**ECONOMIC IMPACT ANALYSIS**

**FOR THE PROPOSED ALL APPROPRIATE INQUIRIES REGULATION**

# 

# 

# 

**Prepared for**

**Office of Brownfields Cleanup and Redevelopment**

**US Environmental Protection Agency**

**By**

**ICF Consulting**

August 3, 2004

#  

**This page intentionally left blank**

**TABLE OF CONTENTS**

[**EXECUTIVE SUMMARY ES-1**](#executive-summary)

[CHAPTER 1: Introduction 1-1](#chapter-1-introduction)

[1.1 Liability Under the Comprehensive Environmental Response
Compensation and Liability Act (CERCLA)
1-1](#liability-under-the-comprehensive-environmental-response-compensation-and-liability-act-cercla)

[1.1.1 CERCLA, Prior to January 2002 1-1](#cercla-prior-to-january-2002)

[1.1.2 Small Business Liability Relief and Brownfields Revitalization
Act
1-1](#small-business-liability-relief-and-brownfields-revitalization-act)

[1.1.3 Role of "All Appropriate Inquiries"
1-2](#role-of-all-appropriate-inquiries)

[1.2 Need for the Proposed Action 1-3](#need-for-the-proposed-action)

[1.3 Regulatory Negotiation as a Rule Making Process
1-4](#regulatory-negotiation-as-a-rule-making-process)

[1.3.1 Overview 1-4](#overview)

[1.3.2 The Negotiated Rulemaking for Establishing All Appropriate
Inquiries Standards
\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...1-5](#the-negotiated-rulemaking-for-establishing-all-appropriate-inquiries-standards)

[1.4 The Interim Standard for All Appropriate Inquiries
1-7](#the-interim-standard-for-all-appropriate-inquiries)

[1.5 Analytical Requirements 1-7](#analytical-requirements)

[1.6 Organization of This Document 1-8](#organization-of-this-document)

[CHAPTER 2: Market Effects of the Proposed Rule; Net Social Costs and
Benefits
2-1](#chapter-2-market-effects-of-the-proposed-rule-net-social-costs-and-benefits)

[CHAPTER 3: Affected Sectors of the Economy
3-1](#chapter-3-affected-sectors-of-the-economy)

[3.1 Affected Entities 3-1](#affected-entities)

[3.2 Profile of Firms Providing Phase I Environmental Site Assessments
3-1](#profile-of-firms-providing-phase-i-environmental-site-assessments)

[3.2.1 Size and Geographic Distribution
3-2](#size-and-geographic-distribution)

[3.2.2 Current Practices 3-3](#current-practices)

[CHAPTER 4: All Appropriate Inquiries Regulation
4-1](#chapter-4-all-appropriate-inquiries-regulation)

[4.1 The AAI Regulation 4-1](#the-aai-regulation)

[4.2 Considered Options 4-8](#considered-options)

[4.2.1 Option 1: Environmental Professional
4-8](#option-1-environmental-professional)

[4.2.2 Option 2: Interview Requirement
4-9](#option-2-interview-requirement)

[4.2.3 Option 3: Sampling 4-9](#option-3-sampling)

[4.2.4 Use of the ASTM E1527-2000 4-9](#use-of-the-astm-e1527-2000)

[CHAPTER 5: Analytical Approach to Estimating Costs and Benefits
5-1](#chapter-5-analytical-approach-to-estimating-costs-and-benefits)

[5.1 Base Case for the EIA 5-2](#base-case-for-the-eia)

[5.2 Timeframe 5-2](#timeframe)

[5.3 Estimated Transactions per Year
5-2](#estimated-transactions-per-year)

[5.4 Projection of Number of Phase I ESAs in the Base Case
5-3](#projection-of-number-of-phase-i-esas-in-the-base-case)

[5.5 Projected Changes in Assessments with the Regulation
5-3](#projected-changes-in-assessments-with-the-regulation)

[5.5.1 Projection of Number of Phase I ESAs
5-3](#projection-of-number-of-phase-i-esas)

[5.5.2 Projected Number of Transaction Screens Transitioning to Phase I
ESAs
5-4](#projected-number-of-transaction-screens-transitioning-to-phase-i-esas)

[5.6 Estimation of Unit Costs 5-4](#estimation-of-unit-costs)

[5.6.1 Environmental Site Assessment Activities under Base Case
5-4](#environmental-site-assessment-activities-under-base-case)

[5.6.2 Estimates of Hours per Action
5-13](#estimates-of-hours-per-action)

[5.6.3 Identification of Labor Categories for Actions and Labor
Distribution
5-13](#identification-of-labor-categories-for-actions-and-labor-distribution)

[5.6.4 Estimates of Other Direct Costs
5-15](#estimates-of-other-direct-costs)

[5.6.5 AAI Unit Costs 5-16](#aai-unit-costs)

[5.7 The AAI Options 5-24](#the-aai-options)

[5.7.1 Considered Option 1 - Environmental Professional
5-24](#considered-option-1---environmental-professional)

[5.7.2 Considered Option 2 - Interview Requirement
5-25](#considered-option-2---interview-requirement)

[5.7.3 Considered Option 3 - Sampling
5-25](#considered-option-3---sampling)

[CHAPTER 6: Analytical Approach to Estimating Benefits
6-1](#chapter-6-analytical-approach-to-estimating-benefits)

[6.1 Benefits After Promulgation 6-1](#benefits-after-promulgation)

[6.2 Interim Period 6-3](#interim-period)

[6.3 Benefits from the Cleanup and Redevelopment of Brownfields
6-4](#benefits-from-the-cleanup-and-redevelopment-of-brownfields)

[CHAPTER 7: Data Collection 7-1](#chapter-7-data-collection)

[7.1 Source for the Annual Number of ESAs
7-1](#source-for-the-annual-number-of-esas)

[7.1.1 Environmental Data Resources, Inc.
7-1](#environmental-data-resources-inc.)

[7.2 Distribution of Properties by Size
7-1](#distribution-of-properties-by-size)

[7.3 Unit costs 7-2](#unit-costs)

[7.3.1 Estimates of Hour Burden 7-2](#estimates-of-hour-burden)

[7.3.2 Estimates of Other Direct Costs
7-6](#estimates-of-other-direct-costs-1)

[7.3.3 Incremental Cost -- AAI Regulation
7-6](#incremental-cost-aai-regulation)

[7.3.4 Incremental Cost -- Considered Option 3
7-9](#incremental-cost-considered-option-3)

[7.3.5 Estimates of Hourly Labor Costs
7-10](#estimates-of-hourly-labor-costs)

[CHAPTER 8: Estimates of Costs 8-1](#chapter-8-estimates-of-costs)

[8.1 Base Case Estimates 8-1](#base-case-estimates)

[8.1.1 Phase I ESA 8-1](#phase-i-esa)

[8.1.2 Transaction Screen 8-2](#transaction-screen)

[8.1.3 Total Cost 8-3](#total-cost)

[8.2 Estimates under the Proposed AAI Regulation
8-4](#estimates-under-the-proposed-aai-regulation)

[8.2.1 Hour Burden for Conducting Interviews at Abandoned Sites
8-5](#hour-burden-for-conducting-interviews-at-abandoned-sites)

[8.2.2 Phase I ESA Cost 8-6](#phase-i-esa-cost)

[8.2.3 Total Cost 8-8](#total-cost-1)

[8.3 Estimates under Considered Option 1 -- Environmental Professional
8-9](#estimates-under-considered-option-1-environmental-professional)

[8.4 Estimates under Considered Option 2 -- Interview Requirement
8-11](#estimates-under-considered-option-2-interview-requirement)

[8.5 Estimates under Considered Option 3 -- Limited Sampling
8-13](#estimates-under-considered-option-3-limited-sampling)

[8.6 Estimates associated with the use of the ASTM E1527-2000 standard
8-15](#estimates-associated-with-the-use-of-the-astm-e1527-2000-standard)

[8.7 Summary of Annual Cost Estimates
8-16](#summary-of-annual-cost-estimates)

[CHAPTER 9: Sensitivity Analyses 9-1](#chapter-9-sensitivity-analyses)

[9.2 Sensitivity Analysis 2 - Volume of Transaction Screens
Transitioning to Phase I ESAs
\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\.....9-3](#sensitivity-analysis-2---volume-of-transaction-screens-transitioning-to-phase-i-esas)

[9.3 Sensitivity Analysis 3 -- Variability in Property Transactions
9-4](#sensitivity-analysis-3-variability-in-property-transactions)

[CHAPTER 10: Small Entity Analysis
10-1](#chapter-10-small-entity-analysis)

[10.1 Affected Industries 10-1](#affected-industries)

[10.2 Definition of Small Firms 10-1](#definition-of-small-firms)

[10.3 Size Distribution and Number of Small Firms
10-2](#size-distribution-and-number-of-small-firms)

[10.4 Cost Impact on Small Firms 10-5](#cost-impact-on-small-firms)

[10.5 Cost Impact on Small Governmental Jurisdictions
10-6](#cost-impact-on-small-governmental-jurisdictions)

[10.5.1 Number of Small Governmental Jurisdictions
10-6](#number-of-small-governmental-jurisdictions)

[10.5.2 Number of Potentially Affected Small Governmental Jurisdictions
10-7](#number-of-potentially-affected-small-governmental-jurisdictions)

[10.5.3 Cost Impact on Small Governmental Jurisdictions
10-8](#cost-impact-on-small-governmental-jurisdictions-1)

[10.6 Cost Impact on Small Not-for-Profit Organizations
10-9](#cost-impact-on-small-not-for-profit-organizations)

[BIBLIOGRAPHY i](#bibliography)

[Appendix I: Proposed AAI Regulation
I-1](#appendix-i-proposed-aai-regulation)

[Appendix II: Summary of Main Differences between the AAI Standard and
ASTM E1527-2000
II-1](#appendix-ii-summary-of-main-differences-between-the-aai-standard-and-astm-e1527-2000)

[Appendix III: Unit Cost Estimates for the AAI Regulatory Option 3
III-1](#appendix-iii-unit-cost-estimates-for-the-aai-regulatory-option-3)

[Appendix IV: EDR's Methodology for Estimating the Volume of ESAs
IV-1](#appendix-iv-edrs-methodology-for-estimating-the-volume-of-esas)

[Appendix V: Volatility in Property Transactions
V-1](#appendix-v-volatility-in-property-transactions)

**LIST OF EXHIBITS**

[ES-1: Summary of Incremental Per-Assessment Cost Estimates
ES-4](#__RefHeading___Toc78864370)

[ES-2: Summary of Annual Cost Estimates (in millions), Discounted at
Three Percent ES-5](#__RefHeading___Toc78864372)

[ES-3: Summary of Annual Cost Estimates (in millions), Discounted at
Seven Percent ES-5](#__RefHeading___Toc78864373)

[Exhibit 3-1: Number of Phase I ESAs Conducted Annually and the Average
Pricing Nationally, 1997-2002 3-3](#__RefHeading___Toc78864374)

[Exhibit 4-1: Summary of the Statutory Requirements
4-8](#__RefHeading___Toc78864375)

[Exhibit 5-1: Distribution of Labor, by Labor Category
5-15](#__RefHeading___Toc78864376)

[Exhibit 5-2: The AAI Regulatory Requirements and the Phase I ESA
Activities 5-17](#__RefHeading___Toc78864377)

[Exhibit 5-3: The Expected Changes in Phase I ESA Activities under the
AAI Regulation 5-18](#__RefHeading___Toc78864378)

[Exhibit 5-4: Distribution of Labor, by Labor Category under an
Alternative AAI Regulatory Option 5-24](#__RefHeading___Toc78864379)

[Exhibit 7-1: Property Distribution by Type
7-1](#__RefHeading___Toc78864380)

[Exhibit 7-2: Property Distribution by Size
7-2](#__RefHeading___Toc78864381)

[Exhibit 7-3: ASTM E1527-2000 (Base Case) - Estimated Level of Effort in
Hours, by Activity and Property Size/Type
7-3](#__RefHeading___Toc78864382)

[Exhibit 7-4: Distribution of Labor Hours, by Labor Category (under ASTM
E1527-2000) 7-4](#__RefHeading___Toc78864383)

[Exhibit 7-5: Transaction Screen (Base Case) - Estimated Level of Effort
in Hours, by Activity and Property Size/Type
7-5](#__RefHeading___Toc78864384)

[Exhibit 7-6: ASTM E1527-2000 (Base Case) -- Estimated Other Direct
Costs 7-6](#__RefHeading___Toc78864385)

[Exhibit 7-7: Incremental Labor Hour Burden under AAI Regulation -
Properties Transitioning from ASTM E1527-2000
7-6](#__RefHeading___Toc78864386)

[Exhibit 7-8: Incremental Labor Hour Burden under AAI Regulation -
Properties Transitioning from Transaction Screen
7-8](#__RefHeading___Toc78864387)

[Exhibit 7-9: Sampling Incremental Costs
7-9](#__RefHeading___Toc78864388)

[Exhibit 7-10: Unit Labor Cost, by Labor Category
7-10](#__RefHeading___Toc78864389)

[Exhibit 8-1: ASTM E1527-2000 (Base Case) - Estimated Unit Cost
8-2](#__RefHeading___Toc78864390)

[Exhibit 8-2: Transaction Screen (Base Case) - Estimated Unit Cost
8-3](#__RefHeading___Toc78864391)

[Exhibit 8-3: ASTM E1527-2000 (Base Case) - Estimated Total Cost
8-4](#__RefHeading___Toc78864392)

[Exhibit 8-4: AAI Regulation - Estimated Unit Cost (Upper Bound)
8-6](#__RefHeading___Toc78864393)

[Exhibit 8-5: AAI Regulation - Estimated Unit Cost (Lower Bound)
8-7](#__RefHeading___Toc78864394)

[Exhibit 8-6: AAI Regulation - Estimated Total Cost (Upper Bound)
8-8](#__RefHeading___Toc78864395)

[Exhibit 8-7: AAI Regulation - Estimated Total Cost (Lower Bound)
8-9](#__RefHeading___Toc78864396)

[Exhibit 8-8: Considered Option 1 - Estimated Unit Cost
8-10](#__RefHeading___Toc78864397)

[Exhibit 8-9: Considered Option 1 - Estimated Total Cost
8-11](#__RefHeading___Toc78864398)

[Exhibit 8-10: Considered Option 2 - Estimated Unit Cost
8-12](#__RefHeading___Toc78864399)

[Exhibit 8-11: Considered Option 2 - Estimated Total Cost
8-13](#__RefHeading___Toc78864400)

[Exhibit 8-12: Considered Option 3 - Estimated Unit Cost
8-13](#__RefHeading___Toc78864401)

[Exhibit 8-13: Considered Option 3 - Estimated Total Cost
8-14](#__RefHeading___Toc78864402)

[Exhibit 8-14: Option Using ASTM E1527-2000- Estimated Total Cost
8-16](#__RefHeading___Toc78864403)

[Exhibit 8-15: Summary of Annual Cost Estimates (in millions),
Discounted at Three Percent 8-16](#__RefHeading___Toc78864404)

[Exhibit 8-16: Summary of Annual Cost Estimates (in millions),
Discounted at Seven Percent 8-17](#__RefHeading___Toc78864405)

[Exhibit 9-1: Annual Cost Estimates (in millions) -- Volume of Phase I
ESAs in 2004 9-2](#__RefHeading___Toc78864406)

[Exhibit 9-2: Annual Cost Estimates (in millions) -- Volume of
Transaction Screens Transitioning to Phase I ESAs
9-3](#__RefHeading___Toc78864407)

[Exhibit 9-3: Annual Cost Estimates (in millions) -- Lower and Upper
Bound Estimates 9-5](#__RefHeading___Toc78864408)

[Exhibit 10-1: Small Business Administration's Size Standard for Small
Businesses by NAICS .10-1](#__RefHeading___Toc78864409)

[Exhibit 10-2: Distribution of Firms by Size, in Year 2001
10-3](#__RefHeading___Toc78864410)

[Exhibit 10-3: Disribution of Establishments by Firm Size, in Year 2001
10-3](#__RefHeading___Toc78864411)

[Exhibit 10-4: Distribution of Governmental Jurisdictions, by
Population-Size Group (1996) 10-7](#__RefHeading___Toc78864412)

[Exhibit 10-5: Distribution of Municipal and Township Annual Revenues
10-8](#__RefHeading___Toc78864413)

# EXECUTIVE SUMMARY

**Background of the Regulation**

On January 11, 2002, President Bush signed into law the Small Business
Liability Relief and Brownfields Revitalization Act (the Brownfields
Amendments). The Brownfields Amendments increased funding for assessing
and cleaning up brownfields sites, clarified CERCLA liability
protections for certain landowners, and enhanced State and Tribal
response programs.

