66%
2.07%
1.72%
0.55%
34.14%
0.18
1.91%
2.26%
4.08%
3.00%
2.24%
2.35%
1.04%
0.85%
0.33%
18.08%
0.23
1.39%
1.69%
3.65%
2.53%
1.90%
2.07%
0.96%
0.77%
0.33%
15.29%
0.38
1.31%
1.64%
4.06%
3.33%
2.70%
__J5/K)%
1.74%
1.56%
0.74%
20.49%
0.51
0.96%
0.92%
1.90%
1.50%
1.28%
1.91%
1.26%
1.34%
0.92%
11.99%
Total
9.89%
11.03%
21.35%
15.26%
11.87%
14.39%
7.08%
6.26%
2.88%
100.00%
Source: U.S. Census
Next, EPA mapped these distributions together to arrive at the final home price impact distribution. First, EPA
estimated the expected percentage increase in the home price within each cell of the 45-cell housing distribution
for each of the 90 unique cost-per-acre values from the cost distribution. For each combination of the housing
distribution and the cost-per-acre distribution (4,050 total combinations), the percentage increase in the home
price is estimated by:
> Multiplying the cost-per-acre time the project cost multiplier and then lot-size (in acres). This produces an
estimate of the home price increase in dollars. Multiplying the cost by the previously estimated cost
multiplier accounts for the possibility that cost increases at a single-family residential housing project can
translate into an increase in the asking price of a new home by more than the direct compliance cost
increase (see Appendix G). Also note that, following the same methodology present in Chapter 7, EPA
applied a 13% multiplier to scale-up each lot-size value to account for the typical road development
associated with each lot. EPA derived this multiplier from information in the Center for Watershed
Protection's Impervious Cover and Land Use in the Chesapeake Bay Watershed (Capiella, 2001).
> Then the price change in dollars is simply divided by the mid-point of the home price range for the given
cell being analyzed to estimate the price change on a percentage basis.
November 23, 2009
E-1
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Appendix E: Industry Crosswalks
To create the final distribution of price effects (in percentage terms), EPA lastly estimated the joint probability of
occurrence of each unique price effect value based on the product of the probability of occurrence from the
respective cells of the cost-per-acre and housing distribution that comprise each price impact value. The final joint
distribution is presented in Figure 3-1. Figure 3-1 shows a skewed distribution with about 90% of new single-
family homes expected to experience a price increase of 0.5% or less. Approximately, 50% of homes experience a
price increase of 0.2% or less, and approximately 75% of homes show increase in price of 0.35% or less.
Figure E-1: Distribution of Potential Percentage Increases in New Single-Family Housing Prices (Option 4)
17.5% -
15.0%
12.5%
10.0%
7.5%
5.0%
2.5%
0.0%
4 A * * I 100.0%
0.0%
^;^;^
Percentage Price Increase from Compliance Cost
' Incremental Percent — A — Cumulative Percent
Source: EPA Analysis
E-2
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Appendix F: Industry Crosswalks
Appendix F: C&D Industry Definition Crosswalks
Table F-1: Crosswalk between 2002 NAICS and 1997 NAICS Structures
2002 NAICS Description
Relevant 1997 NAICS codes
236
Construction of buildings
2361
Residential building construction
236115
New single-family general contractors
233210 Single-family housing construction (general contractors)
236116
New multifamily general contractors
233220 Multifamily housing construction (general contractors)
236117
New housing operative builders
233210 Single-family housing construction (operative builders)
233220 Multifamily housing construction (operative builders)
236118
Residential remodelers
233210 Single-family housing construction (remodeling contractors)
233220 Multifamily housing construction (remodeling contractors)
2362
Nonresidential building construction
236210
Industrial building construction
233310 Manufacturing and industrial building construction
(Other manufacturing and industrial building construction)
234930 Industrial nonbuilding structure construction
(Other industrial nonbuilding construction)
234990 All other heavy construction (waste disposal plant)
236220 Commercial and institutional building
construction
233220 Multifamily housing construction (barrack and dormitory)
233310 Manufacturing and industrial building construction
(grain elevators, dry cleaning plants, and manufacturing and
industrial warehouses construction)
233320 Commercial and institutional building construction
235990 All other special trade contractors (indoor swimming pool)
237
Heavy and civil engineering construction
2371
Utility system construction
237110 Water and sewer line and related structures
construction
234910 Water, sewer, and pipeline construction (water and sewer line,
mains, and related structures (including pumping stations, etc.)
