**Benefits and Costs of Policy to Reduce Stormwater Runoff**

**Annotated Bibliography**

**Sharon Khan**

**Environmental Economist**

**Waterkeeper Alliance**

**50 South Buckhout Street, Suite 302**

**Irvington, New York 10533**

**Phone: (914) 674-0622**

**Introduction**

This document is an annotated bibliography of information required to
assess the benefits and costs of policy to reduce stormwater runoff.
Part 1 highlights the benefits of stormwater regulations as shown in
recent case studies. Part 2 is a note on the costs of regulation to
reduce stormwater runoff. Part 3 exposes the flawed benefits methodology
that EPA used in its evaluation of its 2004 Economic Analysis of Final
Action for Effluent Guidelines and Standards for the Construction and
Development Category.

► Office of Management and Budget, 2003. Circular A-4: *Guidelines for
the Conduct of Regulatory Analysis and the Format of Accounting
Statements (Circular A-4)*, September 2003, White House Office of
Management and Budget, Washington, D.C.

> *When important benefits and costs cannot be expressed in monetary
> units, BCA \[benefit cost analysis\] is less useful, and it can even
> be misleading, because the calculation of net benefits in such cases
> does not provide a full evaluation of all relevant benefits and
> costs.*

►EPA, 2000. *Guidelines for Preparing Economic Analyses*, September
2000, United States Environmental Protection Agency, National Center for
Environmental Economics.

> *A given policy may produce many different benefits, but it is seldom
> possible to obtain a single, comprehensive value estimate for the
> collection of effects. This will often leave analysts with no
> alternative but to address these effects individually, aggregating
> values to generate an estimate of the total benefits of a policy
> alternative.*

**Part 1: Benefits of Reducing Stormwater Runoff**

► EPA, 1995. *Economic Benefits of Runoff Controls*, Office of Wetlands,
Oceans and Watersheds, available at:
[www.epa.gov/owow/nps/runoff.html](http://www.epa.gov/owow/nps/runoff.html)

"Environmental benefits are not the only valid reason for encouraging
developers to incorporate urban runoff controls into new residential and
commercial developments. Increased property values can result from
aesthetically landscaped controls. Both homeowners and developers have
realized benefits from beautification of areas adjacent to waterways and
detention ponds...The beauty of natural surroundings increases real
residential property values by up to 28 % while also enhancing the
quality of life."

►National Association of Home Builders. June 12, 2006. *\$19-38 Billion
in Green Home Building Expected in 2010*.
[www.nahb.org/news_details.aspx?newsID=2745](http://www.nahb.org/news_details.aspx?newsID=2745).

"Last year saw a 20% increase in the number of green home builders in
the U.S., according to the results of a new survey by McGraw Hill
Construction and NAHB. The study also indicates that the number is
expected to grow by another 30% this year."

► EPA, 2002. Economic Analysis of Proposed Effluent Limitation
Guidelines and New Source Performance Standards for the Construction and
Development Category.

Improved stormwater quality would save the nation \$3.2 to \$17.0
million per year in drinking water treatment costs and \$14 million per
year in flood insurance costs.

► Aponte Clarke, G and Stoner, N., 2004. *Stormwater Strategies, The
Economic Advantage*, available at:
[www.forester.net/sw_0101­\_stormwater.html](http://www.forester.net/sw_0101%1F_stormwater.html).

EPA found that reduced stormwater runoff could save the commercial and
shellfish industries \$17 to \$30 million.

**1.1 Benefits of Reduced Stormwater Runoff into the Chesapeake Bay**

► Morgan and Owens, 2001. *Benefits of water quality policies: the
Chesapeake Bay*. U.S. EPA NCEE.

*The monetized annual boating, fishing, and swimming benefits of water
quality improvements in the Chesapeake Bay range from \$357.9 million to
\$1.8 billion. \[...\] The population in the Bay region has increased
from 11.8 million in 1979 to 15.1 million people in 1997 (Chesapeake Bay
Program, 1999b). This growth in population has put more stress on the
Bay, from both increased use and from activities like construction.
\[...\] Suburban sprawl is ranked as one of the top threats to the
recovery of the Bay* (Chesapeake Bay Program, 1999a).

**1.2 Benefits of Reduced Stormwater Runoff into Coastal Waters**

► Dwight, R.H., Fernandez, L.M., Baker, D.B., Semenza, J.C., Olson,
B.H., 2004. *Estimating the economic burden from illnesses associated
with recreational coastal water pollution -- a case study in Orange
County, California*.