The Brownfields Amendments require EPA to develop regulations
establishing standards and practices for how to conduct \"all
appropriate inquiries\" and promulgate the standards within two years of
its enactment. All appropriate inquiries provide for assessing the
previous ownership, uses and environmental conditions of a property. The
Brownfields Amendments require that any person purchasing commercial
property who may want to claim liability protection for any release or
threatened release as an innocent landowner, a contiguous property
owner, or a bona fide prospective purchaser conduct all appropriate
inquiries prior to acquiring the property. In addition, grantees
conducting assessments with Federal brownfields grants must conduct the
assessments in accordance with the all appropriate inquiries standards.

EPA determined that the regulatory negotiation process was the best way
to develop the proposed Federal standards and practices for conducting
all appropriate inquiries and established the Negotiated Rulemaking
Committee for All Appropriate Inquiries. The Committee, composed of 25
members representing parties with an interest in the rulemaking, held
six multiple-day meetings over the course of seven months, beginning in
April 2003. The Committee arrived at a consensus document representing
its recommendation for a proposed regulation on November 14, 2003. It is
this regulatory language that represents the preferred Agency option in
the analysis presented in this document.

**Methodology**

Our first step in assessing the regulatory impacts of the proposed
regulation was establishing a baseline to represent the relevant aspects
to the commercial real estate market in the absence of any changes in
regulations. Because under existing conditions almost all transactions
concerning commercial properties are accompanied by either an
environmental site assessment (ESA) conducted in accordance with [a
protocol established by the American Society of Testing and Materials,
designated]{.mark} ASTM E1527-2000 or a transaction screen as specified
in ASTM E1528, these practices were assumed to continue even in the
absence of the all appropriate inquiries regulation. The numbers of each
type of assessment were estimated on the basis of industry data for
recent years, with recent growth rates in transactions assumed to
continue for the 10-year period covered by the Economic Impact Analysis
(EIA). An adjustment in the relative numbers of the ESAs and transaction
screens was made to account for the fact that, under the proposed
regulation, an ESA will provide more certain protection from liability.
This adjustment was made by comparing shifts between the two procedures
that occurred when the Brownfields Amendments established the ASTM
E1527-2000 standard as the interim standard for all appropriate
inquiries. We then considered the requirements included in the
recommendation of the Negotiated Rulemaking Committee and those included
in a few options that the committee considered but did not adopt and
compared each alternative option to the requirements for assessments
conducted under ASTM E1527-2000 and ASTM E1528. We also compared the
cost of each of these alternatives to the costs associated with
promulgating the current interim standard (i.e., the current ASTM
E1527-2000 standard). When compared to the baseline, the [All
Appropriate Inquiries]{.mark} (AAI) regulation generally follows current
practice, but is expected to result in less time spent on interviews for
those cases where the subject property is abandoned; increased time
spent documenting recorded environmental cleanup liens; increased time
spent documenting cases in which the purchase price of the subject
property is below the market price; and increased time for recording the
degree of obviousness of contamination. The three options that were
considered but not adopted would require: (1) all non-clerical work to
be performed by an environmental professional; (2) no interviews with
owner/occupants of neighboring properties; (3) limited soil or water
sampling. We also compare the costs of these options to the to the costs
associated with using the ASTM E1527-2000 standard.

To estimate the changes in costs resulting from the regulation or the
regulatory options, we developed a costing model. This model estimates
the total costs of conducting site assessments as the product of costs
per assessment, numbers of assessments per year, and the number of years
in the analysis.

The costs per assessment, in turn, are calculated by separating each
assessment into individual labor activities, estimating the labor time
associated with each labor activity, and assigning a per-hour labor cost
to each activity. Labor times and categories are assumed to depend on
the size and type of property being assessed, with the nationwide
distribution of properties based on data from industry on environmental
site assessments and brownfields sites. The estimates and assignments of
categories are made based on the experience of professionals who have
been involved in large numbers of site assessments, and who are
therefore skilled in cost estimation for the relevant activities. Other
costs, such as reproduction and the purchase of data, are added to the
labor costs to form the estimates of total costs per assessment.

These total costs per assessment, stratified by size and type of
property, are then multiplied by estimated numbers of assessments of
each size and type to generate our estimates of total annual costs. The
model was tested by comparing its results to industry-wide estimates of
average costs of conducting assessments under baseline conditions, and
found to agree quite well.

We used the model to estimate total costs per year under the proposed
regulation, and each option. The differences between these estimated
costs and the estimated costs in the baseline constituted our estimates
of the incremental regulatory costs.

The types of benefits considered included improved information about
environmental conditions as well as benefits from the cleanup of
brownfields such as increased numbers of cleanups, reduced use of
greenfields, and attendant commuting, congestion, and mobile source
emissions. The benefits of the proposed regulation are considered only
qualitatively, however, due to the difficulty of predicting how many
additional transactions may occur in response to the increased certainty
of liability protections provided by the proposed regulation, as well as
the difficulty in getting data on changes in behaviors and practices in
response to the availability of the liability protections. Also, it is
difficult to estimate what proportion of identified benefits may be the
direct result of the liability protections and the proposed regulation
and what proportion of the identified benefits may be the result of the
overall brownfields program. EPA expects that the new liability
protections afforded to prospective property owners, if they comply with
the all appropriate inquiries provisions, will result in increased
benefits. EPA is not able to quantify, with any significant level of
confidence, the exact proportion of the benefits attributed only to the
availability of the liability protections and the AAI regulation. For
these reasons, the costs and benefits could not be directly compared.

**Summary of the Regulatory Cost Estimates**

For a given property, the costs of compliance with the proposed
regulation relative to the baseline depend on whether that property
would have been assessed, in absence of the AAI regulation, with an ASTM
E1527-2000 assessment process or with a simpler transaction screen (ASTM
E1528). The Exhibit ES-1 shows that the average incremental costs of the
proposed regulation relative to conducting an ASTM E1527-2000 are
estimated to be between \$41 and \$47. For the small percentage of cases
for which a transaction screen would have been preferred to the ASTM
E1527-2000 in the base case, but which now would require an assessment
in compliance with the proposed regulation, the incremental costs are
estimated to be between \$1,448 and \$1,454.

The three regulatory options considered by the Negotiated Rulemaking
Committee, but not recommended, would result in higher incremental costs
from the base case. Option 1, which would require more of the tasks in
the all appropriate inquiries to be performed by an environmental
professional, would add an average of \$539 per assessment (or
approximatly \$1,946 per property, assuming a transition from a
transaction screen). Option 2, which would have the same interview
requirement as under the base case, would add an average of \$54 per
assessment (or \$1,460 per property, assuming a transition from a
transaction screen), which reflects costs associated with complying with
other provisions of the proposed rule. Option 3, which would require the
all appropriate inquiries to include limited sampling and analysis,
would result in average incremental costs of either \$1,439 or \$2,845,
depending on whether, under base case conditions, an ASTM E1527-2000
process or a transaction screen (ASTM E1528) would have been used. The
alternative of using the ASTM E1527-2000 standard as the federal
regulation would result in lower costs. We note, however, that for
reasons explained in the preamble to the proposed rule, EPA has found
that the ASTM E1527-2000 standard does not address all ten statutory
criteria and is inconsistent with the statutory requirements for all
appropriate inquiries. [The incremental per-assessment costs are
summarized in Exhibit ES-1.]{.mark}

[]{#__RefHeading___Toc78864370 .anchor}ES-1: Summary of Incremental
Per-Assessment Cost Estimates

+------------------------------+------------------+-------------------+
|                              | **Average        | **Average         |
|                              | Incremental Cost | Incremental Cost  |
|                              | Relative to      | for Transition    |
|                              | Phase I ESA      | from Transaction  |
|                              | under ASTM       | Screen**          |
|                              | E1527-2000**     |                   |
|                              |                  | **(under ASTM     |
|                              | **(97% of        | E1528)**          |
|                              | transactions)**  |                   |
|                              |                  | **(3% of          |
|                              |                  | transactions)**   |
+------------------------------+------------------+-------------------+
| **Proposed AAI Regulation**  | \$41 - \$47      | \$1,448 - \$1,454 |
+------------------------------+------------------+-------------------+
| **AAI Option 1 --            | \$539            | \$1,946           |
| Environmental Professional   |                  |                   |
| Only**                       |                  |                   |
+------------------------------+------------------+-------------------+
| **AAI Option 2 -- Unchanged  | \$54             | \$1,460           |
| Interview Requirement**      |                  |                   |
+------------------------------+------------------+-------------------+
| **AAI Option 3 -- Limited    | \$1,439          | \$2,845           |
| Sampling**                   |                  |                   |
+------------------------------+------------------+-------------------+
| **ASTM E1527-2000**          | \$0              | \$1,407           |
+------------------------------+------------------+-------------------+

Source: ICF Analysis.

The total annualized costs of the proposed regulation and the four
additional options considered, in total and relative to the base case,
are shown in Exhibits ES-2 and ES-3. The total costs were calculated
over a period of ten years from the start of 2004 and then annualized at
a three and seven percent discount rate. When a discount rate of three
percent is used, the estimated total annual costs for the options
considered by the Negotiated Rulemaking Committee range from just under
\$700 million to over \$1 billion per year, compared to the baseline
costs of \$663.8 million and the costs associated with using the ASTM
E1527-2000 of over \$677 million. The proposed regulation adds between
\$26 and \$28 million per year (the range occurs because we modeled the
distribution of abandoned and non-abandoned properties as a range, see
Chapter 5), while the incremental costs associated with the options
range from \$30 million to almost \$460 million per year. The
incremental cost of using the ASTM E1527-2000 standard is over \$13
million. When a discount rate of seven percent is used, the estimated
total annual costs for the options considered by the Negotiated
Rulemaking Committee range from \$710 million to over \$1 billion per
year, compared to the baseline costs of \$683.5 million and the costs
associated with using the current ASTM standard of over \$697 million.
The proposed regulation adds between \$27 and \$29 million per year,
while the incremental costs association with the options range from \$31
million to over \$470 million per year. The incremental cost for the
alternative of using the ASTM standard is close to \$14 million.

[]{#__RefHeading___Toc78864372 .anchor}ES-2: Summary of Annual Cost
Estimates (in millions), Discounted at Three Percent

  --------------- --------- -------------- --------- --------- ----------- --------------
                  **Base    Proposed       **AAI     **AAI     **AAI       **ASTM
                  Case**    AAI[^1]        Option    Option    Option 3**  E1527-2000**
                                           1**       2**                   

  **Total Annual  \$663.8   \$690.1 -      \$844.0   \$693.9   \$1,122.0   \$677.3
  Cost**                    \$691.9                                        

  **Incremental   \$0       \$26.3 - \$28  \$180.2   \$30.0    \$458.1     \$13.5
  Total Annual                                                             
  Cost Relative                                                            
  to the Base                                                              
  Case**                                                                   
  --------------- --------- -------------- --------- --------- ----------- --------------

[]{#__RefHeading___Toc78864373 .anchor}ES-3: Summary of Annual Cost
Estimates (in millions), Discounted at Seven Percent

  --------------- --------- ------------- --------- --------- ----------- --------------
                  **Base    Proposed AAI  **AAI     **AAI     **AAI       **ASTM
                  Case**                  Option    Option    Option 3**  E1527-2000**
                                          1**       2**                   

  **Total Annual  \$683.5   \$710.5 -     \$868.9   \$714.4   \$1,155.0   \$697.3
  Cost**                    \$712.3                                       

  **Incremental   \$0       \$27 - \$28.8 \$185.4   \$30.8    \$471.5     \$13.8
  Total Annual                                                            
  Cost Relative                                                           
  to the Base                                                             
  Case**                                                                  
  --------------- --------- ------------- --------- --------- ----------- --------------

Source: ICF Analysis.

As shown in Exhibit ES-3, the estimated total annual cost of the
proposed AAI regulation, calculated using a discount rate of seven
percent, would be between \$710.5 and \$712.3 million and the estimated
total annual incremental cost would be between \$27 and \$29 million.
Thus, we estimated that the proposed regulation would have an
incremental annual effect on the economy of less than \$100 million per
year.

**Small Entity Analysis**

Since all non-residential property transactions could be affected by the
proposed AAI regulation, large numbers of small entities could be
affected to some degree. Our analysis shows that the effects, on the
whole, would be insignificant for small entities. For the majority of
small entities the cost of conducting an environmental site assessment
would increase, on average, between \$41 and \$47 under the proposed
regulation. For the small percentage of cases for which a transaction
screen would have been preferred to the ASTM E1527-2000 in the baseline,
but which now would require an assessment in compliance with the
proposed regulation, the cost of conducting an environmental site
assessment would increase, on average, between \$1,448 and 1,454. When
we annualized the incremental cost of \$47 per property transaction over
ten years at a seven percent discount rate, we estimated that for the
majority of small entities the average annual cost increase per
establishment per property transaction would be approximatly \$7. For
the small percentage of entities transitioning from transaction screens
to Phase I ESAs, the average annual cost increase per establishment per
property transaction would be approximatly \$207. Thus, the cost impacts
to small entities are estimated to be insignificant.

# CHAPTER 1: Introduction

## Liability Under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA)

### 1.1.1 CERCLA, Prior to January 2002

An essential step in real property transactions is evaluating a property
for potential environmental contamination and assessing potential
liability for any contamination present at the property. The process for
assessing properties for the presence of environmental contamination
often is referred to as "environmental due diligence," or "environmental
site assessment." Under the Comprehensive Environmental Response
Compensation and Liability Act (CERCLA) or Superfund, this process is
referred to as "all appropriate inquiries."

Under CERCLA, private parties and public entities can be held strictly
liable for cleaning up contamination at properties that they either own
or operate. In addition, parties may be assigned liability under CERCLA
when they are found to have caused or contributed to the contamination
of a property. Any person or party owning a property on which hazardous
substances came to be located could be found potentially liable for any
releases of such hazardous substances under Section 107(a)(1) of CERCLA,
even where the owner had no participation in the handling of the
hazardous substances and took no action to exacerbate the release.
Strict liability under CERCLA means liability for environmental
contamination can be assigned based solely on property ownership.

In 1986, Congress amended CERCLA with the Superfund Amendments and
Revitalization Act (SARA). In particular, SARA amended the liability
provisions of CERCLA by allowing for an "innocent landowner" defense.
The new Section 101(35)(B) of CERCLA provided some landowners with a
defense from the strict liability provisions of CERCLA for those persons
who could establish that they did not know and "had no reason to know"
that any hazardous substance that is the subject of a release or
threatened release was disposed of on, in, or at the property. Such
persons, to demonstrate they did not know and had "no reason to know"
must have undertaken, at the time of acquisition of the property, "all
appropriate inquiries" into the previous ownership and uses of the
property consistent with good commercial or customary practice. As a
result, the conduct of all appropriate inquiries became part of many
commercial property transactions.

### 1.1.2 Small Business Liability Relief and Brownfields Revitalization Act

On January 11, 2002, President Bush signed into law the Small Business
Liability Relief and Brownfields Revitalization Act (the Brownfields
Amendments). Number range CHAPTERThe Law amended CERCLA by providing EPA
with the authority to provide funding to eligible entities for the
assessment and cleanup of brownfields sites, clarifying CERCLA liability
provisions for certain landowners, and providing funding authority to
enhance State and Tribal voluntary clean up and response programs.
Subtitle B of Title II of the Brownfields Amendments revised the
liability provisions of CERCLA Section 101(35) by clarifying the
requirements necessary to establish the innocent landowner defense under
CERCLA. In addition, the Brownfields Amendments amended CERCLA by
providing additional liability protections on Superfund liability for
purchasers of properties who could qualify as bona fide prospective
purchasers and contiguous property owners. For the first time since the
enactment of CERCLA in 1980, a person could buy property with the
knowledge of contamination on the property, without being held
potentially liable for the cleanup of the contamination, provided the
person complies with each of the provisions governing the liability
defense in the law. Among the requirements added to CERCLA, as part of
the liability protection for bona fide prospective purchasers and
contiguous landowners, is the requirement that such persons undertake
"all appropriate inquiries" into prior ownership and use of a property
at the time at which a party acquires the property.

The Brownfields Amendments require EPA to develop regulations
establishing standards and practices for how to conduct all appropriate
inquiries and promulgate the standards within two years of its
enactment. Congress included in the Brownfields Amendments a list of
criteria that the Agency must address in the regulations establishing
standards and practices for conducting all appropriate inquiries
(§101(35)(2)(B)(ii) of CERCLA). The Brownfields Amendments also require
parties receiving funding under the Federal brownfields program for the
conduct of site characterizations and assessments to conduct the site
characterizations and assessments in accordance with the standards and
practices for all appropriate inquiries established under the same
provision of CERCLA.