construction
234990 All other heavy construction (sewage and water treatment plants
and irrigation systems construction
235810 Water well drilling contractors
237120 Oil and gas pipeline and related
structures construction
213112 Support activities for oil and gas operations (partial)
234910 Water, sewer, and pipeline construction (Oil and gas pipelines,
mains, and related structures (including oil storage))
234930 Industrial nonbuilding structure construction
237130 Power and communication line and related
structures construction
234920 Power and communication transmission line construction
234930 Industrial nonbuilding structure construction (power generation
plants and transformer stations, except hydroelectric)
2372
Land subdivision
233110 Land subdivision
2373
Highway, street, and bridge construction
234110 Highway and street construction
234120 Bridge and tunnel construction (bridge construction)
235210 Painting and wall covering contractors (highway and traffic line
painting contractors)
2379
Other heavy and civil engineering
Construction
234120 Bridge and tunnel construction (tunnel construction)
234990 All other heavy construction (all other heavy and civil engineering
construction
235990 All other special trade contractors (anchored earth retention)
238
Specialty trade contractors
2381
Foundation, structure, and building exterior
contractors
238110 Poured concrete foundation and structure
contractors
235710 Concrete contractors (concrete contractors, except paving)
238120 Structural steel and precast concrete
contractors
235910 Other structural steel erection contractors (partial)
238130
Framing contractors
235510 Carpentry contractors (framing carpentry)
238140
Masonry contractors
235410 Masonry and stone contractors
235420 Dry wall, plastering, acoustical and insulation contractors (Stucco
contractors)
238150
Glass and glazing contractors
235920 Glass and glazing contractors
November 23, 2009
F-1
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Appendix F: Industry Crosswalks
Table F-1: Crosswalk between 2002 NAICS and 1997 NAICS Structures
2002 NAICS Description
Relevant 1997 NAICS codes
238160
Roofing contractors
235610 Roofing, siding and sheet metal contractors (roofing)
238170
Siding contractors
235610 Roofing, siding and sheet metal contractors (siding)
238190 Other foundation, structure, and building
exterior contractors
235910 Structural steel erection contractors (metal curtain walls and metal
furring installation contractors)
235990 All other special trade contractors (forming, ornamental metal
work installation, and other foundation, structure, and building exterior
contractors)
2382
Building Equipment Contractors
238210
Electrical Contractors
235110 Plumbing, heating, and air-conditioning contractors
(environmental controls installation contractors)
235310 Electrical Contractors
238220 Plumbing and HVAC contractors
235110 Plumbing, heating and air-conditioning contractors (other
plumbing, heating, and air-conditioning contractors)
235950 Building equipment and other machinery installation contractors
(scrubber, dust collection, and other industrial ventilation installation
contractors)
238290
Other building equipment contractors
235950 Building equipment and other machinery installation contractors
(partial)
235990 All other special trade contractors (boiler, duct, and pipe insulation
and service station equipment, lightning rod, bowling alley, church bell,
and tower clock installation contractors)
2383
238310
238320
238330
238340
238350
238390
2389
238910
Building finishing contractors
Drywall and insulation contractors
Painting and wall covering contractors
Flooring contractors
Tile and terrazzo contractors
Finish carpentry contractors
Other building finishing contractors
Other specialty trade contractors
Site preparation contractors
235420 Drywall, plastering, acoustical, and insulation contactors (partial)
235210 Painting and wall covering contractors (partial)
235520 Flooring contractors
235430 Tile and terrazzo contractors
235510 Carpentry contractors (Finish carpentry contractors)
235610 Roofing, siding, and sheet metal contractors (sheet metal
contractors, except roofing and siding)
235990 All other special trade contractors (trade show exhibits installation
and dismantling, spectator seating, modular furniture, window covering fix
installation, other building finishing contractors)
2131 12 Support activities for oil and gas operations
213113 Support activities for coal mining
213114 Support activities for metal mining
213115 Support activities for nonmetallic minerals (except fuels)
234990 All other heavy construction (right-of-way cleaning and line
slashing, blasting, trenching, and equipment rental (except cranes) with
operator)
235110 Plumbing, heating, and air-conditioning contractors
(septic tank, cesspool, and dry well construction contractors)
235930 Excavation contractors
235940 Wrecking and demolition contractors
235990 All other special trade contractors (dewatering contractors, core
drilling for construction, and test drilling for construction)
238990
All other specialty trade contractors
234990 All other heavy construction (crane rental with operator)
235710 Concrete contractors (residential and commercial asphalt, brick,
and concrete paving contractors)
235990 All other special trade contractors (partial)
Source: U.S. Census Bureau (2007)
F-2
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Appendix F: Industry Crosswalks
Table F-2: Crosswalk between 1997 NAICS and 1992 SIC Structures
1997 NAICS Description
Relevant 1992 SIC codes
233
Building, developing, and general contracting
2331
Land subdivision and development
233110
Land subdivision and development
6552 Land subdividers and developers, except cemeteries
2332
Residential building construction
233210
Single-family housing construction
1521 General contractors-single-family houses
1531 Operative builders (partial)
8741 Management services (partial)
233220
Multifamily housing construction
1522 General contractors-residential buildings other than
single-family (partial)
1531 Operative builders (partial)
8741 Management services (partial)
2333
Nonresidential building construction
233310 Manufacturing and industrial building
Construction
1531 Operative builders (partial)
1541 General contractors-industrial buildings and
warehouses (partial)
8741 Management services (partial)
233320 Commercial and institutional building
Construction
1522 General contractors-residential buildings, other than
single-family (partial)
1531 Operative builders (partial)
1541 General contractors-industrial buildings and
warehouses (partial)
1542 General contractors-nonresidential buildings except
industrial buildings and warehouses
8741 Management services (partial)
234
Heavy Construction
2341
Highway, street, bridge, and tunnel
Construction
234110
Highway and street construction
1611 Highway and street construction contractors, except
elevated highways
8741 Management services (partial)
234120
Bridge and tunnel construction
1622 Bridge, tunnel, and elevated highway construction
8741 Management services (partial)
2349
Other heavy construction
234910
Water, sewer, and pipeline construction
1623 Water, sewer, pipeline, and communications and power
line construction (partial)
8741 Management services (partial)
234920 Power and communication transmission
line construction
1623 Water, sewer, pipeline, and communications and power
line construction (partial)
8741 Management services (partial)
234930 Industrial nonbuilding structure
construction
1629 Heavy construction, n.e.c. (partial)
8741 Management services (partial)
235
Special trade contractors
2351
Plumbing, heating, & air-conditioning
contractors
235110 Plumbing, heating, & air-conditioning
contractors
1711 Plumbing, heating, & air-conditioning contractors
2352
Painting and wall covering contractors
235210
Painting and wall covering contractors
1721 Painting and paper hanging special trade contractors
1799 Special trade contractors (partial)
2353
Electrical contractors
235310
Electrical contractors
1731 Electrical work special trade contractors
2354
Masonry, drywall, insulation and tile
contractors
235410
Masonry and stone contractors
1741 Masonry, stone setting, and other stone work,
special trade contractors
235420 Drywall, plastering, acoustical, and
insulation contractors
1742 Plastering, drywall, acoustical, and insulation work, special trade
contractors
1743 Terrazzo, tile, marble, and mosaic work, special trade contractors
(partial)
1771 Concrete work, special trade contractors (partial)
235430 Tile, marble, terrazzo, and mosaic
contractors
1743 Terrazzo, tile, marble, and mosaic work, special trade contractors
(partial)
November 23, 2009
F-3
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Appendix F: Industry Crosswalks
Table F-2: Crosswalk between 1997 NAICS and 1992 SIC Structures
1997 NAICS
2355
235510
235520
2356
235610
2357
235710
2358
235810
2359
235910
235920
235930
235940
235950
235990
Description
Carpentry and floor contractors
Carpentry contractors
Floor laying and other floor contractors
Roofing, siding, and sheet metal
contractors
Roofing, siding, and sheet metal
contractors
Concrete contractors
Concrete contractors
Water well drilling contractors
Water well drilling contractors
Other special trade contractors
Structural steel erection contractors
Glass and glazing contractors
Excavation contractors
Wrecking and demolition contractors
Building equipment and other machinery
installation contractors
All other special trade contractors
Relevant 1992 SIC codes
1751 Carpentry work special trade contractors
1752 Floor laying and other floor work, special trade contractors
1761 Roofing, siding, and sheet metal work special trade contractors
1771 Concrete work special trade contractors
1781 Water well drilling special trade contractors
1791 Structural steel erection special trade contractors
1793 Glass and glazing special trade contractors
1799 Special trade contractors (partial)
1794 Excavation work special trade contractors
1795 Wrecking and demolition work special trade contractors
1796 Install or erection of building equipment, special trade contractors
1799 Special trade contractors (partial)
Source: U.S. Census Bureau (2000)
F-4
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Appendix G: Cost Multiplier
Appendix G: Estimating the Compliance Cost Financing Multiplier
EPA analyzed a model construction project to estimate a cost multiplier, per dollar of compliance cost, which
captures debt and equity carrying-cost considerations that firms will incur in performing compliance activities.