Illnesses associated with swimming in two California beaches
contaminated by urban runoff costs the public more than \$3 million per
year.

► Hanemann, M., Pendleton, L., and Mohn, C., 2005. *Welfare Estimates
for Five Scenarios of Water Quality Change in Southern California: A
Report from the Southern California Beach Valuation Project.*
<http://marineeconomics.noaa.gov/SCBeach/laobeach1.html>.

Even minor changes in water quality at beaches in Southern California
can generate large economic impacts. A day-long closure at Huntington
Beach would lead to a loss of recreational welfare well in excess of
\$100,000. Similarly, a minor improvement in beach water quality at
Malibu...would generate approximately \$140,000 in welfare gains for
beach goers. \[...\] Dramatic declines in water quality at clean
beaches, like Zuma Beach, would lead to the loss of millions of dollars
in beach goer welfare (in this case more than \$5million); a summer time
closure of swimming waters at Huntington State Beach would result in
even greater losses (we estimate a loss of over \$9 million in beach
goer welfare). These values do not include lost expenditures, the
subject of another report. \[...\] The Southern California Beach
Valuation model is a powerful tool that will allow policy makers to
explore the potential economic impacts of changes in water quality and
beach access in Southern California."

**1.3 Benefits of Reduced Stormwater Runoff into the Great Lakes**

► Murray, C., Sohngen, B., and Pendleton, L., 2001. *Valuing water
quality advisories and beach amenities in the Great Lakes.* Water
Resources Research, Vol. 37, No. 10, Pages 2583-2590, October 2001.

"...the average (across all visitors) seasonal benefits of reducing one
advisory is approximately \$28 per visitor." "...it may be possible to
reduce beach advisories by altering sewage treatment methods,
eliminating combined sewer overflows, or altering land management."

► Shaikh, S., 2006. A Day at the Beach: Priceless? Available at:
<ftp://ftp.glerl.noaa.gov/webcast/2006/shaikh/20060224.ppt>.

A study of nine of Chicago's Lake Michigan beaches estimated losses from
swim bans to be at least \$17 million.

**1.4 Benefits from Low Impact Development**

► International City/County Management Association and National
Association of Counties. 1999. *Protecting Wetland, Managing Watersheds.
Local Government Case Studies*. International City/County Management
Association and National Association of Counties, Washington, DC.

The Johnson County Streamway Park System was implemented as a
storm-water control program. The project created a county-wide greenways
network along area streams. Creating the greenways network cost less
than alternative storm-water control programs. The greenways cost
\$600,000 and other options would have cost \$120 million. The greenways
also provided recreation benefits.[^1]

►EPA, June, 2001. *National Management Measures to Protect and Restore
Wetlands and Riparian Ares for the Abatement of Nonpoint Source
Pollution.* Appendix F. EPA number 841B01001.

The Staten Island Bluebelt project helps control stormwater using
existing natural drainage systems, e.g., streams, ponds, and wetlands. A
benefit/cost study indicated that the project saves \$50 million over a
conventional sewer-line approach.

►Palone, R., and Todd A., 1998. *Chesapeake Bay Riparian Handbook: A
Guide for Establishing and Maintaining Riparian Forest Buffers*.
Chesapeake Bay Program, Northeastern Area State and Private Forestry
Group, and the USDA Forest Service.

Maryland's Tributary Strategies found that riparian buffers were more
effective than engineered approaches at reducing the nutrient content of
runoff. Building suitable riparian buffers costs \$671,000 per year and
engineered techniques would cost \$3.7 to \$4.3 million per year.

The water utility in Fairfax County, Virginia estimates it saved
approximately \$57 million in stormwater costs by maintaining forest
areas and riparian buffers.

►Lerner, S. and Poole, W., 1999. *The Economic Benefits of Parks and
Open Space: How Land Conservation Helps Communities Grow Smart and
Protect the Bottom Line.* Trust for Public Land. San Francisco, CA.

Proposed development in Sterling Forest on the New Jersey-New York
border would have decreased water quality so severe that a \$160 million
filtration plant would have been necessary. Instead, a partnership
between state and private organizations purchased the forest for \$65
million. The purchase consolidated 150,000 acres of contiguous forest
and protected the associated recreation, amenity and wildlife values of
the forest.