### Role of "All Appropriate Inquiries"

"All appropriate inquiries," or environmental site assessment standards
provide a framework or process for assessing commercial property for the
presence or potential presence of a release or threatened release of a
hazardous substance at, on, or to a property for which a party could be
found potentially liable under CERCLA. Congress has established that it
is essential for any person purchasing commercial property who may want
to claim liability protection for any release or threatened release as
an innocent landowner, a contiguous property owner, or a bona fide
prospective purchaser to conduct all appropriate inquiries prior to
acquiring the property. All appropriate inquiries must be conducted for
the purposes of either establishing that the purchaser did not know and
"had no reason to know" of contamination at the property, or in the case
of the bona fide prospective purchaser, the purchaser bought the
property with knowledge of the contamination and is not responsible for
the contamination. Number range CHAPTERFailure to perform all
appropriate inquiries defeats each of the landowner liability
protections.

In addition to conducting all appropriate inquiries prior to acquiring a
property, Number range CHAPTERthe statute requires that a person
claiming to qualify as a bona fide prospective purchaser or contiguous
property owner must prove that he or she is not potentially liable or
affiliated with any other person who is potentially liable for response
costs. Number range CHAPTER The statute, as amended by the Brownfields
Amendments, also imposes other continuing obligations that landowners
must meet to claim the CERCLA liability protections. These continuing
obligations include complying with land use restrictions and
institutional controls; taking reasonable steps with respect to
hazardous substance releases; providing full cooperation, and providing
assistance and access to persons that are authorized to conduct response
actions or natural resource restoration; complying with CERCLA
information requests and administrative subpoenas; and complying with
legally required notices.

## 1.2 Need for the Proposed Action

Number range CHAPTERPrior to the enactment of the Small Business
Liability Relief and Brownfields Revitalization Act (the "Brownfields
Amendments"), anyone purchasing a contaminated property, regardless of
whether the purchaser caused or contributed to the contamination, could
be held responsible under CERCLA for the contamination and associated
damages. Therefore, many otherwise attractively-located properties
remained abandoned and potentially contaminated, while other
uncontaminated properties or "greenfields" were purchased for
development. The development of "greenfields" often translates into
additional infrastructure and municipal services costs for already
financially-strapped cities and towns. Additionally, the continued
existence of abandoned properties within municipal limits contributes to
blight.

To address this problem, Congress included in the Brownfields Amendments
to CERCLA, provisions providing for liability protection for Bona Fide
Prospective Purchasers. To encourage the purchase and redevelopment of
contaminated and potentially-contaminated properties (e.g., brownfields
sites), Congress for the first time provided liability protection for
purchasers who buy properties with the knowledge that the property is
contaminated. Congress included within this provision several criteria
for ensuring that a purchaser buys a contaminated property with adequate
knowledge of potential contamination and ensuring that the property
owner does not exacerbate the environmental conditions at the property
after the purchase. One criterion established by Congress for obtaining
the CERCLA liability protections is that prospective purchasers must
conduct all appropriate inquiries into the previous owners and uses of a
property to identify potential contamination prior to purchasing the
property. Congress also mandated that EPA develop regulations setting
federal standards for the conduct of all appropriate inquiries.

The all appropriate inquiries proposed rule presented and analyzed in
this economic impacts analysis responds to the Congressional mandate.
EPA was granted discretion in defining all appropriate inquiries, but
this discretion was limited by a mandate to address a set of ten
criteria, specified in the statute. In addition, it contributes to
addressing the problem of brownfields and other contaminated properties
remaining idle, abandoned, and potentially contaminated because of the
disincentives attached to these properties due to the strict, joint, and
several liability provisions of CERCLA.

EPA notes that the problem to be addressed by the AAI rule represents a
market failure due to asymmetric information which impedes the
functioning of private market-based solutions and makes government
interventions more appropriate. Asymmetric information is a feature of
real estate transactions for properties that may be contaminated;
because buyers have much less information than sellers about potential
clean-up liabilities, and because it is both costly to collect
information and difficult for buyers to be sure how much information is
necessary to determine their liabilities, properties will tend to be
less valuable to potential buyers than to their current owners.

The reason a federal response is most appropriate in this case is that
the risk of liability under a federal statute (CERCLA) is an important
component of the increased risk as perceived by prospective purchasers.
Because only the federal government can define the actions that qualify
for exemption from CERCLA, interventions at other levels of government
would be ineffective at addressing the problem.

## 1.3 Regulatory Negotiation as a Rule Making Process

### 

### 1.3.1 Overview

Number range CHAPTERNegotiated rulemaking is a process in which a
proposed rule is developed by a committee, established under the
provisions of the Federal Advisory Committee Act (FACA) and the
Negotiated Rulemaking Act (NRA), and composed of representatives of
interests that may be significantly affected by the rule. Decisions are
made by consensus, which generally require concurrence among all
interests represented on the committee. The process is started by the
Agency\'s careful identification of the interests potentially affected
by the rulemaking under consideration. To help in this identification
process, the Agency publishes a notice in the *Federal Register*, which
identifies a preliminary list of interests and requests public comment
on that list. Following receipt of the comments, the Agency establishes
a Federal advisory committee representing these various interests to
negotiate a consensus on the terms of a proposed rule. The Agency is a
member of the committee representing the Federal government\'s own set
of interests. The negotiated rulemaking advisory committee is
facilitated by a trained mediator, who facilitates the negotiation
process. The role of this mediator, or facilitator, is to apply proven
consensus building techniques to the advisory committee setting. Using a
trained mediator to facilitate the process assists all potential
parties, including EPA, to identify their interests in the rule and be
able to reevaluate previously stated positions on issues involved in the
rulemaking effort.

Number range CHAPTERNegotiation allows interested and affected parties
to discuss possible approaches to various issues rather than only asking
them to respond to details on an Agency proposal. The negotiation
process involves a mutual education of the parties by each other on the
practical concerns about the impact of such approaches. Each committee
member participates in resolving the interests and concerns of other
members, rather than leaving it up to EPA to bridge different points of
view.

A key principle of negotiated rulemaking is that agreement is by
consensus of all the interests. Thus, no one interest or group of
interests is able to control the process. The Negotiated Rulemaking Act
defines consensus as the unanimous concurrence among interests
represented on a negotiated rulemaking committee, unless the committee
itself unanimously agrees to use a different definition.

Once a regulatory negotiation advisory committee reaches consensus on
the provisions of a proposed rule, the Agency, consistent with its legal
obligations, uses such consensus as the basis of its proposed rule, to
be published in the *Federal Register*. This provides the required
public notice and allows for a public comment period. Other interested
parties not represented on the committee retain their rights to comment,
participate in an informal hearing (if requested) and judicial review.

### 1.3.2 The Negotiated Rulemaking for Establishing All Appropriate Inquiries Standards

EPA determined that the regulatory negotiation process was the best way
to develop the proposed Federal standards and practices for conducting
all appropriate inquiriesNumber range CHAPTER after initiating a
convening process to identify appropriate stakeholder groups and solicit
advice and input from experienced public and private sector users of all
appropriate inquiries standards. We retained an experienced facilitator
to contact stakeholders that could potentially be affected by the all
appropriate inquiries regulation to determine whether or not
stakeholders were interested in participating in a negotiated rulemaking
process and determine the potential for stakeholder issues to be
successfully addressed through a regulatory negotiation. Following an
evaluation of stakeholder interest and input during the convening
process, EPA determined that there was sufficient enthusiasm among
stakeholders for a negotiated rulemaking process and almost all
stakeholders interviewed expressed a belief that potential issues and
differences between interested parties could be successfully addressed
and negotiated through the regulatory negotiation process.

The negotiated rulemaking process allowed EPA to obtain a diverse array
of input from both private sector stakeholders and state and tribal
program officials familiar with and experienced in implementing
currently available processes for conducting all appropriate inquiries.
By building upon currently available private sector standards for
undertaking all appropriate inquiries as well as building on the
experience of state and Federal government site assessment programs the
Agency could efficiently develop Federal regulatory standards that both
meet the criteria provided in the Brownfields Amendments and ensure
minimal disruption to the private market and state and Federal site
assessment programs.

Number range CHAPTERThe Negotiated Rulemaking Committee for All
Appropriate Inquiries was formed and operated in full compliance with
the requirements of the Federal Advisory Committee (FACA) and in a
manner consistent with the requirements of the Negotiated Rulemaking Act
(NRA). Number range CHAPTERThe Agency conducted the negotiated
rulemaking proceedings with particular attention to ensuring full and
adequate representation of those interests that may be significantly
affected by the regulations that will set standards for conducting all
appropriate inquiries. Section 562 of the NRA defines the term
"interest" as "with respect to an issue or matter multiple parties which
have a similar point of view or which are likely to be affected in a
similar manner."

The Negotiated Rulemaking Committee for All Appropriate Inquiries was
composed of 25 members representing parties with an interest in the
rulemaking. EPA monitored committee membership carefully throughout the
process to ensure that there was a balanced representation from affected
and interested stakeholder groups. The committee included
representatives from the following types of interest groups:

-   Environmental Interest Groups

-   Environment Justice Community

-   Federal Government

-   Tribal Government

-   State Government

-   Local Government

-   Real Estate Developers

-   Bankers and Lenders

-   Environmental Professionals.

Membership on the committee consisted of individuals representing the
following organizations:

-   Trust for Public Land

-   National Groundwater Association

-   American Society of Civil Engineers

-   International Council of Shopping Centers

-   International Municipal Lawyers Association

-   Mortgage Bankers of America

-   National Brownfields Association

-   Association of State and Territorial Solid Waste Management
    Officials

-   Environmental Defense

-   Partnership for Sustainable Brownfields Redevelopment

-   Gila River Indian Community

-   Cherokee Nation

-   Wasatch Environmental, Inc.

-   ASFE

-   EPA

-   West Harlem Environmental Action

-   National Association of Home Builders

-   National Association of Development Organizations

-   The Real Estate Roundtable

-   Center for Public Environmental Oversight

-   US Conference of Mayors

-   Environmental Bankers Association

-   National Association of Industrial and Office Properties

-   National Association of Local Government Environmental Professionals

-   US Public Interest Research Group.[^2]

The Negotiated Rulemaking Committee on All Appropriate Inquiries held
six multiple-day meetings over the course of seven months, beginning in
April 2003. The Committee arrived at a consensus document representing
its recommendation for a proposed regulation on November 14, 2003. All
25 members of the Committee participated in the development of the
document and came to consensus without dissent. Appendix I to this
document contains the Committee's recommended regulatory language. It is
this regulatory language that represents the preferred Agency option in
the analysis presented in this document.

EPA notes that in responding to the statutory mandate included in the
Brownfields Amendments, the Agency determined that the existing ASTM
E1527-97 and ASTM E1527-2000 standards do not address all of the ten
required criteria outlined in the Brownfields Amendments. As a result,
use of the ASTM standards would be inconsistent with applicable law and
would not adequately serve EPA\'s needs in promulgating the all
appropriate inquiries regulation. In the preamble for this proposed
rule, EPA has requested public comment on this determination.

EPA\'s proposed all appropriate inquiry regulation adopts the consensus
language agreed to by the Negotiated Rulemaking Committee, which
translated the ten criteria required by the Brownfields Amendments into
a performance-based regulatory standard. This EIA compares the costs and
other practical differences between the current site assessment
practices, which predominantly employ the interim ASTM standard, and the
projected site assessment practices once AAI is promulgated.

## 1.4 The Interim Standard for All Appropriate Inquiries

In Number range CHAPTERthe Brownfields Amendments, Congress established,
as the Federal interim standard for conducting all appropriate
inquiries, the procedures of the American Society for Testing and
Materials (ASTM) including Standard E1527-97 (entitled "Standard
Practice for Environmental Site Assessment: Phase 1 Environmental Site
Assessment Process"). This interim standard applies to properties
purchased on or after May 31, 1997 until EPA promulgates Federal
regulations establishing standards and practices for conducting all
appropriate inquiries.

On May 9, 2003, EPA promulgated a Number range CHAPTERfinal rule
clarifying the interim standard for all appropriate inquiries and
establishing that, in the case of property purchased on or after May 31,
1997, the requirements for conducting "all appropriate inquiries,"
including the conduct of such activities to qualify as a bona fide
prospective purchaser and to establish an innocent landowner defense
under CERCLA, can be satisfied through the use of ASTM Standard
E1527-2000 (as well as the E1527-97 standard), entitled "Standard
Practice for Environmental Site Assessment: Phase 1 Environmental Site
Assessment Process." In addition, the rule clarified that recipients of
brownfields site assessment grants will be in compliance with the all
appropriate inquiries requirements if they comply with either the ASTM
Standard E1527-97, or the ASTM E1527-2000 Standard.

## 1.5 Analytical Requirements

Executive Order 12866 (EO 12866) "Regulatory Planning and Review,"
issued on September 30, 1993 by President Clinton, requires a
cost/benefit analysis for all regulatory actions determined to be
"significant." The proposed rules can be considered significant on the
basis of their likely impact on the US economy, which may impose, under
some regulatory options, annual economic impacts in excess of the \$100
million threshold set for significant regulatory actions. The executive
order requires a statement of the need for the proposed action,
consideration of alternatives, and analyses of costs in comparison to
benefits. Separately, the Regulatory Flexibility Act (RFA), (Pub. L. No.
96-354, 94 Stat. 1164 (codified at 5 U.S.C. § 601)) enacted in September
1980, and amended by the Small Business Regulatory Enforcement Fairness
Act (SBREFA), Pub. L. No. 104-121, 110 Stat. 857 (codified at 5 U.S.C. §
601 et seq.) enacted in March 1996, requires agencies to consider the
impact of their regulatory proposals on small entities, consider ways to
cut impacts on small entity impacts through effective alternatives, and
provide for public comment on the analyses.[^3] These acts require the
preparation of an Initial Regulatory Flexibility Analysis (IRFA) for
proposed rules that might have significant economic impacts on a
substantial number of small entities.

## 1.6 Organization of This Document

## 

The remaining of this EIA is organized as follows:

-   Chapter 2 -- Market Effects of the Proposed Rule

-   Chapter 3 -- Affected Sectors of the Economy

-   Chapter 4 -- All Appropriate Inquiries Regulation

-   Chapter 5 -- Analytical Approach to Estimating Costs

-   Chapter 6 -- Analytical Approach to Estimating Benefits

-   Chapter 7 -- Data Collection

-   Chapter 8 -- Total and Incremental Cost Estimates

-   Chapter 9 -- Sensitivity Analyses

-   Chapter 10 -- Small Entity Impacts Analysis

-   Appendix I -- All Appropriate Inquiries Proposed Regulation

-   Appendix II -- Summary of the Main Differences between the All
    Appropriate Inquiries Standard and the ASTM E1527-2000

-   Appendix III -- Unit Cost Estimates for the Regulatory Option 3

-   Appendix IV -- EDR's Methodology for Estimating the Volume of ESAs

-   Appendix V -- Volatility in Property Transactions.

# CHAPTER 2: Market Effects of the Proposed Rule; Net Social Costs and Benefits

The most straightforward assessment of social costs of a rule can be
made by measuring the actual changes in the regulated community's costs
of engaging in the same activities as in the base case (except insofar
as the AAI rule requires changes). Ideally, however, we should also
measure the other effects of the rule. In particular, the number of
commercial property transactions per year could change, and the number
of commercial property transactions that include the conduct of an ESA
could change. In this section, we lay out what we see as the underlying
economics determining commercial real estate transaction volume, and how
this could be affected by changes in the costs and benefits of
conducting ESAs caused by the AAI rule. We also sketch out what might be
an ideal analysis, incorporating the induced changes in the commercial
real estate market and the effects on social costs and benefits. We
show, however, that this ideal analysis is unlikely to contribute
substantially to the estimate of the social costs. In addition, we
discuss the data constraints that render this ideal analysis to be
impractical. Due to the impracticality of undertaking an ideal analysis,
we estimated the total cost impacts of the proposed rule using an
engineering cost analysis.

Number range CHAPTERThe commercial real estate market can be described
as a market consisting of a large number of heterogeneous properties.
Within this heterogeneous market, brownfields, which are abandoned,
idle, or underutilized properties compete for commercial development
dollars with other previously undeveloped properties, often referred to
as "greenfields." In fact, in a report published by the Council for
Urban Economic Development (CUED), "Brownfields Redevelopment:
Performance Evaluation," the authors point out that economic development
practitioners attending a 1998 CUED-organized workshop stated that
brownfields should be treated as a real estate deal: the process is
driven by location and market demand. \...contamination merely adds
complexity to the process -- it does not change the process\... ."[^4]
One of the many costs, or attributes, that contribute to a buyer's
preference for one piece of real estate over another is the potential
cost of any real or perceived environmental liabilities associated with
a property. Liability concerns are greater for brownfields than for
greenfields. Other property attributes that may influence a buyer's
preferences for a particular piece of real estate are location, and the
availability of infrastructure. Brownfields may offer better locations
than greenfields and may offer the benefit of existing infrastructure,
where greenfields properties may be in less desirable locations and have
no existing infrastructure.