These financing cost considerations are not captured in the engineering estimate of compliance cost per acre, And
EPA therefore estimated this multiplier to apply as a mark-up to the incremental compliance costs. The
incremental compliance cost multiplier effect is used in the Affordability Analysis (Chapter 7) and the Social
Cost (Chapter 8) analysis, however is not needed to support the firm- and industry-level economic analysis as
financing costs are explicitly captured in that framework (see Chapter 6).
The hypothetical model project developed to support this analysis is based on EPA's best available data and
assumptions to generalize construction project characteristics.
Description of the Project Model Structure
EPA based the cost multiplier estimate on an economic model of a single-family residential construction project
that corresponds to a typical 1-acre size project. The model project analysis framework accounts for the timing of
outlays and financing for land purchase, development, construction, compliance cost outlays, and the ultimate sale
of the model construction project. EPA then calculated the discounted present value of project outlays; effectively
collapsing the time-explicit framework into a single-period equivalent analysis.
The model project analysis framework account for the financing costs associated with project-level outlays using
pre-tax costs of debt and equity capital parameters of 7.0% and 13.54%, respectively. These cost of debt and
equity parameters were developed using the methodology described in Chapter 4.
The location of the model project is unspecified and, for this reason, EPA used national-level data wherever
possible. Also, EPA assumes that model project site is controlled by a developer-builder (sometimes referred to in
the industry as a merchant builder or operative builder). The developer-builder is responsible for all aspects of the
project, from land acquisition through permitting, subdivision of the parcel, installation of any stormwater
controls and construction and marketing of completed unit(s).
EPA assumes that the model project follows a development process consisting of three phases:
> Land acquisition - The developer-builder puts together the necessary financing to purchase the parcel.
When lenders are involved, they may require documentation, such as financial statements, tax returns,
appraisals, proof of the developer's ability to obtain necessary zoning, evaluations of project location,
assessments of the capacity of existing infrastructure, letters of intent from the city/town to install
infrastructure, and environmental approvals. To satisfy these factors, the developer might incur costs
associated with compiling this data.
> Land development - The developer-builder obtains all necessary site approvals and prepares the site for
the construction phase of the project. Costs incurred during this phase include so-called "soft" costs for
architectural and engineering services, legal work, permits, fees, and testing; and "hard" costs, such as
land clearing, installing utilities and roads, and preparing foundations or pads. The result of this phase is a
legally subdivided parcel with finished lots ready for construction.
> Construction - The developer-builder undertakes the actual construction during this phase. A substantial
portion of this work could be subcontracted to specialty subcontractors (e.g., foundation, framing,
roofing, plumbing, electrical, and painting subcontractors).
November 23, 2009
G-1
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Appendix G: Cost Multiplier
Inputs to Model C&D Project
The model project is characterized by physical and technical parameters (e.g., project total acreage, size and
number of construction products associated with the project, acreage disturbed) as well as financial parameters
(e.g., types, timing, and magnitude of costs incurred during various phases of the project, and the sources for these
funds in terms of the amounts borrowed versus the amounts provided from the developer-builder's equity).
The general cost categories included during the various stages of each model project - independent of compliance
outlays - are summarized in Table G-l.
Table G-1: Costs Elements for Model Project Phases
Project Phase
Land Acquisition (Year 1)
Land Development (Year 2)
Building Construction (Years 3-4)
Project Cost Elements
Raw land purchase
Debt cost of land acquisition loan
Equity cost of capital outlays for land acquisition
Land development (e.g., site preparation, site improvement - paving, water and
sewer, erosion and sediment - water and electric hook-up)
[mpact fees and analysis
Other fees (e.g., cost of processing approvals, land dedication or fee in lieu,
bonding/escrow fee)
Land preservation and planting (e.g., tree and wetland preservation and planting;
value of land left as green space or park)
Other costs
Overhead
Debt cost of land development loan
Equity cost of capital outlays for land development
Construction cost
Overhead
Debt cost of construction loan
Equity cost of capital outlays for construction
Real estate and marketing fees
Phase 1 - Land Acquisition
The first phase of the model project is land acquisition, which includes the purchase of raw land for the project.
The model single-family residential project is assumed to be an undeveloped parcel zoned for single-family
residential housing. The cost of raw land per acre for single- and multi-family development is estimated from the
National Association of Home Builder's (NAHB) 2007 National Results - Construction Costs for a Single-Family
Unit. NAHB's annual report includes "average" costs for the development and construction of a single-family
housing unit using information compiled from builders in approximately 50 metropolitan markets.
NAHB's 2007 single-family unit cost report indicates a raw lot cost of $45,507, and the median lot size for a new
single-family lot as defined by the Census is 8,854 square feet in size.
EPA assumed that the land acquisition cost is financed over a time period equal to the total length of the project -
from land acquisition through development, construction, and sale. EPA conservatively assumes the model
project takes four years - that is, revenue from the sale of the housing unit(s) occurs four years after initiation of
the land acquisition loan. Part of the land acquisition loan is financed through debt (with debt cost of 7.0%) and
part is financed using developer equity (with a 13.54% equity cost) assuming a land acquisition loan-to-value
ratio of 65%, which is based on FDIC's Real Estate Lending Rules for land acquisition.