►Natural Resources Defense Council, 2001. *Stormwater Strategies:
Community Responses to Runoff Pollution.*

The City of Syracuse established the Skaneateles Lake Watershed Program
as part of a program of "filtration avoidance" for its water source. The
City estimates that the \$10 million watershed plan will save between
\$45 and \$60 million that a water-treatment facility would have cost.

**Part 2: Costs of Regulations to Control Stormwater Runoff**

►Hammitt, J.K., 2005. *Estimating the Costs of Regulation*, Harvard
School of Public Health. Presented at Analyzing Regulations: Health,
Safety and the Environment, April 15, 2005. Washington, DC.

Estimating costs is much more easily accomplished than estimating
benefits because actual market values can be observed. Nevertheless,
studies find that government agency cost estimates are often
overestimated. One study found that they are overestimated by 26 to
156%.

► EPA, 2004. *Economic Analysis of Final Action for Effluent Guidelines
and Standards for the Construction and Development Category*, March
2004, United States Environmental Protection Agency, Office of Water.

EPA found that the cost to the developer of improved stormwater controls
for the single family home ranges from \$44 to \$107.

**Table 2: Adapted from Table 5-12, EPA, 2004a**

  ---------------------- --------------- -------------- ------------ ------------
  **Option 1**           Single-family   Multi-family   Commercial   Industrial

  Cost per unit to       \$44.66         \$17.66        \$0.01       \$0.01
  developer                                                          

  **Option 2**           Single-family   Multi-family   Commercial   Industrial

  Cost per unit to       \$107.05        \$43.65        \$0.03       \$0.04
  developer                                                          

  **Option 4**           Single-family   Multi-family   Commercial   Industrial

  Cost per unit to       \$65.98         \$27.57        \$0.02       \$0.03
  developer                                                          
  ---------------------- --------------- -------------- ------------ ------------

► EPA, Region III, Chesapeake Bay Program Office, 2003. *Economic
Analyses of Nutrient and Sediment Reduction Actions to Restore
Chesapeake Bay Water Quality*.

"...the average cost per household for the 4.9 million urban households
in the

watershed by 2010 is expected to be small, ranging from \$12 in Tier 1
to \$85 in Tier 3. These estimates assume that all costs are borne by
urban households. However, federal and state cost share funds or other
cost-saving opportunities might reduce these costs (page XV)."

**Part 3: Problems with EPA's use of the National Water Pollution
Control Assessment Model (NWPCAM) to estimate benefits of stormwater
runoff in its 2004 Economic Analysis of Final Action for Effluent
Guidelines and Standards for the Construction and Development Category**

**Incomplete Resource Coverage**

►EPA, 2004. *Estimation of National Economic Benefits Using the National
Water Pollution Control Assessment Model Version 2.1 to Evaluate
Regulatory Options for the Construction and Land Development Industry*,
April 2004, United States Environmental Protection Agency, Office of
Water, Engineering and Analysis Division.

NWPCAM does not include coastal waters, the Great Lakes and other large
lakes like Lake Champlain, or major estuaries such as the Chesapeake
Bay.

►EPA, 2000. *A Benefits Assessment of Water Pollution Control Programs
Since 1972: Part 1, The Benefits of Point Source Controls for
Conventional Pollutants in Rivers and Streams, Final Report*, January,
2000, Environmental Protection Agency, Office of Water, Office of
Policy, Economics, and Innovation, January 2000, p. 7-1.

> "*A key area for improvement in terms of resource coverage is to
> extend the analysis to include coastal and estuarine waters. These
> resources are critical because a substantial share of the United
> States population resides near the Nation's coastal and estuarine
> waters and uses these water resources for recreational activities.
> They are also a critical source of habitat, ecological diversity, and
> biological production. Including a broader coverage of lakes and
> smaller streams will also be an important enhancement to the NWPCAM
> and will support a more complete assessment of benefits."*

►EPA, 2004. *Economic Analysis of Final Action for Effluent Guidelines
and Standards for the Construction and Development Category*, March
2004, United States Environmental Protection Agency, Office of Water, p.
7-6.