To address the problem of environmental liability, Congress included in
the Brownfields Amendments to CERCLA, provisions providing for liability
protection for Bona Fide Prospective Purchasers. To encourage the
purchase and redevelopment of contaminated and potentially-contaminated
properties (e.g., brownfields), Congress for the first time provided
liability protection for purchasers who buy properties with the
knowledge that the property is contaminated, if they conduct all
appropriate inquires prior to purchasing a property. Given a relatively
constant total demand for commercial real estate properties, reducing
liability concerns regarding commercial properties will have a greater
effect on the demand for brownfields. This effect would have the impact
of shifting consumer preference within the commercial real estate market
toward brownfields and away from greenfields. A primary impact of
increasing the redevelopment of brownfields is the reduction in urban
blight. In fact, the results of a 232-city survey published in a
February 2000 report by the U.S. Conference of Mayors, "Recycling
America's Land: A National Report on Brownfields Redevelopment,"
documents that two of the major benefits of brownfields redevelopment
are neighborhood revitalization and increased environmental protection.

Based on industry data for the commercial real estate market on the
number of Phase I environmental site assessments and transaction
screens, and consensus that significant purchases are unlikely to take
place without the assurance of an assessment, we have estimated the
annual number of affected transactions. The AAI rule changes the net
costs of those transactions \-- increasing average costs by a small
amount, and providing increased information and greater certainty of
liability protection. These changes in the costs of commercial real
estate transactions might change the incentives for buying real estate,
resulting in a different number of transactions per year as well as
causing changes in consumer preferences for the type of real estate
purchased. Changing the rate of transactions, in turn, will cause
changes in social welfare through various mechanisms. This concept is
illustrated in Exhibit 1 (below) which shows the rate of commercial
property transactions on the horizontal axis, and the costs and benefits
of properties on the vertical axis.

The upward-sloping line indicates the supply of all commercial
properties offered per year as a function of price; at higher prices,
more owners will find it in their interests to sell in a given year. The
two downward-sloping lines show the annual demand for properties, with
and without transaction costs. Both the supplies and demands shown here
include commercial properties of all kinds, whether previously
undeveloped properties ("greenfields") or existing properties that may
be contaminated ("brownfields"). Though these two types of properties
differ in their characteristics, with brownfields having the advantages
of existing infrastructure and often more convenient locations, along
with the disadvantage of greater risks of clean-up liabilities, they
compete within the same market. The solid downward-sloping line
indicates the demand in the absence of transaction costs, while the
lower, dashed line shows how the demand is shifted downward and to the
left by transaction costs. Essentially, the transaction costs drive a
wedge between buyer and seller---they are costs to the buyer that are
not realized by the sellers. The transaction costs can be seen to reduce
the total net social value of property transactions, which can be
measured as the sum of producer and consumer surplus -- the area between
the supply and demand curves to the left of their intersection point.
The total net social surplus in the absence of transaction costs is
shown in the exhibit as the sum of all three shaded areas, from the
vertical axis out to the equilibrium point at Q\*, above the supply
curve and below the demand curve in the absence of transaction costs.
Once transaction costs are acknowledged, the demand curve can be seen to
shift downward by the magnitude of the transaction costs, and the net
social surplus drops to the area shown by the diagonal shading. The
transaction rate drops from Q\* to Qo (because there are now fewer
transactions that have net benefits exceeding their costs), and the net
surplus drops by the checked area (the transaction costs for the
remaining transactions) and the vertically shaded area (the "deadweight
loss" from transactions that are no longer made).

![](media/image1.wmf){width="6.270833333333333in"
height="6.700694444444444in"}

The effects of changing transaction costs due to the AAI rule can, in
theory, be shown as a shift

in the dashed line indicating the demand for commercial properties. To
the extent the AAI rule increases the costs of ESAs, or induces
individuals to choose to conduct a Phase I ESA in place of a less-costly
transaction screen, we would expect the transaction costs to increase,
increasing the difference between the two demand curves shown in the
exhibit, and reducing the net social surplus. This shift is shown in
Exhibit 2 (above). With somewhat higher transaction costs, the demand
for properties shifts down as shown by the downward sloping line with
the alternating long and short dashes. The rate of transactions drops
from Qo to Q1 as fewer property sales are worth concluding. As a result,
the net social surplus drops by the area consisting of the narrow dotted
parallelogram, plus the small black triangle. The dotted parallelogram
is equivalent to the increase in per-transaction costs for conducting
ESAs, while the small black triangle represents the dead-weight loss
resulting from the drop in transactions.

The very small size of the black triangle in this case indicates
something important: if the shift in transaction costs is very small
compared to the total value of each transaction, then neglecting the
deadweight loss resulting from changes in transactions will not have an
important effect on the estimate of the net total social costs of the
AAI rule. Rather, making an estimate of the rule's costs based on
transactions multiplied by the change in the cost per transaction (i.e.,
the area of the dotted parallelogram) will be a reasonably accurate
measure of the change in social costs.[^5] As will be shown, the AAI
rule's effects on costs are less than \$100 per property transaction, on
average. By contrast, though it is difficult to measure the average size
of a non-residential real estate transaction, a rough analysis presented
below suggests that it is close to \$1 million, which is thousands of
times greater than \$100. Thus, if the concern is that the AAI rule may
increase the costs of transactions and thereby affect the volume of
transactions, it would appear that the drop in transactions is very
unlikely to affect the results of the analysis of total social costs
significantly.

The costs associated with complying with the AAI rule are not the only
manner in which the rule may affect commercial property transactions,
however. By improving information about the environmental conditions of
a property, and (especially) by increasing the certainty of CERCLA
liability protection, the AAI rule is expected to provide benefits to
property purchasers that exceed the increase in costs. The excess of
benefits over costs to property purchases is particularly likely in
those cases in which full ESAs are conducted in place of transaction
screens, because this substitution is voluntary. An additional affect of
improved information and the liability protections afforded by the AAI
rule may be to change people's preferences for the type of commercial
property bought. Although the total number of transactions may not be
affected, a greater number of transactions may include brownfields
sites, due to the liability protections afforded to buyers who comply
with the AAI requirements, rather than the competing "greenfields." A
secondary source of net benefits is likely to flow from the improved
information provided by the site assessments: to the extent that
contamination is detected and cleaned up, there will be reductions in
risks and increases in welfare. Of course, there will also be increased
costs due to the expenses of cleaning up the affected sites, but because
the costs of correcting environmental problems are generally reduced by
early detection and the Brownfields Amendments promotes cost-effective
cleanups, the benefits of the cleanups should exceed their costs. Still
more benefits will often result from the increased transactions and
cleanups as economic development takes place in previously depressed
neighborhoods. These benefits can be "external" to both the buyers and
the sellers, accruing to the surrounding communities and the local
government, though they can be offset to some degree by external costs
imposed by the resulting changes to living conditions in the immediate
area. The categories of benefits resulting from the AAI rule and
possible increases or shifts in transactions are covered more completely
in Chapter 6.

The shift in demand is illustrated in Exhibit 3, below. The downward
shift in demand caused by the AAI rule's effects on transaction costs,
which was introduced in Exhibit 2, is shown in Exhibit 3. In addition,
though, the exhibit shows an upward shift in demand caused by the
liability-reduction benefits of the AAI rule, leading to a very small
net increase in transactions, from Q0 to Q2. Benefits (excluding the net
external benefits discussed above) are approximately equal to the
trapezoid bounded by the lowest and highest demand curves in Exhibit 3,
between the origin and Q2, and benefits net of costs are shown as the
checked trapezoid lying between the two highest demand curves. The
shaded parallelogram between the lower two demand curves represents the
costs of the AAI rule as measured for this EIA: it is the
per-transaction increase in the cost of ESAs times the *existing* rate
of transactions, without trying to account for the effects on
transactions of either the costs or the benefits of the rule. It will
differ from the "correct" measurement of costs in the absence of
benefits by only a small amount -- the dotted triangle shown below the
supply curve, which will be very small for the reasons outlined above.

Taking benefits into account, and their positive effects on
transactions, the true costs of the AAI rule can be shown to be slightly
larger than the cost estimate made in this EIA, again because of the
differences in transactions. Because the change in transactions is
expected to be quite small, though, the differences between the measured
costs and the true costs will be insignificant.

The only situations in which using existing transaction rates would be
an inadequate measure of the change in the social surplus would be if
the benefits provided by the AAI rule were substantially greater than
their costs -- e.g., if AAI's benefits were a substantial fraction of
the typical cost of an affected property -- or if the rate of commercial
real estate transactions were highly elastic, and hence extremely
sensitive to small changes in transaction costs. We do not consider
either situation to be very likely, but -- as discussed in the section
below -- the data required to confirm this view would be quite difficult
to collect. The effects of benefits[^6] on the theoretically correct
measurement of social surpluses can be seen as well in Exhibit 3: the
net increase in social welfare can be seen as the increase in the sum of
consumer and producer surplus. This increase is shown as the checked
area, which is the net increase of benefits over costs. This quantity
differs from the quantitative estimate of the effects of the AAI rule
prepared for this EIA (which, again, is represented by the dotted
parallelogram) because neither the benefits nor the change in
transactions could be quantified. The EIA, therefore, is limited to an
engineering estimate of the change in costs per transaction multiplied
by baseline transactions.

![](media/image2.wmf){width="5.764583333333333in"
height="3.682638888888889in"}

To calculate the directions and magnitudes of the demand shifts and
social welfare changes introduced above, we need to understand the
determinants of the annual rate of transactions, and how they are
affected by the costs of the transactions. We see the rate of
transactions of existing properties as determined by the economically
efficient time between changes of ownership. At the time a firm
purchases a property, it chooses the most preferable property. Over
time, changes in the property, and especially the firm's operations
(such as its size or customer base) lead to other properties becoming
superior overall. The firm will not necessarily move every time this
happens, though, because there are costs for moving. The moving costs
are particularly high for properties that must be sold, because of the
transaction costs, which can be several percent of the total value of a
property. (Note that, for much the same reason, rental properties turn
over much more often than owner-occupied houses.) A move will be made
only when the value of the current property has declined enough to push
the relative advantages of the most attractive other property above the
transaction costs. With high transaction costs, the value of the current
property must decline substantially, which is likely to take a
relatively long time, other things equal.

With lower transaction costs, the breakeven point will come sooner
(shown by the arrow in Exhibit 4 above), and the expected time before
moving will fall. In turn, the turnover rate for existing properties
will increase, manifesting itself as an increase in transactions.

Actually collecting data on transaction frequencies, transaction costs,
and the elasticity of transaction frequencies with respect to costs,
however, is very difficult. A search for data and literature on these
issues turned up limited data, accompanied by comments expressing this
difficulty. For example, Anderson, McLemore, Conner, and Liang note that
"The predictability of \[apartment\] demand is due in part to the
numerous private, government and government-related sources that collect
and report (or rely) on residential market information. Examples include
the United States Census Bureau, \[Department of Housing and Urban
Development\], \[Federal National Mortgage Association\], \[National
Multi Housing Council\], \[Government National Mortgage Association\],
\[Federal Home Loan Mortgage Corporation\], and the Federal Reserve,
just to name a few. With data readily available, household growth can be
forecast down to the Metropolitan Statistical Area and even county
level. This is in contrast to most other property types, like retail,
where the analysis is much more complicated and the quality and
availability of data can be limited."[^7] One reference was available
with a comprehensive estimate of non-single-family transactions, stating
". . . among core assets such as major office, industrial, retail and
multifamily properties, there was an 18% increase in sales volume over
2001 figures to \$93.5 billion. By including non-core assets (hotels,
land, etc.) the total amount of commercial real estate sales volume rose
to an estimated \$200 billion for 2002.[^8]" This reference was not,
however, documented as to its source. A few attempts have been made to
estimate the total value of all non-single-family real estate, which can
be used along with estimates of total sales to calculate average
transaction frequencies. Hartzell, Pittman, and Downs[^9] estimated
total commercial real estate in 44 MSAs to be worth 1.338 trillion
dollars, based on 1989 data, and extrapolated this estimate to 2.429
trillion dollars for the country as a whole. Combining the estimate of
total commercial real estate sales volumes from Collier at \$93.5 to
\$200 billion per year with Hartzell et al.'s estimate of \$2.429
trillion would imply that four to eight percent of properties turn over
per year.

This is only a rough estimate, though, given the differences in the time
periods studied and the questions about the definitions of the property
types that were included. Furthermore, Hartzell et al. state, in
contrast to the ease of determining the value of stocks and bonds, due
in part to the public nature of data reported, "For real estate,
however, the problem of determining the "market" is exceedingly
difficult. Real estate trades in a multitude of local markets, generally
with little public information available. Trades are often made by
individuals or closely held institutions who have little to gain by
making the details of the trades public, beyond the reporting that
exists when deeds and mortgages are reported within local jurisdictions.
. . . It is difficult to have a great deal of confidence in measures of
investment performance for much of the real estate market, it is
difficult to gauge the frequency of transactions, and it is difficult to
determine the value of this very significant portion of total wealth in
the United States."

Perhaps the best available estimate of transaction frequencies was
recently published in Real Estate Economics. In "An Analysis of the
Determinants of Transaction Frequency of Institutional Commercial Real
Estate Investment Property,"[^10] Fisher et al. note that "relatively
little attention has been given to examining transaction frequencies,"
(p. 239) and that "We know surprisingly little about the private market
"transaction cycles" of investment-grade commercial property, despite
its importance to the institutional investment communities. Even less is
known about the factors underlying these sales cycles . . ."The authors
base their analysis of transactions on properties in the National
Council of Real Estate Investment Fiduciaries (NCREIF) database, which
have a total value of about \$100 billion. They found that the fraction
of properties sold per year varies over time, along with periods of
rising or falling prices, averaging 8.4 percent per year over the period
1984 -- 2001. Thus, their estimate is broadly consistent with the
estimate derived from the Colliers' and Hartzell et al. analyses
mentioned above, though it covered only a fraction of the total real
estate market. Fisher et al. did not include transaction costs in their
analysis of the primary factors that "explain" intertemporal variation
in transaction frequency, which leaves open the question of whether
transactions are at all sensitive to those costs.

Combining Fisher et al.'s estimate of 8.4 percent per year with Hartzell
et al.'s estimate of \$2.429 trillion, we can make a rough estimate of
the total transaction volume of commercial real estate of just over
\$200 billion per year. With transactions running at approximately
250,000 per year, the average value of each transaction is, by this
calculation, about \$850,000. However, it is clear that the information
that would be needed simply to refine these rough estimates, let alone
to make estimates of the sensitivity of transaction frequencies to
transaction cost changes on the order of the small changes at issue in
the context of the AAI rule, would be very difficult to locate or
develop.

The only situations in which transactions would be expected to be very
sensitive to the changes in transaction costs caused by the AAI rule are
those where properties have market values that are small relative to the
uncertainties surrounding the magnitude of the liabilities that new
owners might face after the purchase. These cases, although relatively
uncommon, are precisely the ones in which the AAI rule is most likely to
make the difference between a sale and redevelopment, and continued
underutilization or vacancy. Thus, the fact that the increase in numbers
of transactions is not expected to be large does not mean that there
will not be important benefits flowing from increased purchases or uses
of brownfields. In fact, one benefit of the new liability protections
provided by the Small Business Liability Relief and Brownfields
Revitalization Act and the AAI rule may be to increase the relative
value of brownfields compared to undeveloped properties, or
"greenfields." Such an effect would result not in an increase in total
transactions, but an increase in the percentage of transactions that
include brownfields.

In summary, the analysis presented in this chapter suggests strongly
that (as stated on page 2-3) the effects of the rule on total
transactions will be small, and therefore very little error will be
introduced into the estimate of social costs if transactions are assumed
to be fixed. Given the difficultly of collecting accurate data on the
changes in transactions, and the small effect this additional analysis
would be expected to have on estimated social costs, we can conclude
that an engineering cost estimate is the most appropriate approach to
assessing the social costs of the AAI rule.

# CHAPTER 3: Affected Sectors of the Economy

## 3.1 Affected Entities

The proposed All Appropriate Inquiries regulation (AAI) will potentially
apply to all commercial property transactions. The AAI requirements will
be applicable to any public or private party, who may potentially claim
protection from CERCLA liability as an innocent landowner, a bona fide
prospective purchaser, or a contiguous property owner. However, the
conduct of all appropriate inquiries, or environmental due diligence, is
not new to the commercial property market. Prior to the Brownfields
Amendments to CERCLA, commercial property transactions often included an
assessment of the environmental conditions at prospective properties
prior to the closing of any real estate transaction for the purposes of
confirming the conditions at the property and/or to establish an
innocent landowner defense should environmental contamination be
discovered after the property was purchased. The process most
prevalently used for conducting all appropriate inquiries is the process
developed by the American Society for Testing and Materials (ASTM) and
entitled E1527, Phase I Environmental Site Assessment Process.