G-2
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Appendix G: Cost Multiplier
Phase 2 - Land Development
NAHB's 2007 National Results - Construction Costs for a Single-Family Unit is the data source used by EPA to
establish the baseline land development costs for the model project. NAHB reports specific line item costs for
land development, which EPA grouped into five categories:
1. Land development (e.g., site preparation, site improvement - paving, water and sewer, erosion and sediment -
water and electric hook-up);
2. Impact fees and analysis;
3. Other fees (e.g., cost of processing approvals, land dedication or fee in lieu, bonding/escrow fee);
4. Land preservation and planting costs (e.g., tree and wetland preservation and planting; value of land left as
green space or park); and,
5. Other costs.
NAHB reports each cost element on a per-single-family-lot basis. EPA converted these per-lot costs to a per-acre
based on the implicit number of lots per acre (4.93). EPA assumed, based on the NAHB data, that overhead costs
are 10% of total baseline land development costs. EPA assumed the loan to finance the land development costs is
initiated one year following the initiation of the land acquisition loan and continues until the project is completed.
Therefore, the land development loan has a duration of three years. Part of the land development loan is assumed
to be financed through debt and part is financed using developer equity assuming a land development loan-to-
value ratio of 75%, based on FDIC's Real Estate Lending Rules for land development.
Phase 3 - Building Construction
The third phase of the project is construction, which includes the physical structures as well as costs for other site
infrastructure such as paving and sidewalk construction, which is primarily a function of the cost of construction
per square foot, the number of square feet per unit, and the number of housing units per acre.
NAHB's 2007 National Results - Construction Costs for a Single-Family f/«/Yandthe U.S. Census
Characteristics of New Housing are the data sources used by EPA to establish the construction cost for the model
project. The U.S. Census Characteristics of New Housing data indicates the 2008 national median lot size for a
single-family home is approximately 0.2 acres, and that the typical size of a single-family home built on that lot is
2,209 square feet. This implies 4.93 single-family units per acre. NAHB reports the total construction cost for a
single-family unit is $65.57/square foot.
EPA has also estimated the total project square footage of roads, driveway, and sidewalk construction area based
on ratios of such impervious surfaces to total the total project size as reported in a 2001 study of impervious cover
and land use in the Chesapeake Bay watershed (Capiella, 2001). R.S. Means provides values for the average cost
of residential paving (e.g., roads, driveway) and sidewalk construction of $1.31 and $4.15 per square foot,
respectively.
EPA assumed that overhead costs are 10% of total construction costs. EPA assumed that the loan to finance the
total construction cost is initiated one year following the initiation of the land development loan and continues
until the project is completed. The construction loan is therefore two years in duration. Part of the construction
loan is assumed to be financed through debt and part is financed using developer equity assuming a construction
loan-to-value ratio of 80%, which is based on FDIC's Real Estate Lending Rules.
Lastly, EPA developed marketing fee and real estate sales commission values as a percentage of the sale price of
each housing unit based on NAHB's single-family housing unit construction cost data. EPA assumed that
November 23, 2009 G-3
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Appendix G: Cost Multiplier
marketing fees are 2.7% of the cost of each unit constructed in a given project, and the sales commission is 4.6%
of the cost of each unit constructed in the project. The marketing fees and sales commission are not assumed to
carry a financing cost that will affect project price as they are assumed to be incurred late in the construction
phase of the project - and hence, relatively close to the period when revenue from sale is realized.
Summary of Key Model Project Inputs
Table G-2 presents the key assumptions and data sources used to develop the model single-family construction
project described above.
Table G-2: Key Input Parameters for the Single-Family Construction Model Project
Parameter Description
Value
Source
Project-size variables
Site-size (acres)
Average single-family home size (square feet)
Average lot size (acres)
Lot density (number of lots per acre)
1
2,209
0.2
4.93
EPA assumption *
U.S. Census Bureau Characteristics of New Housing
U.S. Census Bureau Characteristics of New Housing
Calculated value
Land acquisition and development variables
Cost of raw land (per acre)
Land development costs (per lot)
Impact analysis (per lot)
Land preservation and planting (per lot)
Other Fees (per lot)
Other Costs (per lot)
Overhead costs
$224,172
$39,167
$5,160
$3,115
$5,350
$3,996
10%
NAHB 2007 - Construction Costs for a Single-Family Unit
NAHB 2007 - Construction Costs for a Single-Family Unit
NAHB 2007 - Construction Costs for a Single-Family Unit
NAHB 2007 - Construction Costs for a Single-Family Unit
NAHB 2007 - Construction Costs for a Single-Family Unit
NAHB 2007 - Construction Costs for a Single-Family Unit
NAHB 2007 - Construction Costs for a Single-Family Unit
Construction cost variables
Construction cost (per square foot)
Overhead costs
$65.57
10.0%
NAHB 2007 - Construction Costs for a Single-Family Unit
NAHB 2007 - Construction Costs for a Single-Family Unit
Real estate cost variables
Marketing fees (% of home sales price)
Real estate sales commission (% of sales price)
2.7%
4.6%
NAHB 2007 - Construction Costs for a Single-Family Unit
NAHB 2007 - Construction Costs for a Single-Family Unit
Financing terms variables
Debt cost
Equity cost
Loan-to-value ratio for land acquisition
Loan-to-value ratio for land development
Loan-to-value ratio for construction
Term of land acquisition loan (years)
Term of land development loan (years)
Term of construction loan (years)
7.0%
13.54%
65%
75%
80%
4
3
2
Calculated value
Calculated value
FDIC Real Estate Lending Rules
FDIC Real Estate Lending Rules
FDIC Real Estate Lending Rules
EPA assumption
EPA assumption
EPA assumption
* The model project definition of 1-acre is not intended to imply that all projects subject to regulation are 1-acre in size. This is
simply the assumed size of the model project for purposes of estimating the compliance cost unit multiplier value.
Estimating Project-Level Effects and Associated Cost Multiplier
The model project framework incorporates the entire set of costs associated with acquiring, developing, and
completing construction of housing units or buildings on a given site. The example 1-acre single-family model
project is presented in Table G-3 below to show the specification of the model project framework and the
resulting incremental changes in costs due to compliance outlays.