NWPCAM 2.1 was designed to address the following water quality
parameters: biochemical oxygen demand, total organic nitrogen, ammonia,
nitrate-N and nitrite-N, total organic phosphorus, ortho-phosphate,
algae chlorophyll, dissolved oxygen, chlorides, total suspended solids,
and fecal coliform bacteria (EPA, 2004). Yet EPA's 2004 analysis only
addressed the benefits of reduced total suspended solids (TSS), because
"inadequate data and modeling constraints prevented quantification or
monetization of any categories \[of benefits\] beyond the sediment
effects considered in the NWPCAM."

**Outdated Case Study**

NWPCAM uses willingness to pay values from a study published in 1993 by
Richard Carson and Robert Mitchell titled *The Value of Clean Water: The
Public's Willingness to Pay for Boatable, Fishable and Swimmable Water
Quality*. The willingness to pay values are derived from survey results
from a contingent valuation study conducted in 1983. The study is
outdated in time, public perceptions, and academic rigor. The study was
not designed to provide the data necessary to value the 2004 proposed
stormwater policies. Furthermore, the survey results have been found to
be inconsistent with the economic theory of rational choice.

►EPA, 2000. *A Benefits Assessment of Water Pollution Control Programs
Since 1972: Part 1, The Benefits of Point Source Controls for
Conventional Pollutants in Rivers and Streams, Final Report*, January,
2000, Environmental Protection Agency, Office of Water, Office of
Policy, Economics, and Innovation, January 2000.

> *The willingness-to-pay estimates developed by Mitchell and Carson...
> used in this study are rather dated, and their resource and service
> coverage is incomplete. They estimate the freshwater in-place water
> quality benefits accruing to households, expressly excluding
> commercial in-place and withdrawal benefits. Although updating the
> estimates to account for the relationship between income and growth
> and willingness-to-pay has been possible, it is not clear how other
> factors have affected willingness-to-pay over the last 14 years.*

**Inconsistent with Economic Theory**

►OMB, 2003. *Guidelines for the Conduct of Regulatory Analysis and the
Format of Accounting Statements (Circular A-4)*, September 2003, White
House Office of Management and Budget.

> *The analytic results should be consistent with economic theory using
> both internal (within respondent) and external (between respondent)
> scope tests such as the willingness-to-pay is larger (smaller) when
> more (less) of a good is provided.* (OMB Circular A-4, 2003.)

►NOAA, 1993. *Report of the NOAA Panel on Contingent Valuation*, January
1993, United States Department of Commerce, National Oceanic and
Atmospheric Administration.

►EPA, 2002. Environmental and Economic Analysis for Concentrated Animal
Feeding Operations (CAFO). Referenced in EPA (2004) *Economic Analysis
of Final Action for Effluent Guidelines and Standards for the
Construction and Development Category*, March 2004, United States
Environmental Protection Agency, Office of Water.

The Carson and Mitchell (1993) survey response data is inconsistent with
economic theory: it exhibits a glaring inconsistency with rational
choice, identified as a major problem with contingent valuation
methodology in 1993 by the National Oceanic and Atmospheric
Administration NOAA Blue Ribbon Panel on Contingent Valuation.

Willingness-to-pay values should increase with the quantity or quality
of the good, assuming that "more of something regarded as good is better
so long as an individual is not satiated" (NOAA, 1993). Carson and
Mitchell's water quality ladder ranked water quality levels as boatable,
fishable and swimmable, boatable describing the lowest quality of water
and swimmable describing the highest. Rational choice behavior indicates
that one would pay more for swimmable water than for boatable. But this
is not the case with the Carson and Mitchell results. Willingness-to-pay
values (WTP) were highest for *boatable* water quality, as shown in
Table 1, below.

**Table 1: Carson and Mitchell's Willingness-to-Pay Values**

+-------------------------------------------------------+--------------+
| Adjusted Annual Household Values for Best Estimate of |              |
| National Water Quality Benefits                       |              |
|                                                       |              |
| (1983 \$)                                             |              |
+-------------------------------------------------------+--------------+
| Water Quality Improvement                             | Mean WTP     |
+-------------------------------------------------------+--------------+
| Swimmable: WTP to raise all sub-swimmable water       | \$78         |
| quality to swimmable                                  |              |
+-------------------------------------------------------+--------------+
| Fishable: WTP to raise all sub-fishable water quality | \$70         |
| to fishable                                           |              |
+-------------------------------------------------------+--------------+
| Boatable: WTP to maintain boatable water quality      | \$93         |
+-------------------------------------------------------+--------------+
| Source: adapted from Carson and Mitchell (1993) and   |              |
| EPA (2002)                                            |              |
+-------------------------------------------------------+--------------+

NOAA finds that such apparent inconsistencies render the study
defective.