## 3.2 Profile of Firms Providing Phase I Environmental Site Assessments

Although environmental site assessments (ESAs) are common practice in
the commercial real estate industry, there are very few sources of data
describing the environmental site assessment industry. This may be
because the conduct of ESAs is not a primary business activity for many
firms. ESAs, particularly Phase I site assessments, often are conducted
by environmental services firms or environmental consulting firms
offering an array of environmental and/or engineering services. As of
the writing of this EIA, Environmental Data Resources, Inc. (EDR), is
likely the only firm collecting data characterizing the Phase I ESA
industry on a continuing and systematic basis at the national level.

Phase I ESAs are performed by engineering, geology, hydrogeology, and
environmental sciences consulting firms. EDR estimates that there are
approximately 7,500 firms currently performing Phase I ESAs.[^11] The
large number of firms performing Phase I assessments strongly suggests
that it is a competitive industry. Many firms operate regionally, so
large numbers of firms must compete directly.

### 3.2.1 Size and Geographic Distribution

The most recent publicly available source of information on the Phase I
ESA industry is the *Benchmarking Survey of Environmental Professionals:
Nuts and Bolts of the Phase I Process* conducted by EDR in 2002. EDR
surveyed over 280 firms across the nation on a variety of issues
including firm characteristics (such as size and location) and the scope
of Phase I ESA activities performed. Although the information on the EDR
sampling strategy is not disclosed, EDR asserts that the survey is a
reasonably good representation of the Phase I ESA industry.[^12]

EDR survey results indicate that the size distribution of firms
conducting Phase I ESAs ranges from less than \$1 million in annual
revenues to over \$50 million. Approximately 19 percent of the firms
surveyed earn less than \$1 million in annual revenues. More than half
of the firms (57 percent) surveyed earn between \$1 and \$10 million
dollars in annual revenues. The rest of the firms (24 percent) have
annual revenues of \$10 million or more, with approximately 7 percent
earning over \$50 million.

According to EDR estimates, in 2002 the average price for a Phase I ESA
was \$2,050.[^13] Thus, a firm that specializes in performing Phase I
ESAs would have conducted approximately 500 assessments in 2002 to
generate \$1 million in annual revenues. However, the EDR survey results
show that only 10 percent of the firms performed 250 to 500 Phase I
ESAs, and only 11 percent of the firms performed 500 or more Phase I
ESAs in 2002. Although we do not know the size distribution of these
firms, the EDR survey results indicate that conducting Phase I ESAs is
not the primary activity for most of the firms surveyed.

The majority of the firms surveyed (68 percent) have indicated that
their work is confined to one of the seven US regions: Northeast,
Mid-Atlantic, Southeast, South, Central, Midwest, or West. Close to one
third of the firms (28 percent) performs Phase I ESAs in more than one
US region. The rest of the firms, less than five percent, operate in a
single locality.

### 3.2.2 Current Practices

According to data provided by EDR, there were approximately 241,000
Phase I ESAs conducted in 2002.[^14] As shown in Exhibit 3-1, the annual
number of Phase I ESAs conducted from 1997 to 2002 ranged between
210,000 and 260,000. During that period, the national average price for
a Phase I ESA was in the range of \$1,800 to \$2,100. A discussion of
the methodology used by EDR to estimate the annual volume of Phase I
ESAs is provided in Appendix IV. The shortcomings associated with using
the EDR data in the economic analyses include the fact that EDR has been
collecting and compiling data on the number of ESAs performed for only a
few years. In addition, we could not identify any other sources for this
data and therefore we cannot compare EDR's estimates to other sources.
Because the results of our analyses rely significantly on the accuracy
of this data, we conducted sensitivity analyses on the assumed number of
total ESAs performed. Our sensitivity analyses are presented in Chapter
9.

[]{#__RefHeading___Toc78864374
.anchor}![](media/image3.wmf){width="5.46875in"
height="2.922222222222222in"}Exhibit 3-1: Number of Phase I ESAs
Conducted Annually and the Average Pricing Nationally, 1997-2002

Source: EDR.

A recent survey conducted by EDR shows that Phase I ESAs are not
exclusively driven by a need for the property owner to qualify for
protection from CERCLA liability. It is estimated that close to 45
percent of ESAs is driven by a desire for property owners to assess
business environmental risk concerns. As a result, ESAs conducted prior
to the 2002 Brownfields Amendments to CERCLA often were broader in scope
than ESAs conducted for the purposes of establishing a CERCLA liability
defense and often included such components as evaluations of potential
asbestos and lead-based paint contamination.

Although the most common all appropriate inquiries process conducted as
part of typical commercial real estate transactions is the ASTM
E1527-2000 Phase I Environmental Site Assessment Standard, this standard
is not used for assessing all commercial properties. For properties that
are believed to be free of the presence or potential presence of a
hazardous substance, pollutant, or contaminant, a less stringent and
less costly assessment may be conducted that involves only a site visit
and a search for and review of property-specific documents and some
government records. This less stringent process often is called a
"transaction screen" and may be deemed sufficient for undeveloped
properties or properties where a prospective buyer has reason to believe
that no adverse environmental conditions exist at the site. The process
most prevalently used to conduct transaction screens for commercial
properties is the ASTM E1528 standard. Transaction screens are less
comprehensive in scope than Phase I ESAs, and cost about half as much to
conduct. The number of transaction screens performed annually has
decreased steadily over the past 5 years from 50,000 in 1998 to 32,000
in 2002. The annual rate of decline is approximately 10 percent (4,500
screens). EDR reports that there is a trend in the banking sector in
which small cap loans and loans with perceived low risk are being
subjected to Phase I ESAs instead of a transaction screen. Of the
241,000 Phase I ESAs conducted in 2002, EDR estimates that 4 to 6
percent (or 10,000 to 15,000 Phase I ESAs) is the result of this trend.
According to EDR, the trend is largely driven by the users who are
following the consultants' advice to select more rigorous ESAs.

At an even less rigorous level of environmental screening is the
environmental questionnaire.

Although there are no data on the annual volume of environmental
questionnaires, industry data indicate that a substantial number of
lenders required a questionnaire and site visit for small cap loans in
1999.[^15] The environmental questionnaires are used on the properties
with a very low risk of presence or likely presence of contamination. It
is expected that the AAI regulation will not affect such properties.
Given a low probability that their site is contaminated, the users will
find that the CERCLA liability protection is not worth the cost of an
AAI Phase I ESA.

The environmental due diligence practices are not limited to the
standards discussed above. The users of properties with a high risk of
presence or likely presence of contamination (e.g., a dry cleaning site)
may select a more rigorous type of environmental due diligence commonly
referred to as a Phase II ESA. Given that a Phase II environmental site
assessment often goes well beyond a Phase I environmental site
assessment, we do not expect the proposed AAI standards to result in any
incremental burden in these cases.

# CHAPTER 4: All Appropriate Inquiries Regulation

This chapter describes the AAI regulation requirements. In addition, the
chapter presents some of the standards and practices that were
considered by the Regulatory Negotiating Committee, but were not
adopted.

## 4.1 The AAI Regulation 

In January 2002, the President signed the Small Business Liability
Relief Brownfields Revitalization Act ("the Brownfields Amendments").
The Brownfields Amendments revised the CERCLA liability provisions by
providing some limitations on CERCLA liability for bona fide prospective
purchasers, contiguous property owners, and property owners claiming to
be innocent landowners. The Brownfields Law established that such
property owners must conduct "all appropriate inquiries" into prior
ownership and use of a property to identify potential for environmental
contamination prior to acquiring the property. In addition, Congress
directed EPA to include, within the standards for all appropriate
inquiries, the following set of criteria:

1.  Results of inquiries by an environmental professional

2.  Interviews with past and present owners, operators, and occupants

3.  Reviews of historical sources of information

4.  Searches for recorded environmental cleanup liens

5.  Reviews of Federal, State, Tribal, and local government records

6.  Visual inspections of the facility and of adjoining properties

7.  Specialized knowledge or experience on the part of the defendant

8.  The relationship of the purchase price to the value of the property,
    if the property was not contaminated

9.  Commonly known or reasonably ascertainable information about the
    property

10. The degree of obviousness of the presence or likely presence of
    contamination at the property, and the ability to detect the
    contamination by appropriate investigation.

The Regulatory Negotiating Committee followed these criteria in
developing the content of the AAI standard. The AAI requirements under
each of the ten statutory criteria are discussed below.

#### Criterion 1: Results of inquiries by an environmental professional

The Brownfields Amendments direct EPA to promulgate a standard for all
appropriate inquiries that includes the results of an inquiry by an
environmental professional. As explained in Chapter 1, EPA established a
Negotiated Rulemaking Committee to develop a proposed regulation setting
the Federal standard for all appropriate inquiries. The Committee's
recommended definition of "environmental professional" is included in
§312.10 of the proposed regulation. Because the all appropriate
inquiries process is essential to a property owner's ability to qualify
for liability protection under CERCLA, the proposed definition specifies
certain levels of certification, education, and experience for
environmental professionals to ensure that individuals responsible for
supervising, reviewing, and signing the report of the all appropriate
inquiries are qualified individuals who meet a rigorous standard and are
capable of ensuring the performance of quality environmental
investigations. However, the Committee also realized that environmental
investigations have been performed for years by individuals with varying
academic and professional backgrounds. To avoid disrupting this market
of environmental professionals, the Committee recommended and EPA is
proposing a definition of an environmental professional whereby even
those persons who do not meet the certification and educational
requirements proposed in the regulation may continue to contribute to
environmental investigations. These individuals may assist in the
conduct of all appropriate inquiries if they do so under the supervision
or responsible charge of a person who meets the proposed requirements
for an environmental professional.

Under the current ASTM E1527 standard, environmental site assessments
generally are supervised by a professional engineer or other senior
environmental professional who is in a supervisory position. Therefore,
the FACA Committee members and EPA are confident that the minimum
requirements for qualifying as an environmental professional included in
the proposed rule will allow for those individuals currently supervising
environmental site assessments to qualify as environmental professionals
and continue to supervise the all appropriate inquiries activities. The
proposed definition of environmental professional should not impose any
additional burden given that the proposed rule requires that only the
person supervising the all appropriate inquiries activities and signing
the final report meet the proposed qualifications for the environmental
professional. FACA Committee members have advised EPA that most
individuals currently supervising environmental site assessments meet or
exceed the proposed qualifications for the environmental professional.

The proposed regulation also should not result in any increase in the
amount of work performed by those individuals who meet the environmental
professional definition, as they will continue to perform the same
supervisory activities as they conduct under the interim standard (i.e.,
the ASTM E1527-2000 standard). These activities include:

-   Monitoring the conduct of all tasks,

-   Reviewing the results of the inquiries,

-   Inserting an opinion with regard to the environmental conditions at
    a property in the report, and

-   Signing the inquiries report.

#### Criterion 2: Interviews with past and present owners, operators, and occupants

The Brownfields Amendments require that the AAI standard include
interviews with past and present owners, operators, and occupants of the
facility for the purpose of gathering information regarding the
potential for contamination at the facility. The Negotiated Rulemaking
Committee recommended and EPA is proposing requirements for these
interviews in §312.23 of the proposed regulation. Under the proposed
rule, the all appropriate inquiries must include at least one interview
with the current owner or occupant of the subject property. Current
owners and occupants will have information about current property uses,
and may have information about past ownerships and uses for the property
as well. The proposed rule does not require that interviews be conducted
with any other specific individual or type of individual. The proposed
rule is based upon a performance standard that allows the environmental
professional to obtain necessary information on current and past uses
and ownerships of a property from multiple sources of information. The
proposed rule states that interviews with past owners and occupants,
current and past facility managers, and employees of current and past
occupants of the subject property should be conducted *to the extent
necessary* to learn the full history of the subject property. However,
this information also could be obtained from other sources of
information (e.g., title searches, previously-conducted environmental
assessments, aerial photographs, property tax files, zoning/land use
records, etc.) This requirement is the same as current practice. The
ASTM E1527-2000 standard requires that a "person with good knowledge of
the uses and physical characteristics of the property" be interviewed as
part of the site assessment to obtain information indicating recognized
environmental conditions in connection with the property. The ASTM
standard recommends that additional owners and occupants be interviewed
as necessary to obtain information regarding past or historical uses and
ownership of the property and information regarding the environmental
conditions of the property.

Interviews of past owners and occupants also may be useful for obtaining
information about historical uses of the property. The ASTM E1527-2000
standard lists property owners and occupants as potential sources of
such information. Neither the ASTM standard nor the proposed rule
specifically require that past owners and occupants be interviewed as
part of the all appropriate inquiries. Many of the FACA Committee
members pointed out that past owner and occupants of a property can be
valuable sources of information on historical uses of a property, when
such individuals can be found.[^16] Committee members with extensive
experience in conducting site assessments using the ASTM E1527-2000
standard point out that current practice is to make an effort to
identify and interview past owners and occupants to obtain historical
information about a site, and specific activities previously conducted
at a property. However, in some cases, particularly when the current
owner has been present at the property for a relatively long period of
time, it is difficult to locate past owners or occupants of a property,
and in many cases they may no longer be alive. Some Committee members
pointed out that it often may be easier to locate, and more valuable to
interview, employees who are familiar with past uses and ownership of a
property.

In the case of properties where a current owner can be identified, the
proposed rule is not expected to change the hour burden beyond the
current industry practices. Both the interim standard and the proposed
rule require that at least one current owner or occupant of a property
be interviewed. In addition, both also require that additional sources
of information be consulted to obtain necessary information on
historical uses of the property and environmental conditions at the
property. The cost analysis presented later in this document assumes
that in both the base case and the requirements of the proposed rule,
between 2 and 6 hours will be spent during the all appropriate inquiries
in conducting interviews to obtain information on current and past uses
and ownerships of the subject property, depending on the size and type
of property. This is sufficient time for at least two, and in many cases
more than two, interviews to be conducted at each property with various
types of individuals. In addition, time allotted for other AAI
activities such as reviews of historical sources of information and
accounting for "commonly known or reasonably ascertainable information"
may be dedicated to additional interview activities to collect
information about a property, as necessary to satisfy the performance
factors and objections of the proposed rule.

The Committee and EPA recognized that some commercial properties and
brownfields sites are abandoned and it may be difficult or impossible to
find or contact past owners, operators, and occupants of the property.
In these cases, the Committee recommended and EPA is proposing that the
environmental professional interview owners and occupants of neighboring
properties where such owners and occupants may have observed uses of or
releases at the abandoned property. Environmental assessment standards
currently in use, including the ASTM E1527-2000 standard, do not impose
specific requirements or give guidance with respect to who should be
interviewed when the subject property is abandoned. Although, FACA
Committee members point out that common practice is that neighboring
property owners are often interviewed when they are easily located or in
cases where current owners and occupants are not sufficient sources of
necessary information. The proposed rule explicitly requires that at
least one owner or occupant of a neighboring property be interviewed to
obtain information regarding past uses and ownership of a property, when
that property is determined to be abandoned.

The cost analysis presented in Chapters 6 through 8 of this document
includes an assessment of the costs associated with finding and
interviewing at least one owner or occupant of a neighboring property to
obtain information on past uses and ownerships of an abandoned property.
Since, in the case of abandoned properties, there is no current owner or
occupant of a property, the cost analysis also eliminates the hour
burden and costs associated with finding and interviewing current and,
potentially, past owners and occupants of the subject property (which
are attributed to properties with known owners and occupants in the
baseline scenario). An additional assumption in calculating the costs
associated with identifying and interviewing neighbors of abandoned
properties is that locating owners and occupants of neighboring
properties should be, in most cases, less time consuming than locating
past owners, operators, and occupants of the subject property.
Therefore, in the cases where the subject property is abandoned, the
proposed rule is expected to reduce the total hour burden for conducting
interviews.

[]{.mark}

#### Criterion 3: Reviews of historical sources of information

In both the base case and the case of the proposed rule, all appropriate
inquiries must include reviews of historical sources of information. The
purpose of this activity or inquiry is to ensure that a record of
current and past uses of the property is assembled to create a
comprehensive review of the potential for releases of hazardous
substances at the property. The proposed standards for reviewing
historical sources of information are included in §312.24 of the
proposed regulation. The proposed rule, as does the interim standard,
requires that historical documents be reviewed as far back in time as
the site held structures or the property was used for agricultural,
residential, commercial, industrial, or governmental purposes. The
proposed regulation allows the environmental professional to use
professional judgment to determine how far back in time it is necessary
to review historical records. Current environmental assessment practices
suggest consulting historical records as far back as 1940 or back to the
property's obvious first developed use, whichever is first. The proposed
regulation will not impose any additional burden hours above the current
environmental assessment practices.