The assumed compliance outlay value is incurred at the beginning of the land development phase of the project
(i.e., beginning of year 2). The compliance outlay is therefore incorporated into the debt and equity financing for
land development - financing which has a 3-year duration. As a result, notice in Table G-3 that the costs for land
acquisition and construction do not change from baseline to post-compliance conditions, but costs for land
development do change. In the example below, the land development loan and the capital outlay for land
G-4
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines
Appendix G: Cost Multiplier
development both increase because part of the illustrative $3,500 per acre compliance outlay is financed through
debt and part is financed through equity. The sum of the changes in debt and equity outlays equals the total per-
acre compliance outlay value. These outlays then incur a multiplier effect due, respectively, to the 3-year costs of
debt and equity financing.
Table G-3: Example Single-Family Construction Model Project Framework (1-Acre Site)
Project Cost Element
Baseline Value
Hypothetical Option | Change Due to Compliance
Land Acquisition
Raw land cost
$224,172 |
$224,172 |
$0
Debt Cost for Land Acquisition
Land acquisition loan value
End-of-project acquisition loan balance
$145,712
$190,999
$145,712
$190,999
$0
$0
Equity Cost for Land Acquisition
Capital outlay for land acquisition
End-of-project capital balance
Total Land Acquisition Cost
Land Development
$78,460
$130,395
$321,394
$78,460
$130,395
$321,394
$0
$0
$0
Development Costs
Land development
Impact analysis
Land preservation and planting
Other fees
Other costs
Overhead costs
Regulatory Option Compliance Outlay
$192,941
$25,419
$15,345
$26,355
$19,685
$27,974
$0
$192,941
$25,419
$15,345
$26,355
$19,685
$27,974
$ 3,500
$0
$0
$0
$0
$0
$0
$ 3,500
Debt Cost for Land Development
Land development loan value
End-of-project development loan balance
$230,789
$282,726
$233,414
$285,942
$2,625
$3,216
Equity Cost for Land Development
Capital outlay for land development
End-of-project capital balance
Total Land Development Cost
Construction
$76,930
$112,603
$395,329
$77,805
$113,884
$399,826
$875
$1,281
$4,496
Construction Costs
Project construction
Overhead
$713,555
$71,355
$713,555
$71,355
$0
$0
Debt Cost for Construction
Construction loan value
End-of-project construction loan balance
$627,928
$718,915
$627,928
$718,915
$0
$0
Equity Cost for Construction
Capital outlay for construction
End-of-project capital balance
Total Construction Cost
Estimate Sales Price to Consumer
Total project cost before real estate fees
Price per unit before real estate fees
Marketing fees
Sales commission
Final project cost
Final sales price per unit
$156,982
$202,374
$921,289
$156,982
$202,374
$921,289
$0
$0
$0
$1,638,013
$332,517
$ 8,825
$15,286
$ 1,756,785
$ 356,627
$1,642,509
$333,429
$8,849
$15,328
$1,761,607
$357,606
$4,496
$913
$24
$42
$4,823
$979
Once incremental compliance costs are incorporated into the model project framework, it produces - assuming
100% cost pass-through - a price differential relative to the baseline price. This price differential is higher than
the incremental compliance costs assigned to the project by this implicit cost "multiplier" factor. The multiplier is
calculated by dividing the total change in the final project cost from the baseline by the incremental cost of
November 23, 2009
G-5
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines Appendix G: Cost Multiplier
compliance assigned to the project. Referring back to the example in Table G-3, the multiplier is estimated by
dividing $4,823 / $3,500.
It is important to emphasize that neither the absolute dollar value of incremental compliance associated with a
given project nor the baseline cost of the project determines the value of the cost multiplier. The multiplier
represents a mark-up, per dollar of compliance, and is determined by the financing terms specified for the model
projects. These include the debt cost, equity cost, loan to value ratios, and the durations of the loans for each
phase of development. The multiplier value is therefore option-independent. EPA estimated a compliance cost
multiplier of 1.38, which means each dollar of incremental compliance cost becomes $1.38 of incremental price
change for the construction unit due to debt and equity cost considerations.
G-6 November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines References
Appendix H: References
5 USC § 601-612. Regulatory Flexibility Act. Available at http://www.archives.gov/federal-
register/laws/regulatory-flexibility/. Accessed June 9, 2009.
13 CFR 121.201. Small Business Size Regulations. Available at http://www.gpoaccess.gov/cfr/retrieve.html.
Accessed June 9, 2009.
67 CFR 121 Page 42644. Effluent Limitation Guidelines and New Source Performance Standards for the
Construction and Development Category; Proposed Rule. Available at http://www.epa.gov/fedrgstr/EPA-
WATER/2002/June/Day-24/w 12963.htm. Accessed June 9, 2009.
69 CFR 80. Page 22472. Effluent Limitations Guidelines and New Source Performance Standards for the
Construction and Development Category. Available at http://www.epa.gov/fedrgstr/EPA-
WATER/2004/April/Day-26/w7865.htm. Accessed June 9, 2009.
American Institute of Architects, The. 10 July 2009. Steep Downturns in Nonresidential Construction Projected
Through 2010. Kermit Baker. Available online at:
http://info.aia.org/aiarchitect/thisweek09/0710/0710b_consensus.cfm
Barron's. "Housing starts data not so homely." 19 May 2009. Tiernan Ray.
Bateman, I.J. and A.P. Jones. 2003. Contrasting Conventional with Multi-Level Modeling Approaches to Meta-
Analysis: Expectation Consistency in U.K. Woodland Recreation Values. Land Economics 79(2): 235-258.
Bateman, I.J., B.H. Day, S. Georgiou and I. Lake. 2006. The Aggregation of Environmental Benefit Values:
Welfare Measures, Distance Decay and Total WTP. Ecological Economics 60(2): 450-460.
Benjamin, J.D., G.D. Jud, and D. Winkler. 1998. A Simultaneous Model and Empirical Test of the Demand and
Supply of Retail Space. Journal of Real Estate Research, 6(1), pp. 1 - 13.
Bondsonline Group, Inc. Reuters Corporate Spreads for Industrials. 1 March 2006. Available at
http://www.bondsonline.com/Todays_Market/Corporate_Bond_Spreads.php. Accessed on May 6, 2008.