> *...\[W\]e do not know yet how to reason about values without some
> assumption of rationality, if indeed it is possible at all.
> Rationality requirements impose a constraint on the possible values,
> without which damage judgments would be arbitrary. \[It is also\]
> difficult to find objective counterparts to verify the values obtained
> in response to questionnaires. **Therefore, some form of internal
> consistency is the least we would need to feel some confidence that
> the verbal answers correspond to some reality**.*

**Obsolete Science**

►EPA, 2004. *Proceedings of Session VI: Methodological Advances in
Stated Preference Valuation: Valuation of Ecological Benefits: Improving
the Science Behind Policy Decisions*, October 2004, United States
Environmental Protection Agency, National Center for Environmental
Economics and National Center for Environmental Research.

Viscusi, K., Huber, J., Bell, J., 2004. *The Value of Regional Water
Quality Improvements*, June 2004, Harvard Law and Economics Discussion
Paper No. 477.

EPA and others find that the water quality ladder which Carson and
Mitchell presented to its survey respondents does not represent the
indicators of water quality that are used to evaluate improvements in
water quality today (EPA, 2004; Viscusi K., Huber, J., Bell, J., 2004.)

> *This unidimensional water quality index \[ladder\] assumes that there
> is a hierarchy of quality levels in terms of whether the water is
> drinkable, swimmable, fishable, or boatable. Thus, water that is
> drinkable also meets acceptability criteria for all lower ranked uses.
> Unfortunately, this hierarchical characterization is problematic, as
> these categories of uses do not reflect our current scientific
> understanding of the empirical ordering of water quality. That is, if
> one examines the pattern of quality levels across states, there is
> almost no evidence of such a hierarch. (*Viscusi, et al., 2004).

The use categories of water have grown more complex since 1983. For
example, the original category of fishable water quality referred only
to sport fishing. Now, the category includes concern for human fish
consumption that is constrained by toxic pollutants.

> "*...our CV \[contingent valuation\] scenario did not address the
> possible impact of long-lived toxicants such as PCB's and heavy
> metals... Households may be willing to pay substantial amounts to
> control the release of such toxicants...* (Carson and Mitchell,
> 1993)."

►RTI International, 2005. The National Water Pollution Control
Assessment Model (NWPCAM) Current Developments and What the Future Will
Hold. Presentation for the Environmental Protection Agency's National
Center for Environmental Economics, January 25, 2005.

To address these issues, a pilot study has been commissioned to replace
the willingness to pay data from Carson and Mitchell (1993) with new
data from a Harvard-Duke (Viscusi-Huber) Benefits Estimation Methodology
(RTI International, 2005).

**Invalid Assumptions**

► EPA, 2004. *Economic Analysis of Final Action for Effluent Guidelines
and Standards for the Construction and Development Category*, March
2004, United States Environmental Protection Agency, Office of Water.

In the 2004 analysis, EPA expected reduced TSS to contribute to 22
sub-categories of benefits (EPA, 2004, Table 7-1) but EPA only monetized
six using the Carson and Mitchell study:

1\) Improve water quality for recreational use, particularly fishing;

2\) Reduced costs to treat drinking water;

3\) Reduced costs to treat cooling/process water;

4\) Improve the aesthetic appearance of rivers and lakes;

5\) Improve water clarity and reduce associated loss in property values;
and

6\) Bequest, existence, and similar non-use aspects of water quality.

Yet Carson and Mitchell state that their 1983 survey was designed to
clearly distinguish between drinking water benefits and freshwater
benefits (boating, fishing, and swimming): "We did not intend the
respondents to take any of the commercial in-stream or withdrawal
benefits \[...\] into account and it is unlikely, given the wording of
the CV \[contingent valuation/willingness-to-pay\] scenario, that they
did so" (Carson and Mitchell, 1993).

EPA admits that: "given the format of the Mitchell-Carson survey, it is
difficult to know what respondents were valuing in terms of specific
environmental changes. Those identified as monetized are categories that
individuals may have considered in their responses to the survey (EPA,
2004, p. 7-6)."

[^1]: This excerpt and the remaining excerpts in Part A are taken from
    Appendix 3 of ECONorthwest's 2004 Technical Memo on the Economic
    Analysis of Ecosystem Services in the Lents Area.