*Criterion 4: Searches for recorded environmental cleanup liens*

The Brownfields Amendments require that the AAI standards include
searches for recorded environmental cleanup liens against the facility
that are filed under Federal, state, or local laws. The objective of
this criterion is to ensure identification of recorded past releases and
cleanups of hazardous substances on or near the subject property. To
ensure discovery of environmental liens, the environmental professional
may need to search a variety of sources, including land records and
court records. Current environmental assessment standards, including the
ASTM E1527-2000 standard, do not contain any requirements significantly
different from this criterion, but the ASTM standard does designate the
purchaser as the party responsible for the lien searches. At §312.25,
the proposed regulation leaves this search responsibility open to the
purchaser or the environmental professional, but requires that all
information collected regarding environmental cleanup liens be provided
to the environmental professional and documented in the all appropriate
inquiries report. Therefore, in the cost analysis conducted in
developing this EIA, it was assumed that the proposed regulation will
result in an increase in the hour burden for preparing the all
appropriate inquiries report, specifically for including the
documentation of information on environmental cleanup liens.

#### Criterion 5: Reviews of Federal, State, Tribal, and local government records

To ensure a complete picture of possible contamination at a property
site, the Brownfields Amendments include a criterion for reviews of
Federal, State, and local government records, such as waste disposal
records, underground storage tank records, and hazardous waste handling,
generation, treatment, disposal, and spill records, for information
concerning potential contamination at or near the property. This
criterion is addressed at §312.26 of the proposed regulation. The
proposed requirements for reviews of Federal, State, Tribal, and local
government records are essentially the same as the base case standards
currently in use for Phase I ESAs conducted using the ASTM E1527-2000
standard. However, the proposed rule does include a few additional
requirements regarding searching for governmental records concerning
adjacent properties. For instance, the current standard recommends a
search of Emergency Response Notification System (ERNS) records for the
property only, while the proposed regulation requires ERNS records
searches for the subject property and adjoining properties. The proposed
regulation, however, is not likely to impose any additional burden hours
above the current environmental assessment practices due to the relative
ease in assessing government records and given that the base case
includes costs associated with searching government records for
information on adjacent properties.

#### Criterion 6: Visual inspections of the facility and of adjoining properties

The Brownfields Amendments include a criterion for conducting a visual
inspection of the facility and adjoining properties, which are addressed
at §312.27 of the proposed regulation. The objective of this criterion
is to seek visual evidence of past or potential releases of hazardous
substances. The requirements in the proposed regulation do not differ
from practices currently in use for site reconnaissance associated with
Phase I ESAs conducted using the ASTM E1527-2000 standard. Under certain
unique circumstances where a visual on-site inspection cannot be
conducted, the proposed regulation requires that the environmental
professional do the following:

-   document efforts taken to gain access,

-   document the use of other sources of information to determine the
    existence of potential environmental contamination, and

-   express an opinion about the impact of the inability to conduct a
    visual inspection on the completeness of the inquiries.

The proposed regulation is not likely to impose any additional burden
hours above the current environmental assessment practices given that
the current interim standard includes requirements for significant
documentation of the results of the on-site visual inspection.

#### Criterion 7: Specialized knowledge or experience on the part of the defendant

The Brownfields Amendments require that all appropriate inquiries
include the purchaser's specialized knowledge of the site and any
specialized knowledge of current and past activities conducted at the
property. The objective of this criterion is to hold the landowner
responsible for providing to the environmental professional known
information regarding potential environmental conditions on or near the
property. In other words, the defendant or owner cannot hide information
that is not uncovered by the environmental professional during the
inquiries. This criterion is addressed in proposed §312.28, which states
that the defendant must disclose specialized knowledge of the subject
property and the surrounding area to the environmental professional.
This proposed requirement does not go beyond the current standard
established for the CERCLA innocent landowner defense in CERCLA Section
101(35). This requirement also is one of the designated user
responsibilities in the ASTM E1527-2000 standard. Therefore, the
proposed regulation will not impose any additional burden hours above
the current environmental assessment practices.

*Criterion 8: The relationship of the purchase price to the value of the
property, if the property was not contaminated*

A purchase price that is lower than the expected fair market value of
the property may indicate the presence of contamination at the property
that was not revealed during other steps in the inquiries. The
requirement to consider the relationship of purchase price to the value
of property is addressed at §312.29. The requirement was previously
included in the CERCLA requirements for the innocent landowner defense
and is addressed in the current ASTM E1527-2000 standard.

In cases where it is determined that the purchase price does not reflect
the fair market value of a property, persons to whom the proposed
regulation will apply must consider whether the differential is due to
the fact that the property contains releases or threatened releases of
hazardous substances. The Negotiated Rulemaking Committee realized that
not all environmental professionals have expertise in assessing property
values. Therefore, this requirement can be fulfilled by the purchaser,
instead of the environmental professional. Although the current interim
standard requires this type of comparison and explanation of any
differential in the purchase price and market value, the requirements
under the proposed regulation are more explicit regarding what type of
information must be documented in the all appropriate inquiries report.
The proposed regulation is, therefore, expected to increase the hour
burden for preparing the report for the fraction of property
transactions where there is a significant differential in the purchase
price and fair market value of the property. For the purposes of the
cost analysis presented in Chapters 6 through 8 of the document, it is
assumed that 15 percent of all commercial property transactions include
properties where there is a significant difference between the purchase
price and the fair market value of the property.

#### Criterion 9: Commonly known or reasonably ascertainable information about the property

Environmental professionals are required to supplement the searches and
reviews discussed above with commonly known or reasonably ascertainable
information about the property. This requirement was included in the
previous provisions for the CERCLA innocent landowner defense and is not
an incremental burden imposed by the proposed rule. This provision is
included as §312.29 of the proposed rule. Commonly known or reasonably
ascertainable information may be obtained from a variety of sources,
including newspapers, local government officials, community
organizations, and websites, among others. This information must be
pursued to the extent necessary to achieve the objectives and
performance factors of §312.20(c) and (d). The proposed regulation is
not expected to impose any additional burden hours above the current
environmental assessment practices to fulfill this requirement.

*Criterion 10: The degree of obviousness of the presence or likely
presence of contamination at the property, and the ability to detect the
contamination by appropriate investigation*

There may be cases where environmental investigation does not reveal any
contamination at the property, yet some circumstances lead the
environmental professional to believe that the site may be contaminated.
In other circumstances, the condition of the site may indicate obvious
contamination. Either situation might lead the environmental
professional to recommend additional investigation. In these and other
cases, the environmental professional and persons to whom the proposed
regulation applies must consider the degree of obviousness of a release
or threatened release on the property. The report of the all appropriate
inquiries should include an opinion from the environmental professional
on whether additional investigation is warranted. The proposed
requirements, set forth at §312.31, are expected to increase the hour
burden for preparing the all appropriate inquiries report because the
documentation requirements regarding the need for additional
investigations in the proposed rule are slightly more stringent than the
ASTM requirement that the Phase I ESA report include an opinion of the
environmental professional regarding environmental conditions at the
property.

[]{#__RefHeading___Toc78864375 .anchor}Exhibit 4-1: Summary of the
Statutory Requirements

+-----------------------------------------------+----------------------+
| ###### Statutory Requirements                 | Expected to change   |
|                                               | hour burden for      |
|                                               | conducting a Phase I |
|                                               | ESA (relative to     |
|                                               | ASTM E1527-2000)     |
+-----------------------------------------------+----------------------+
| Criterion 1: Results of inquiries by an       | No                   |
| environmental professional                    |                      |
+-----------------------------------------------+----------------------+
| Criterion 2: Interviews with past and present | Yes                  |
| owners, operators, and occupants              |                      |
+-----------------------------------------------+----------------------+
| Criterion 3: Reviews of historical sources of | No                   |
| information                                   |                      |
+-----------------------------------------------+----------------------+
| Criterion 4: Searches for recorded            | Yes                  |
| environmental cleanup liens                   |                      |
+-----------------------------------------------+----------------------+
| Criterion 5: Reviews of Federal, State,       | No                   |
| Tribal and local government records           |                      |
+-----------------------------------------------+----------------------+
| Criterion 6: Visual inspections of the        | No                   |
| facility and of adjoining properties          |                      |
+-----------------------------------------------+----------------------+
| Criterion 7: Specialized knowledge or         | No                   |
| experience on the part of the defendant       |                      |
+-----------------------------------------------+----------------------+
| Criterion 8: The relationship of the purchase | Yes                  |
| price to the value of the property, if the    |                      |
| property were not contaminated                |                      |
+-----------------------------------------------+----------------------+
| Criterion 9: Commonly known or reasonably     | No                   |
| ascertainable information about the property  |                      |
+-----------------------------------------------+----------------------+
| Criterion 10: The degree of obviousness of    | Yes                  |
| the presence or likely presence of            |                      |
| contamination at the property, and the        |                      |
| ability to detect the contamination by        |                      |
| appropriate investigation                     |                      |
+-----------------------------------------------+----------------------+

## 4.2 Considered Options 

During the regulatory negotiating process, several standards and
practices, some of which went beyond the scope of the statutory
requirements, were considered by the Negotiated Rulemaking Committee.
This section presents three standards and practices that were considered
by the Committee, but were not adopted in the proposed AAI regulation.

### 4.2.1 Option 1: Environmental Professional

Under this regulatory option, all major activities would be performed by
a person who meets the definition of an environmental professional
included in the proposed regulation under §312.10.

The Regulatory Negotiating Committee did not adopt this option. It was
believed that such a requirement would disrupt current market practices
by displacing a large number of persons with relevant experience in
conducting site assessments but who do not meet the certification and
educational requirements proposed in the regulation. In addition, the
quality of Phase I ESAs could be ensured by requiring the environmental
professional to oversee and review the work performed by such persons.

### 4.2.2 Option 2: Interview Requirement

Under this regulatory option, there would be no explicit interview
requirement for abandoned properties. Therefore, the interview
requirements for all properties would be the same as under the current
ASTM standard.

[]{.mark}

The Regulatory Negotiating Committee did not adopt this option. It was
believed that, in case of abandoned properties, interviews with owners
and occupants of neighboring and nearby properties, where those owners
and occupants may have observed uses of or releases at the subject
property, may provide valuable additional information about uses and
potential conditions at the property that may not be gained from other
sources.

### 4.2.3 Option 3: Sampling

Under this option, limited sampling would be required for properties
where information collected during the all appropriate inquiries results
in a perceived risk of potential contamination at the property.
Environmental sampling and testing of various media (e.g., soil,
groundwater, surface water, air, sediment, building materials, etc.) at
a property could provide a user with additional information to further
characterize the impact that a recognized environmental condition may
have on a property.

The Regulatory Negotiating Committee did not adopt this option due to
the potentially high burdens that such a requirement could place upon a
*prospective* purchaser of a property who may choose, based upon the
results of the assessment, not to purchase the subject property.
However, the properties that this option likely would affect, or that
most likely would require sampling to ascertain the likely presence of a
release, are those with a high probability of contamination. These are
the properties on which, without this regulatory option, a Phase II ESA
would most likely be performed in addition to the AAI investigation. The
result would be that the AAI regulation would make a Phase I ESA more
expensive and a Phase II ESA less expensive for such properties because
the sampling and analysis normally undertaken as part of the Phase II
ESA would be required to be conducted during the AAI investigation (or
in many cases, pre-acquisition, rather than after the property is
purchased.

### 4.2.4 Use of the ASTM E1527-2000

The Office of Management and Budget's (OMB) "Circular A-4" document
defines "best practices" for developing regulatory analyses. Section C
of this document provides guidance to regulatory agencies on identifying
and considering alternative regulatory options. Section E.3 of Circular
A-4, "Evaluation of Alternatives," states that where there is a
continuum of alternatives for a standard (such as level of stringency),
agencies "generally should analyze at least three options: the preferred
option; a more stringent option that achieves additional benefits (and
presumably costs more) beyond those realized by the preferred option;
and a less stringent option that costs less (and presumably generates
fewer benefits) than the preferred option.

All of the regulatory alternatives considered by the Negotiated
Rulemaking Committee are more stringent than the Committee's consensus
standard, or EPA's preferred regulatory option. In addition, the
preferred option is estimated to impose a relatively low incremental
cost, less than \$50 per transaction. Therefore, complying with the OMB
Circular A-4 guidance to consider a less stringent or less costly
regulatory alternative is challenging. EPA considered the alternative of
using the current ASTM E1527-2000 standard as a regulatory option.

As discussed in the preamble to the proposed rule, EPA determined that
the existing ASTM E1527-2000 standard does not address all of the ten
required criteria outlined in the Brownfields Amendments. As a result,
use of the ASTM standard would be inconsistent with applicable law and
would not adequately serve EPA's needs in promulgating the all
appropriate inquiries regulation. In the preamble for this proposed
rule, EPA has requested public comment on this determination.

Given that OMB guidance requires EPA to evaluate a less stringent, or
less costly, regulatory alternative, this EIA compares the costs of the
Agency's preferred alternative, three more stringent options considered
by the Negotiated Rulemaking Committee, and the alternative of using the
ASTM E1527-2000 standard.

# CHAPTER 5: Analytical Approach to Estimating Costs and Benefits

The general approach used in this analysis to estimate the impact of the
AAI proposed regulation is to identify the incremental cost burdens
associated with the changes in the ESA activities imposed by the
proposed rule relative to Phase I site assessment practices using the
ASTM E1527-2000 standard, add up the costs of costs associated with
those changes, and then assess the impacts of those costs.

To implement this approach, we first reviewed the activities and
practices associated with conducting a Phase I ESA using the ASTM
E1527-2000 standard, the current interim standard and the baseline
standard for this analysis. To simplify the analysis, we grouped the
Phase I ESA activities into a few key activities, and then estimated the
cost of each activity based on estimates of labor hours to conduct these
activities and labor categories. As Phase I ESAs are more laborious at
more complex sites, labor hours were estimated as a function of property
type. The labor hours also were adjusted to account for property size.
Summing up costs over Phase I ESA activities, we derived an average cost
per Phase I ESA. The total costs were then calculated by multiplying the
average cost per Phase I ESA by the number of Phase I ESAs projected
over the modeling period.

The next step in the analysis was to identify the changes in Phase I ESA
activities that will result from the incremental burdens imposed by the
proposed AAI regulation. By comparing the current Phase I ESA activities
to the requirements of the proposed regulation, we identified the
necessary changes in current procedures for conducting a Phase I ESA
that will be required for a property owner to comply with the provisions
of the proposed rule. Once we determined that the changes from the
current practices would be manifested in terms of additional Phase I ESA
activities, we estimated the cost of each additional activity based on
the labor hours and labor categories required to perform them. We then
followed the same procedure as explained above to derive the average
cost per Phase I ESA and the total cost of compliance with the proposed
regulation.

To estimate the total cost to all affected parties imposed by the
proposed AAI regulations, we estimated the number of transaction screens
likely to shift to Phase I ESAs as a result of the Brownfields
Amendments. We first estimated the average incremental cost per
transaction screen, and then multiplied that cost by the estimated
number of transaction screens that would transition to Phase I ESAs. The
total cost of the proposed regulation includes the incremental cost for
property transactions where the assessment was previously conducted
using the ASTM standard and the total incremental cost associated with
transactions transitioning from a transaction screen to the proposed AAI
requirements.

The benefits of the AAI regulation are assessed qualitatively. We first
identify the nature of the different categories of benefits, and explain
that the net private benefits are the reduction in the resource costs of
qualifying for protection from CERCLA liability. We also discuss the
social benefits of increasing the number of transactions involving
brownfields and contaminated or potentially-contaminated properties,
reducing the number of abandoned properties, and increasing cleanups,
but without estimating these benefits quantitatively.

The following sections describe in detail the methodology for estimating
the costs and benefits of the proposed AAI regulation.

## 5.1 Base Case for the EIA 

The publicly available literature on the Phase I ESA industry indicates
that the most commonly used standard is the current ASTM standard
entitled E1527, Phase I Environmental Site Assessment Process. During
the regulatory negotiating process, the FACA committee members confirmed
this finding. In addition to being the most commonly used standard, the
ASTM E1527-2000 is the Federal interim standard for conducting all
appropriate inquiries. Therefore, we established the ASTM E1527-2000
standard as the base case for this analysis. It is assumed that absent
the AAI regulation, the Phase I ESA industry would continue to use the
ASTM E1527-2000 standard for conducting all appropriate inquiries.

## 5.2 Timeframe 

This economic impact analysis examines costs incurred over the 10-year
period following the promulgation of the AAI regulation. Based on the US
Census Bureau and the Small Business Administration data, ICF estimated
that the average life of a firm is 10 years.[^17] As explained in
Chapter 3, it is a customary practice in the commercial real estate
market to conduct an environmental site assessment at the prospective
property prior to the closing of the real estate transaction. Therefore,
modeling the regulatory impacts over a 10-year period ensures that all
costs incurred as a result of the AAI regulation properly are accounted
for over the timeframe that an individual purchaser is expected to own a
particular property. In addition, this period allows us to take growth
and turnover of properties into account, but without going out so far
into the future that the projections become questionable.[^18] The costs
incurred by the property owners who performed ESAs at their properties
in the interim period (i.e., 2002 through 2003), are not included in the
analysis.