Bureau of Economic Analysis. 2008. Table 5.4.6BU. Real Private Fixed Investment in Structures by Type,
Chained Dollars. Available online at: http://www.bea.gov/national/nipaweb/nipa_underlying/SelectTable.asp
Bureau of Economic Analysis. 2009a. Table 1.1.5. Gross Domestic Product. Available online at:
http://www.bea.gov/national/nipaweb/SelectTable.asp?Selected=N
Bureau of Economic Analysis. 2009b. Table 3.9.6. Real Government Consumption Expenditures and Gross
Investment, Chained Dollars. Available online at:
http://www.bea.gov/national/nipaweb/SelectTable.asp?Selected=N
Cappiella, Karen and Kenneth Brown. Center for Watershed Protection (CWP). Impervious Cover and Land Use
in the Chesapeake Bay Watershed. January 2001.
Carson, R.T. and R.C. Mitchell. 1993. "The value of clean water: the public's willingness to pay for beatable,
fishable, and swimmable quality water." Water Resources Research 29(7): 2445-2454.
Copeland, Tom, Tim Koller, and Jack Murim, Valuation: Measuring and Managing the Value of Companies.
(John Wiley & Sons, Inc., 2000a), pg. 214-217.
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines References
Copeland, Tom, Tim Koller, and Jack Murim, Valuation: Measuring and Managing the Value of Companies.
(John Wiley & Sons, Inc., 2000b), pg. 201-232.
Damoradan, Aswath. Damoradan Online. Accessed on May 6, 2008. Available at
http: //pages. stern .nyu. edu/~adamodar/
DiPasquale, D. 1999. Why Don't We Know More About Housing Supply? Journal of Real Estate Finance and
Economics, 18(1), pp. 9-23.
ElBoghdady, Dina. "New Home Sales Climb Nearly Ten Percent." The Washington Post. 26 August 2009.
Federal Deposit Insurance Corporation (FDIC). FDIC Laws, Regulations, and Related Acts: Real Estate Lending
Standards. Accessed June 9, 2009. Available at http://www.fdic.gov/regulations/laws/rules/2000-
8700.html#2000part365.2.
Federal Housing Administration (FHA). 2009. FHA Loan Debt to Income Ratios. Accessed June 9, 2009.
Available online at: http://www.fha.com/debt_to_income_ratios.cfm.
Federal Housing Finance Board (FHFB). 2007. Table 26: Terms on Conventional Single Family Mortgages,
Fixed-Rate 30-Year and 15-Year Non-jumbo Loans. Accessed June 9, 2009. Available online at:
http://www.fhfb.gov/Default.aspx?Page=53&Top=4.
Federal Research Service. FedJobs.com Base General Schedule Pay Scale. 4 January 2009. Available at
http://www.fedjobs.com/pay/pay.html. Accessed on June 9, 2009.
Freddie Mac. 2009. Primary Mortgage Market Survey: Conventional, Conforming 30-Year Fixed-Rate Mortgage
Series Since 1971. Accessed June 9, 2009. Available online at:
http://www.freddiemac.com/pmms/pmms 15 .htm.
Freeman III, A.M. 2003. The Measurement of Environmental and Resource Values: Theory and Methods.
Washington, DC: Resources for the Future.
Global Insight. "U.S. Economy - Perspective Article: U.S. Housing: After the Downturn, What Then?" 20
November 2007.
Global Insight. "Fifth Annual Construction Web Event; Session 2: U.S. Construction Outlook." 1 October 2008.
Available online at:
http://webcast.globalinsight.com/ireye/ir_site.zhtml?ticker=29730&script=1010&item_id=1935889
Global Insight. "U.S. Economic Outlook: Housing and Construction" July 2009. Patrick Newport.
Global Insight. "An Update on U.S. Construction Spending" August 2009. Patrick Newport.
Green, R., S. Malpezzi, and S. Mayo. 2005. Metropolitan-Specific Estimates of the Price Elasticity of Supply of
Housing, and Their Sources. American Economic Review, 95(2), pp. 334 - 339.
Grubb & Ellis Research. 2009. North America Market Trends, First Quarter/Summer2009 (various reports).
Available at http://www.grubb-ellis.com/Research/Default.aspx.
Hwang, M., and J.M. Quigley. 2006. Economic Fundamentals in Local Housing Markets: Evidence from U.S.
Metropolitan Regions. Journal of Regional Science 46 (3), 425 - 453.
Insurance Information Institute (III). 2007. Average Premiums for Homeowners and Renters Insurance, by State,
2005. Accessed April 21, 2008. Available online at: http://www.iii.org/media/facts/statsbyissue/homeowners/.
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines References
Johnston, R.J., E.Y. Besedin, R. lovanna, C.J. Miller, R.F. Wardwell and M.H. Ranson. 2005. "Systematic
Variation in Willingness to Pay for Aquatic Resource Improvements and Implications for Benefit Transfer: A
Meta-Analysis." Canadian Journal of Agricultural Economics 53(2-3):221-248.
Johnston, R.J., M.H. Ranson, E.Y. Besedin and B.C. Helm. 2006. "What Determines Willingness To Pay Per
Fish? A Meta-Analysis of Recreational Fishing Values. "Marine Resource Economics 21:1-32.
Joint Center for Housing Studies of Harvard University. "The State of the Nation's Housing." 2008. Available
online at: http://www.jchs.harvard.edu/son/index.htm
Just, R.E., D.L. Hueth and A. Schmitz. 2004. The Welfare Economics of Public Policy: A Practical Approach to
Public Policy. Cheltenham, UK: Edward Elgar.
Kiel, K. and J. Zabel (1999). The Accuracy of Owner-Provided House Values: the 1978-1991 American Housing
Survey. Real Estate Economics, Vol. 27, Number 2.
Krinsky, I. and A.L. Robb. 1986. Approximating the statistical properties of elasticities. Review of Economics and
Statistics 68(4):715-719.
Loomis, J., P. Kent, L. Strange, K. Fausch and A. Covich. 2000. Measuring the total economic value of restoring
ecosystem services in an impaired river basin: results from a contingent valuation survey. Ecological
Economics, Vol (33), pp. 103-117.