## 

## 5.3 Estimated Transactions per Year

Due to data limitations, we assumed that the annual number of applicable
property transactions approximates the annual number of ESAs performed.

As presented in Chapter 3, a number of standards are currently used by
the ESA industry. The AAI regulation, however, is expected to affect
only the properties on which Phase I ESAs or transaction screens are
currently being performed.

## 5.4 Projection of Number of Phase I ESAs in the Base Case

To estimate the total cost of conducting Phase I ESAs in the base case
scenario, i.e., absent the AAI regulation, it is necessary to forecast
how many Phase I ESAs will be performed over the next 10 years. One way
to project the number of environmental site assessments conducted over
the modeling period is to calculate the historical average growth rate
of Phase I ESAs over an extended period of time that includes complete
business cycles. Since the number of Phase I ESAs conducted annually is
a function of property transactions, which to a large extent are driven
by economic conditions, this method will ensure that, on average, the
number of Phase I ESAs performed over the modeling period is projected
with reasonable accuracy (even though year-to-year fluctuations could be
significant).

As of the writing of this analysis, EDR was identified as the only firm
that compiles and publishes the historical data on the number of ESAs
conducted annually in the U.S. The EDR data, however, cover a relatively
short period of time, from 1997 to 2002.[^19] Having so few observations
available makes it impossible to estimate the average growth rate by any
method other than computing a simple arithmetic average. To compute the
average annual growth rate, we first calculated the growth rate of Phase
I ESAs for each year for which industry data are available.[^20] The
annual growth rates fluctuated significantly from a 24 percent increase
in 1998 to a 10 percent decline in 1999. The annual volume of Phase I
ESAs decreased by six percent in 2000, increased by 12 percent the
following year, and then decreased by three percent in 2002. Despite the
year-to-year fluctuations during this period, the annual volume of Phase
I ESAs exhibited an upward trend. Averaging the annual growth rates
presented above, we calculated that the average annual growth rate over
this period was three percent. We, therefore, assumed that the number of
Phase I ESAs will continue to grow in the base case at an average rate
of three percent per year.

## 

## 5.5 Projected Changes in Assessments with the Regulation

### 5.5.1 Projection of Number of Phase I ESAs 

Projecting the number of Phase I ESAs that will occur following
promulgation of the AAI regulation is made difficult by the uncertainty
surrounding the number of affected parties. Although EPA believes that
the certainty provided by the AAI regulation in obtaining the CERCLA
liability protections will encourage redevelopment of brownfields
properties, the increase in the total number of commercial property
transactions involving brownfields is difficult to predict. Therefore,
in conducting this analysis, we assumed that the number of Phase I ESAs
would continue to grow at an annual rate of three percent after the
regulation is promulgated.

### 5.5.2 Projected Number of Transaction Screens Transitioning to Phase I ESAs

It is difficult to project how many prospective purchasers will opt for
a Phase I ESA instead of a transaction screen under the AAI regulation.
What makes the analysis complex is that a relatively large number of
prospective purchasers did not find the availability of CERCLA liability
protection worth the cost of an ASTM Phase I ESA during the interim
period. The volume of transaction screens decreased from 34,000 in 2001
to 32,000 in 2002.

To estimate the number of Phase I ESAs that would be performed as a
result of switching from transaction screens, we examined the volume of
Phase I ESAs and transaction screens in 2001, 2002, and the first two
quarters of 2003. The ratio of transaction screens to Phase I ESAs
decreased from 14 percent in 2001 to 11 percent in the second quarter of
2003 (the ratio was 13 percent in 2002 and 12 percent in the first
quarter of 2003). We assumed that three percent, the difference between
the 2001 and 2003 ratios, is the upper bound for the annual number of
Phase I ESAs that could be performed under the AAI regulation as a
result of liability protection driving a transition from transaction
screens to a full AAI investigation. The transition rate of three
percent, used in this EIA, is likely an overestimate. The EDR data on
transaction screens indicate that there was a downward trend in the
volume of transaction screens conducted annually prior to the interim
period. Therefore, it is likely that the volume of transaction screens
would continue to decrease even in the absence of the AAI regulation.

## 5.6 Estimation of Unit Costs

This section presents the methodology used for estimating the cost of
performing a Phase I ESA under the base case and under the AAI
regulation. The first step in deriving unit costs was to identify
primary activities performed under a Phase I ESA. Once the primary
activities were identified, we estimated two parameters for each
activity:

-   Labor time required per ESA activity; and

-   Per unit labor costs.

This section is organized as follows. We first explain the ESA
activities performed under the ASTM E1527-2000 standard, i.e., the base
case activities. We then describe how the labor hour burden under each
activity was estimated and how the labor costs were derived. Following
the base case discussion, we identify the changes in ESA requirements
resulting from the AAI regulation and then present the methodology for
estimating the incremental unit costs. In addition, we present the
method for estimating the cost of the various AAI options that were
considered by the FACA committee, but were not included in the proposed
regulation.

### 5.6.1 Environmental Site Assessment Activities under Base Case

This section describes the ESA activities that are included in the model
used to develop cost estimates of the ASTM Phase I ESA base case. The
types of activities described below are consistent with the ASTM
E1527-2000 standard, which specifies four key components to a Phase I
ESA, including: 1) records review, 2) site reconnaissance, 3)
interviews, and 4) report. In an effort to better quantify the
estimation of unit costs for certain key activities, we have grouped the
ESA activities into eight separate activity categories:

-   Review of Federal and state regulatory databases

-   Review of state and local environmental records

-   Review of historical use information

-   Review of site documents, if provided by client

-   Site reconnaissance

-   Interviews with the property owner(s) and/or property managers

-   Interviews with local government officials

-   Preparation of Phase I ESA report.

The activities were grouped in this manner because, from a cost
estimating perspective, they are fairly well-defined unique tasks for
which it is easier to generate unit labor cost estimates individually
rather than in combination. The specific tasks performed under each of
the eight activity categories are discussed in the following sections.

#### 5.6.1.1 Review of Federal and State regulatory databases

Under this category, Federal and state environmental records are
obtained and reviewed to help identify recognized environmental
conditions at the property. According to ASTM E1527-2000, standard
Federal and state environmental record sources include (with their
approximate minimum search distances):

-   Federal NPL site list (1.0 mile)

-   Federal CERCLIS list (0.5 mile)

-   Federal CERCLIS NFRAP site list (property and adjoining properties)

-   Federal RCRA CORRACTS facilities list (1.0 mile)

-   Federal RCRA non-CORRACTS TSD facilities list (0.5 mile)

-   Federal RCRA generators list (property and adjoining properties)

-   Federal ERNS list (property only)

-   State lists of hazardous waste sites identified for investigation or
    remediation:

    -   State-equivalent NPL (1.0 mile)

    -   State-equivalent CERCLIS (0.5 mile)

-   State landfill and/or solid waste disposal site lists (0.5 mile)

-   State leaking UST lists (0.5 mile)

-   State registered UST lists (property and adjoining properties).

These standard record sources are reasonably ascertainable, meaning that
they are publicly available, obtainable within reasonable time and cost
constraints, and practically reviewable. The records are obtained
directly from appropriate government agencies through on-line data base
searches, written requests to government officials, or are purchased
from a commercial services firm such as EDR.

In addition to the above-mentioned Federal and state records, a current
USGS 7.5 Minute Topographic Map (or equivalent) is obtained and
reviewed, showing the area on which the property is located. This map
shows important information about geologic, hydrologic, hydrogeologic,
and topographic characteristics of the property and its surroundings,
that may affect identified conditions at the property.

The labor included in the cost models for this activity includes the
estimated labor hours required to obtain and review these records and
the current USGS 7.5 Minute Topographic Map. These hours are shown by
property size and type in Exhibit 7-3. The other direct costs (ODCs) of
\$250 included in the model for this activity are for acquiring a report
of all database search results from a commercial service.

#### 5.6.1.2 Review of State and Local environmental records

Under this category, additional state or local environmental records are
obtained and reviewed, at the discretion of the environmental
professional, to enhance and supplement Federal and state sources
identified above. Several factors should be considered in determining
which of these additional records, if any, are necessary: whether they
are reasonably ascertainable; whether they are sufficiently useful,
accurate, and complete; and whether they are generally obtained in
initial ESAs in the type of real estate transaction involved. Some types
of records and sources that may be useful include the following:

#### Types of Local Records

-   Brownfields sites

-   Lists of landfill/solid waste disposal sites

-   Lists of hazardous waste/contaminated sites

-   Lists of registered underground storage tanks

-   Local land records (for activity and use limitations)

-   Records of emergency release reports (SARA § 304)

-   Records of contaminated public wells.

#### Local Sources

-   Department of health/environmental division

-   Fire department

-   Planning department

-   Building permit/inspection department

-   Local/regional pollution control agency

-   Local/regional water quality agency

-   USGS and/or state geological survey - surficial geology maps

-   Soil conservation service - soil maps

-   Other physical setting sources.

The labor included in the cost models for this activity and shown in
Exhibit 7-3 includes the estimated time required for visiting local or
regional record sources and reviewing available records. The ODCs
included in the model under this activity are for photocopying or
mailing associated with obtaining these additional records.

#### 5.6.1.3 Review of historical use information

The ASTM E1527-2000 standard requires that various standard historical
sources of information are obtained and reviewed to develop a history of
the previous uses of the property and the surrounding area, and to help
determine whether these previous uses may have led to recognized
environmental conditions in connection with the property. ASTM
E1527-2000 requires that all obvious uses of the property be identified
from the present back to the property's obvious first developed use, or
back to 1940, whichever is earlier. Historical sources of information
regarding past uses of a property include the following:

-   Aerial photographs

-   Fire insurance maps

-   Property tax files

-   Recorded land title records

-   USGS 7.5 minute topographic maps

-   Local street directories

-   Building department records

-   Zoning/land use records

-   Personal knowledge of property owners and/or occupants

-   Other historical sources (e.g., miscellaneous maps, newspaper
    archives, records in files).

Only those standard historical sources that are necessary and are both
reasonably ascertainable and likely to be useful are required to be
reviewed. While identifying the general type of historical use (e.g.,
office, retail, residential) is sufficient, more specific information
about the property uses is helpful, especially if the property's uses
included industrial or manufacturing operations.

In addition to the historical uses of the property, uses of properties
in the surrounding area also should be identified, but only to the
extent that this information is available in the course of researching
the property itself.

The labor included in the cost models for this activity includes the
estimated time required for obtaining (either by visiting local sources
or from commercial services) and reviewing the available records. The
ODCs included in the model under this activity are for photocopying or
mailing associated with obtaining these historical source records.

#### 5.6.1.4 Review of site documents, if provided by client

Under this category, the ASTM E1527-2000 standard recommends that the
environmental professional request and review any helpful
property-related documentation that is provided by the property owner,
the key site manager, and/or the user. Examples of helpful
property-related documentation include the following:

-   ESA reports

-   Environmental audit reports

-   Environmental permits (e.g., solid waste disposal permits, hazardous
    waste disposal permits, wastewater permits, NPDES permits)

-   Registrations for underground and above-ground storage tanks

-   Material safety data sheets

-   Community right-to-know plan

-   Safety plans; preparedness and prevention plans; spill prevention,
    countermeasure and control plans; etc.

-   Reports regarding hydrogeologic conditions on the property or
    surrounding area

-   Notices or other correspondence from any government agency relating
    to past or current violations of environmental laws with respect to
    the property or relating to environmental liens encumbering the
    property

-   Hazardous waste generator notices or reports

-   Geotechnical studies.

Ideally, these documents (or parts of these documents) are provided to
the environmental professional within reasonable time and cost
constraints, and are reviewed by the environmental professional either
prior to or at the beginning of the site reconnaissance visit.

The labor included in the cost models for this activity, in the
baseline, includes the estimated time required to review the available
property-related documents. It is common that some of the documents are
available and reviewed prior to the site visit, while other documents
must be reviewed during the site visit or during the report preparation.
The ODCs included in the model under this activity are for photocopying
associated with obtaining these property-related documents.

#### 5.6.1.5 Site reconnaissance

The ASTM E1527-2000 standard requires that a site reconnaissance be
performed to obtain information to help identify recognized
environmental conditions at the property. To the extent possible, the
environmental professional must visually and physically observe the
property and any structures on the property. The periphery of the
property and all structures on the property also must be observed. The
interiors of all structures on the property should be observed,
including (but not limited to) common areas (lobbies, hallways,
recreation areas), utility rooms, maintenance and repair areas, boiler
rooms, and a representative sample of occupant spaces. A Phase I ESA
generally consists of only one site visit to the property by the
environmental professional, although this site visit may be several days
long.

During the site reconnaissance, the environmental professional notes the
uses and conditions specified in ASTM E1527-2000, to the extent visually
and/or physically observed during the site visit. These uses and
conditions also should be the subject of questions asked during the
interviews with property owners and occupants (as discussed later in
this report). The uses and conditions that should be observed include
the following:

-   General Site Setting

    -   Current use(s) of the property

    -   Past use(s) of the property

    -   Current uses of adjoining properties

    -   Past uses of adjoining properties

    -   Current or past uses in the surrounding area

    -   Geologic, hydrogeologic, hydrologic, and topographic conditions

    -   General description of structures

    -   Roads

    -   Potable water supply

    -   Sewage disposal system

-   Interior and Exterior Observations

    -   Current use(s) of the property

    -   Past use(s) of the property

    -   Hazardous substances and petroleum products in connection with
        identified uses

    -   Storage tanks

    -   Odors

    -   Pools of liquid

    -   Drums

    -   Hazardous substance and petroleum products containers (not
        necessarily in connection with identified uses)

    -   Unidentified substance containers

    -   PCBs

-   Interior Observations

    -   Heating/cooling systems

    -   Stains or corrosion

    -   Drains and sumps

-   Exterior Observations

    -   Pits, ponds, or lagoons

    -   Stained soil or pavement

    -   Stressed vegetation

    -   Solid waste

    -   Waste water

    -   Wells

    -   Septic systems.

The type of information the environmental professional gathers related
to each of the above-mentioned uses and conditions are described in
detailed in ASTM E1527-2000 (Sections 8.4.1 through 8.4.4). The
environmental professional is responsible for recording the uses and
conditions of the property in his or her field notes.

The labor included in the cost models for this activity, in the base
case, includes the estimated time required for performing the site
reconnaissance. Though the site reconnaissance is typically performed in
conjunction with the interviewing of the property owners and occupants,
the labor hour estimates provided in the cost model are specific to the
site reconnaissance. The cost model does not include travel-related
costs (e.g., airfare, hotel, meals, mileage, car rental, etc.) that may
be incurred during the course of performing the site visit. Given the
competitive nature of the market for environmental site assessment
services and the diversity in locations of firms providing these
services, all travel is expected to be local travel. The estimated labor
hours for conducting the site reconnaissance by property size and
property type is presented in Exhibit 7-3.

#### 5.6.1.6 Interviews with the property owner and/or occupant(s)

The ASTM E1527-2000 standard requires that interviews be conducted with
at least the current owners and occupants of the subject property to
obtain information to help identify recognized environmental conditions
in connection with the property. Questions asked during the interviews
attempt to obtain information related to the uses and conditions of the
property (as discussed above in Section 5.6.1.5), information related to
helpful site documents (as discussed above in Section 5.6.1.4), and any
information related to known litigation, administrative proceedings,
violations, or governmental actions (as specified in ASTM E1527-2000,
Section 9.9) relevant to hazardous substances or petroleum products in,
on, or from the property.

The key site manager, who is identified by the property owner as a
person with good knowledge of the uses and physical characteristics of
the property, is interviewed in conjunction with the site visit.
Examples of the key site manager include the property manager, the chief
physical plant supervisor, the head maintenance person, or the user. A
reasonable attempt should also be made to interview some occupants of
the property, as specified in ASTM E1527-2000, Section 9.5.2. Though
interviews are typically performed in person during the site visit, they
may also be done in writing or by telephone before or after the site
visit, or in some combination thereof.

The labor included in the cost models for this activity includes the
estimated time required performing the interviews with the property
owner and occupants. Number range CHAPTERThe estimate of labor costs for
the interviewing activities in the base case were derived by first
estimating the total number of hours typically spent conducting
interviews, then multiplying the total hours by the weighted average
distribution of hourly labor costs, which is shown in section 5.6.3. The
estimated number of hours typically spent conducting interviews of
current and past owners and occupants was developed as follows:

-   Professional engineers at ICF Consulting with experience conducting
    hundreds of environmental site assessments provided labor hour
    estimates for the amount of time they typically spend conducting
    interviews. Labor hour estimates were estimated for three property
    sizes and four property types within each size category (see section
    5.6.2 for summary of property sizes and types).