Loomis, J.B. 1996. How Large is the Extent of the Market for Public Goods: Evidence from a Nation Wide
Contingent Valuation Survey. Applied Economics 28(7): 779-782.
McClelland, N. I. 1974. Water Quality Index Application in the Kansas River Basin. U.S. Environmental
Protection Agency Region 7, Kansas City, Missouri.
McGraw Hill Construction. Engineering News-Record. Recent Cost Indexes. 2008. Available at
http://enr.construction.com/features/coneco/recentindexes.asp. Accessed on May 6, 2008.
Moeltner, K., K.J. Boyle, and R.W. Paterson. 2007. "Meta-Analysis and Benefit Transfer for Resource
Valuation—Addressing Classical Challenges with Bayesian Modeling." Journal of Environmental Economics
and Management 53(2):250-269.
Mortgage Bankers Association (MBA). 17 August 2009. Mortgage Finance Forecast. Available online at:
http://www.mbaa.org/NewsandMedia/PressCenter/70010.htm. Accessed August 28, 2009.
National Association of Home Builders (NAHB). 9 October 2006. Housing in Next 10 Years to Outshine
Previous Decade. Available online at: http://www.nahb.org/news_details.aspx?newsID=3413
National Association of Home Builder's (NAHB). 2007. National Results - Construction Costs for a Single-
Family Unit. Available athttp://www.nahb.org/fileUpload_details.aspx?contentID=85008.
National Association of Realtors (NAR). 2009. Metropolitan Area Existing-Home Prices. Available at
http://www.realtor.org/research.nsf/Pages/MetroPrice. Accessed on June 10, 2009.
National Association of Realtors (NAR). 2009a. Pending Home Sales Rise, Housing Affordability Near Record. 4
May 2009. Available at: http://www.realtor.org/press_room/news_releases/2009/05/march_phsi. Accessed on
September 4, 2009.
National Association of Realtors (NAR). 2009b. Commercial Real Estate Outlook. August 2009.
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines References
National Association of Realtors (NAR). 2009c. Decline in Commercial Real Estate Sectors Appears to be
Slowing. 19 August 2009. Available at:
http://www.realtor.org/press_room/news_releases/2009/08/decline_slowing. Accessed on September 4, 2009.
National Association of Realtors (NAR). 2009d. Affordable Housing Real Estate Resource: Housing
Affordability Index. Available at: http://www.realtor.org/research/research/housinginx. Accessed September
9, 2009.
National Bureau of Economic Research (NBER). Business Cycle Dating Committee. 17 July 2003. Available at
http://www.nber.org/cycles/july2003.html. Accessed on May 6, 2008.
Office of Management and Budget (OMB). 2003. OMB Circular A4. p. 33-34. Available at
http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf.
Reed Construction Data (2008). Reed Connect Database.
Reed Construction Data (2009a). Turning Points in Construction. 2009 Market Insights Webcast. 23 July 2009.
Reed Construction Data (2009b). 21 August 2009. Single family market expanding slowly; multifamily market
shrinking rapidly. Jim Haughey. Available online at:
http://www.reedconstructiondata.com/news/2009/08/single-familv-market-expanding-slowlv-multifamily-
market-shrinking-rapidly/
Reed Construction Data. (2009c). Heavy Construction Spending Down 0.8% in June. 21 August 2009. Jim
Haughey. Available online at: http://www.reedconstructiondata.com/news/2009/08/heavy-construction-
spending-down-in-june/. Accessed on September 4, 2009.
Reed Construction Data. (2009d). Construction spending up 2.5% in June but 4% drop is expected through
December. 21 August 2009. Jim Haughey. Available online at:
http://www.reedconstructiondata.com/news/2009/08/construction-spending-up-in-june-but-drop-is-expected-
through-december/
Risk Management Association. 2008. eStatement Studies. Available online at: http://estatementstudies.com/
Rosenberger, R.S. and T.D. Stanley. 2006. "Measurement, Generalization, and Publication: Sources of Error in
Benefit Transfers and Their Management." Ecological Economics 60(2):372-378.
Rosenberger, R.S. and T.T. Phipps. 2007. "Correspondence and Convergence in Benefit Transfer Accuracy:
Meta-Analytic Review of the Literature." In S. Navrud and R. Ready (eds.), Environmental Value Transfer:
Issues and Methods. Dordrecht, The Netherlands: Springer, pp.23-43.
R.S. Means. CostWorks. Online construction cost estimating tool available at https://www.meanscostworks.com/
Shrestha, R., R. Rosenberger, and J. Loomis. 2007. Benefit Transfer Using Meta-Analysis in Recreation
Economic Valuation, in Benefit Transfer Accuracy: Meta-Analytic Review of the Literature." In S. Navrud
and R. Ready (eds.), Environmental Value Transfer: Issues and Methods. Dordrecht, The Netherlands:
Springer, pp. 161-177.
Smith, V.K., G. Van Houtven, and S.K. Pattanayak. 2002. Benefit Transfer via Preference Calibration:
"Prudential Algebra" for Policy. Land Economics 78(1): 132-152.
Standard and Poor's. 22 August 2009. Stock Report - Pulte Homes Inc.
Urban Land Institute (ULI). 2000. Market Profiles 2000: North America.
iv November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines References
U.S. Bureau of Economic Analysis. 2009. Regional Input-Output Modeling System.
http://www.bea.gov/regional/rims/index.cfm
U.S. Census Bureau. 2000. Bridge Between 1997 NAICS and SIC. Available online at:
http://www.census.gov/epcd/ec97brdg/E97B1233.HTM
U.S. Census Bureau. 2002. 2002 Census of Governments. Government Organization. Various Reports. Available
online at: http://www.census.gov/prod/2003pubs/gc021xl.pdf Accessed on May 6, 2008.
U.S. Census Bureau. 2005a. 2002 Economic Census: Construction. Various Reports. Available online at:
http://www.census.gov/econ/census02/guide/INDRPT23.HTM
U.S. Census Bureau. 2005b. Non-Employer Statistics. Available online at:
http://www.census.gov/epcd/nonemployer/2002/us/USOOO_23.HTM.
U.S. Census Bureau. 2005c. 2002 Census of Governments. Compendium of Government Finances. Various Reports.
Available online at: http://www.census.gov/prod/2005pubs/gc024x5.pdf Accessed on May 6, 2008.
U.S. Census Bureau. 2007a. American Community Survey. Accessed June 10, 2009. Available online at:
http://factfinder.census.gov/servlet/DCGeoSelectServlet7ds name=ACS 2007 1YR GOO .
U.S. Census Bureau. 2007b. Annual Population Estimates. Accessed June 10, 2009. Available online at:
http://factfinder.census.gov/servlet/DCGeoSelectServlet7ds name=PEP 2007 EST.
U.S. Census Bureau. 2007a. Bridge Between 2002 NAICS and 1997 NAICS. Available online at:
http://www.census.gOv/econ/census02/data/bridge/B R02_23.HTM#236115.
U.S. Census Bureau. 2007b. Current Lists of Metropolitan and Micropolitan Statistical Areas and Definitions.
Accessed June 9, 2009. Available online at:
http://www.census.gov/population/www/estimates/metrodef.html.
U.S. Census Bureau. 2009a. Construction Spending. Available online at:
http://www.census.gov/const/www/c30index.html.
U.S. Census Bureau. 2009b. New Residential Construction. Available online at:
http: //www .census .gov/const/www/newre sconstindex_excel .html.
U.S. Census Bureau. 2009c. Characteristics of New Housing. Available online at:
http://www.census.gov/const/www/charindex.html.
U.S. Department of Housing and Urban Development (HUD). 2006. Housing Impact Analysis. Prepared for HUD
Office of Policy Development and Research; prepared by Dacquisto, D., Newport Partners, LLC, and Rodda,
D., Abt Associates, Inc. January 2006.
U.S. Department of Housing and Urban Development (HUD). 2006a. American Housing Survey for the United
States: 2005.
U.S. Department of Housing and Urban Development (HUD). 2008. American Housing Survey for the United
States: 2007. September 2008.U.S Department of Labor. 2006. High Growth Industry Profile: Construction.
Available online at: http://www.doleta.gov/BRG/Indprof/constmctionjrofile.cfm
U.S Department of Labor. December 2008. Bureau of Labor Statistics. Employer Costs for Employee
Compensation. Available at http://www.bls.gov/bls/newsrels.htm. Accessed on June 9, 2009.
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines References
U.S. Department of Transportation Federal Highway Administration (FHWA). 2001. Highway Statistics.
Accessed April 21, 2008. Available online at: http://www.fhwa.dot.gov/policy/ohpi/hss/hsspubs.htm.
U.S. Environmental Protection Agency (EPA). 1997. Development of Mixing Zone Dilution Factors. Final report,
EPA Contract No. 68-D3-0013 (Work Assignment No. 2-12) and EPA Contract No. 68-W6-0023 (Work
Assignment No. 1-2). Prepared by Versar, Inc. for the U.S. Environmental Protection Agency, Economics,
Exposure and Technology Division, Office of Pollution Prevention and Toxics, Washington, DC.
U.S. Environmental Protection Agency (EPA). 2002. Estimation of National Economic Benefits Using the
National Water Pollution Control Assessment Model to Evaluate Regulatory Options for Concentrated
Animal Feeding Operations (EPA-821-R-03-009). U.S. EPA, Office of Water, Washington, DC, December
2002.
U.S. Environmental Protection Agency (EPA). 2002a. Economic Analysis of Proposed Effluent Guidelines and
Standards for the Construction and Development Category. U.S. EPA, Office of Water, Washington, DC,
May 2002.
U.S. Environmental Protection Agency (EPA). 2004a. Development Document for Final Action for Effluent
Guidelines and Standards for the Construction and Development Category. EPA-821-B-04-001.
U.S. Environmental Protection Agency (EPA). 2004b. Regional Analysis for the Final Section 316(b) Phase II
Existing Facilities Rule (EPA-821-R-04-006). U.S. EPA, Office of Water, Washington, DC, February 2004.
U.S. Environmental Protection Agency (EPA). 2005. Information Collection Request for NPDES and Sewage
Sludge Monitoring Reports. EPA ICR# 0229.16.
U.S. Environmental Protection Agency (EPA). 2006. Final Guidance for EPA Rulewriters: Regulatory Flexibility
Act as amended by the Small Business Regulatory Enforcement Fairness Act. November 2006.
U.S. Environmental Protection Agency (EPA). 2007. National Water Quality Inventory: Report to Congress:
2002 Reporting Cycle. EPA 841-R-07-001. http://www.epa.gov/305b/2002report/report2002305b.pdf
U.S. Environmental Protection Agency (EPA). 2008a. Development Document for Proposed Effluent Guidelines
and Standards for the Construction and Development Category. May 2008.
U.S. Environmental Protection Agency (EPA). 2008b. Environmental Impact and Benefits Assessment for
Proposed Effluent Guidelines and Standards for the Construction and Development Category. EPA-821-R-
08-009. August 2008, Draft.
U.S. Geological Survey (USGS). 2007. National Hydrography Dataset (http://nhd.usgs.gov/).
U.S. Geological Survey (USGS). 2008. SPARROW model for sediment.
U.S. Federal Reserve. Selected Interest Rates. Moody's Seasoned - Baa. 2007a. Available at
http://www.federalreserve.gov/releases/hl5/data/Annual/H15_BAA_NA.txt. Accessed May 6, 2008.
U.S. Federal Reserve. Selected Interest Rates. U.S. Government Securities at 10-year Treasury Constant Maturity.
2009. Available at http://www.federalreserve.gov/releases/hl5/data/Annual/H15_TCMNOM_Y10.txt.
Accessed August 2009.
U.S. SBA (Small Business Administration). 2004. Statistics of U.S. Businesses: Firm Size Data. Available online
at: http://www.sba.gov/advo/research/data.html.
November 23, 2009
-------
Economic Analysis of the Final Construction & Development Effluent Limitation Guidelines References
U.S. SBA (Small Business Administration). 2006. Statistics of U.S. Businesses: Dynamic data, by births, deaths,
growth, and decline. Available online at: http://www.sba.gov/advo/research/data.html.
U.S. SBA (Small Business Administration). 2008. Table of Small Business Size Standards Matched to the North
American Industry Classification System (NAICS 2002), Effective August 22, 2008. Available online at:
http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdfpdf
November 23, 2009
------- |