    -   ICF Consulting professional engineers estimated that in the case
        of undeveloped/agricultural properties and residential
        properties of all sizes, 2 hours are typically spent conducting
        interviews of current and past owners. In the case of commercial
        properties of all sizes, 4 hours are typically spent conducting
        interviews. In the case of small- and medium-sized industrial
        properties, ICF professional engineers estimate that they
        typically spend 4 hours conducting interviews. In the case of
        large industrial properties, it is typical to spend 6 hours
        conducting interviews of current and past owners. (The labor
        distribution by task and size and type of property is summarized
        in Exhibit 7-3 of this EIA).

    -   The estimated average amount of time spent per interview is
        one-half hour to one hour. Therefore, the estimated labor hours
        distribution used in the cost model used in developing this EIA
        allows enough time for between 2 and 4 interviews at undeveloped
        and residential properties; between 4 and 8 interviews at
        commercial properties and small- and medium-sized industrial
        properties; and between 6 and 12 interviews at large industrial
        properties.

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-   For the purposes of the cost model, the time estimate for this
    activity assumes that one-half of the interviewing is performed
    during the site visit, while the other half is performed via
    writing/phone.

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```
-   ICF Consulting's estimated distribution of labor hours across tasks,
    as well as the other cost assumptions for developing the cost model,
    was presented to the FACA Committee members charged with the
    development of language for the proposed rule. The FACA Committee
    members, including four individuals with extensive experience in
    conducting environmental site assessments reviewed the estimated
    labor distribution, unit cost estimates, and other cost analysis
    assumptions and agreed with the labor hour distributions estimated
    by ICF Consulting's professional engineers.

#### 5.6.1.7 Interviews with local government officials

Under this category, interviews with the local government officials are
conducted to obtain information to help identify recognized
environmental conditions at the property. Interviews with local
government officials generally include questions related to identifying
recognized environmental conditions at the property, but are at the
discretion of the environmental professional.

The ASTM E1527-2000 standard provides that interviews can be performed
in person or by telephone, either before or after the site visit, or in
some combination thereof. A reasonable attempt should be made to
interview at least one staff member of any one of the following types of
local government agencies:

-   Local fire department that serves the property

-   Local health agency or local/regional office of state health agency
    serving the area in which the property is located, or

-   Local agency or local/regional office of state agency having
    jurisdiction over hazardous waste disposal or other environmental
    matters in the area in which the property is located.

The labor included in the cost models for this activity is the estimated
time required performing the interviews with the local government
agencies. For the purposes of the cost model, the time estimate for this
activity assumes that one-half of the interviewing is performed during
the site visit, while the other half is performed via telephone. The
estimated distribution on labor hours for this task is similar to that
presented above for interviews of current and past owners and operators
and is summarized in Exhibit 7-3.

#### 5.6.1.8 Preparation of Phase I ESA report

Under this category, a report is prepared that describes the findings of
the Phase I ESA.

Under the baseline scenario, the ASTM E1527-2000 standard recommends
that all documentation generated during the ESA that supports the
findings, opinions, and conclusions of the Phase I ESA be included in
the report (as appendices) or adequately referenced in the report. If
certain documentation is excluded from the report, the environmental
professional should provide the rationale for its exclusion.

Under the ASTM standard, the content of the report should include all
matters required to be included in the report pursuant to various
provisions stated in ASTM E1527-2000. This includes a statement of
whether the user reported to the environmental professional any
information pursuant to the user's responsibilities described in Section
5.0 of ASTM E1527-2000 (e.g., environmental liens, activity or use
limitations, specialized knowledge or experience of user, or reason for
a purchase price that is significantly below the market).

The ASTM standard recommends that the report include a findings section
that describes the known or suspected environmental conditions
associated with the property. These environmental conditions could
include recognized environmental conditions, historical recognized
conditions, and *de minimus* conditions.

The report should include the environmental professional's opinion(s) of
the impact that known or suspect environmental conditions may have on
the property, and the rationale for concluding that an environmental
condition is or is not a recognized environmental condition. The
conclusions section of the report should summarize any and all
identified recognized environmental conditions connected with the
property and their impact on the property.

Under the baseline scenario, all deviations (including additions and
deletions) from ASTM E1527-2000 should be listed. Additional contracted
services (e.g., broader scope, Phase II testing recommendations,
liability/risk evaluations, etc.) performed by the environmental
professional should be included in the Phase I ESA only if contractually
agreed to by the user and the environmental professional.

The environmental professional responsible for the Phase I ESA should
sign the report, and include a qualifications statement. The report
should include a references section and appendices containing supporting
documentation.

The labor included in the cost models for this activity includes the
estimated time required to prepare the Phase I ESA report in accordance
with ASTM E1527-2000. The ODCs included in the model under this activity
are for reproducing and shipping the complete Phase I ESA report. The
distribution of labor hours for this task is presented in Exhibit 7-3
and is based on the experiences of professional engineers at ICF
Consulting.

### 5.6.2 Estimates of Hours per Action

In an effort to simplify costs associated with the wide range of
property sizes and property types that might be subject to a Phase I
ESA, labor hour estimates were developed for various categories of
transactions.

The property size category includes small, medium, and large
property/facility classifications. These size classifications are based
on the following specifications:

-   Small \< 5 acres or \< 5,000 square feet

-   Medium 5 to 100 acres or 5,000 to 50,000 square feet

-   Large \> 100 acres or \> 50,000 square feet.

The property type category includes the following classifications:

-   Undeveloped/Agricultural

-   Residential

-   Commercial

-   Industrial.

The property size categories were selected based on ICF Consulting's
experience conducting ESAs. The three selected property size categories
allowed for modeling the variation in the cost of a Phase I ESA that is
driven by the sizes of the subject properties. The property type
categories were selected based on the 2002 EDR data on property use at
the time a Phase I ESA was performed. For simplicity, we have combined
commercial/office, retail, telecommunications, and hotel sites into a
single property category, denoted as commercial property type.

### 5.6.3 Identification of Labor Categories for Actions and Labor Distribution 

#### 5.6.3.1 Difficulties with ASTM Definition of "Environmental Professional" 

The current ASTM standard defines "environmental professional" as a
person possessing sufficient training and experience to perform ESAs in
accordance with the ASTM E1527-2000 standard. Thus, individuals with
varying academic and professional backgrounds may qualify as
environmental professionals under the ASTM standard. Such a broad
definition presents a difficulty when modeling labor costs associated
with Phase I ESAs. However, given the flexibility incorporated in the
proposed definition of "environmental professional" in the proposed rule
we can assume that persons currently supervising the conduct of all
appropriate inquiries under the interim standard meet at least the
proposed minimum requirements for an environmental professional (i.e., a
B.S. in science or engineering and 5 years of relevant full time
experience).

#### 5.6.3.2 Proxy Labor Categories 

Based on the Bureau of Labor Statistics information on specific
occupations, we have selected three labor categories that best reflect
education, experience, and seniority of personnel involved in conducting
Phase I ESAs. The labor categories are as follows:

-   Environmental Engineers (e.g., the Environmental Professionals)

-   Environmental Scientists and Specialists, Including Health

-   Environmental Engineering Technicians.

#### 5.6.3.3 Labor Distribution 

The labor categories used in the development of the cost model for the
EIA include environmental engineer, environmental scientist/specialist,
environmental engineering technician, and administrative assistant. The
types of activities associated with a Phase I ESA are typically
performed through a combination of efforts from each of these four labor
categories. The degree to which a senior environmental professional
(e.g., environmental engineer) or a junior environmental professional
(e.g., environmental engineering technician) plays a more significant
role in an ESA depends on factors such as the type of property, the
complexity of the property and its operations, anticipated environmental
conditions, staff expertise and availability, and the level of
sensitivity of ESA (e.g., potential for litigation).

For the purposes of the ASTM E1527-2000 base case cost model, we assumed
that the majority (or 65 percent of the labor hours) of the activities
in the ESA are performed by the environmental scientist/specialist labor
category. The environmental scientist/specialist plays a key role in all
eight ESA activities described in Section 5.6.1. These activities
include the review of Federal and state regulatory databases, review of
state and local environmental records, review of historical use
information and site documentation, site reconnaissance, interviews with
the property owner(s), property managers, and local government
officials, and preparation of the Phase I ESA report.

Certain ESA activities are supported by the remaining three labor
categories. The environmental engineer (for which we have assumed 15
percent of the labor hours), typically supports the preparation of the
Phase I ESA report, often times as a key author or in a review capacity,
is responsible for including an opinion in the report, and signs the
report. He or she may also provide specialized knowledge for complex
conditions at certain properties, and may manage the project and
interact with the client.

The environmental engineering technician (whom we have assumed
contributes 15 percent of the labor hours) assists by obtaining and
reviewing Federal and state databases, Federal and state environmental
records, and site and historical use documentation. He or she may also
assist with telephone interviews to local government officials, if these
interviews cannot be performed during the site reconnaissance.

The administrative assistant (whom we have assumed contributes five
percent of the labor hours), typically supports the Phase I ESA report
preparation activities by performing editing, reproduction, and shipping
services. The administrative assistant also occasionally assists with
obtaining, coordinating, and/or copying site documents and historical
use information.

The labor distribution is presented in Exhibit 5-1. A summary of the
distribution of labor hours by labor category and property type and size
is presented in Exhibit 7-4.

[]{#__RefHeading___Toc78864376 .anchor}Exhibit 5-1: Distribution of
Labor, by Labor Category

+-------------------------------------------------+--------------------+
| *Labor Category*                                | *Distribution of   |
|                                                 | Labor*             |
+-------------------------------------------------+--------------------+
| #### Environmental Engineers                    | 15 %               |
+-------------------------------------------------+--------------------+
| Environmental Scientists and Specialists,       | 65 %               |
| Including Health                                |                    |
+-------------------------------------------------+--------------------+
| Environmental Engineering Technicians           | 15 %               |
+-------------------------------------------------+--------------------+
| Administrative Assistant                        | 5 %                |
+-------------------------------------------------+--------------------+
| #### Total                                      | *100 %*            |
+-------------------------------------------------+--------------------+

Source: ICF Analysis.

### 5.6.4 Estimates of Other Direct Costs 

The cost model developed for this EIA includes the ODCs for certain ESA
activities described in Section 5.6.1. For each activity, the following
ODC assumptions were included in the model:

-   *Review of Federal and state regulatory databases:* ODCs of
    \$250/property were included for acquiring the database report from
    a commercial service.

-   *Review of state and local environmental records*: ODCs ranging from
    \$15/property (for undeveloped and residential properties) to
    \$25/property (for commercial and industrial properties) were
    included for photocopying and/or mailing associated with obtaining
    state and local records.

-   *Review of historical use information*: ODCs ranging from
    \$15/property (for undeveloped and residential properties) to
    \$25/property (for commercial and industrial properties) were
    included for photocopying and/or mailing associated with obtaining
    historical source records.

-   *Review of site documents, if provided by client*: ODCs ranging from
    \$15/property (for undeveloped and residential properties) to
    \$25/property (for commercial and industrial properties) were
    included for photocopying associated with obtaining property-related
    documents.

-   *Site reconnaissance*: No ODCs were included for this activity.

-   *Interviews with the property owner(s) and/or property managers*: No
    ODCs were included for this activity.

-   *Interviews with local government officials*: No ODCs were included
    for this activity.

-   *Preparation of Phase I ESA report*: ODCs ranging from \$25/property
    (for undeveloped and residential properties) to \$50/property (for
    commercial and industrial properties) were included for reproducing
    and shipping the completed Phase I ESA report.

The model does not include any travel-related costs (e.g., airfare,
hotel, meals, mileage, and car rental) that may be incurred during the
course of performing a Phase I ESA. These costs can vary greatly
depending on the relative locations of the subject site and the firm
providing the services. Given the wide distribution and availability of
environmental engineering services, travel costs should be minimal,
assuming that such services will be purchased from a firm located in
relative close proximity to the property being purchased.

### 5.6.5 AAI Unit Costs 

This section explains the methodology for estimating unit costs of
performing a Phase I ESA under the AAI regulation.

#### 5.6.5.1 Activities and Labor Categories

In an effort to better quantify the estimation of unit costs for each of
the AAI activity requirements, we grouped the AAI Phase I ESA
requirements into eight separate activity categories. The AAI
requirements are presented in Exhibit 5-2, first column. The eight Phase
I ESA activities are presented across the top row of Exhibit 5-2. A
shaded area indicates the Phase I ESA activity under which an AAI
requirement will be fulfilled. For example, pursuant to §312.31 of the
proposed AAI regulation, the environmental professional would be
required to include a discussion regarding the degree of obviousness of
the presence or likely presence of contamination in the all appropriate
inquiries report. The discussion would be based on the conclusions that
summarize all recognized environmental conditions connected with the
property and the potential impact of these recognized environmental
conditions on the property. The hour burden associated with this AAI
requirement is estimated under *Preparation of Phase I ESA report*
activity.

[]{#__RefHeading___Toc78864377 .anchor}Exhibit 5-2: The AAI Regulatory
Requirements and the Phase I ESA Activities

  -------------------- -------------- --------------- ------------- --------------- --------- ------------ -------------- ---------------
  **The AAI            **ASTM Phase I                                                                                     
  Requirements**       ESA                                                                                                
                       Activities**                                                                                       

                       **Interviews   **Review of     **Review of   **Review of     **Site    **Review of  **Interviews   **Preparation
                       with the       historical use  Federal and   State and Local visit**   site         with local     of Phase I ESA
                       property       information**   State         environmental             documents,   government     report**
                       owner(s),                      regulatory    records**                 if provided  officials**    
                       operators, and                 databases**                             by client**                 
                       occupants**                                                                                        

  Sec. 312.21 --                                                                                                          
  Results of inquiries                                                                                                    
  by an environmental                                                                                                     
  professional                                                                                                            

  Sec. 312.23 --                                                                                                          
  Interviews with past                                                                                                    
  and present owners,                                                                                                     
  operators, and                                                                                                          
  occupants                                                                                                               

  Sec. 312.24 --                                                                                                          
  Reviews of                                                                                                              
  historical sources                                                                                                      
  of information                                                                                                          

  Sec. 312.25 --                                                                                                          
  Searches for                                                                                                            
  recorded                                                                                                                
  environmental                                                                                                           
  cleanup liens                                                                                                           

  Sec. 312.26 --                                                                                                          
  Reviews of Federal,                                                                                                     
  State, Tribal and                                                                                                       
  local government                                                                                                        
  records                                                                                                                 

  Sec. 312.27 --                                                                                                          
  Visual inspections                                                                                                      
  of the facility and                                                                                                     
  of adjoining                                                                                                            
  properties                                                                                                              

  Sec. 312.28 --                                                                                                          
  Specialized                                                                                                             
  knowledge or                                                                                                            
  experience on the                                                                                                       
  part of the                                                                                                             
  defendant                                                                                                               

  Sec. 312.29 -- The                                                                                                      
  relationship of the                                                                                                     
  purchase price to                                                                                                       
  the value of the                                                                                                        
  property, if the                                                                                                        
  property was not                                                                                                        
  contaminated                                                                                                            

  Sec. 312.30 --                                                                                                          
  Commonly known or                                                                                                       
  reasonably                                                                                                              
  ascertainable                                                                                                           
  information about                                                                                                       
  the property                                                                                                            

  Sec. 312.31 -- The                                                                                                      
  degree of                                                                                                               
  obviousness of the                                                                                                      
  presence or likely                                                                                                      
  presence of                                                                                                             
  contamination at the                                                                                                    
  property, and the                                                                                                       
  ability to detect                                                                                                       
  the contamination by                                                                                                    
  appropriate                                                                                                             
  investigation                                                                                                           
  -------------------- -------------- --------------- ------------- --------------- --------- ------------ -------------- ---------------

Source: ICF Analysis.

After reviewing the proposed AAI regulation, we determined that the AAI
requirements under all Phase I ESA activities, except interviews and
report writing, would require the same level of effort as under the ASTM
E1527-2000 standard. Our findings are summarized in Exhibit 5-3 (a more
detailed summary of the main differences between the propose AAI
standard and the ASTM E1527-2000 standard is presented in Appendix II).
We then estimated unit costs for the four activity tasks representing
incremental burdens associated with requirements under the AAI
regulation that currently are not routinely performed under the ASTM
E1527-2000 standard. These incremental activity tasks and corresponding
incremental unit costs are explained in the following four sections.
Following these sections, we present the methodology for estimating
incremental costs for the users transitioning from transaction screens
to Phase I ESAs under the AAI regulation.

[]{#__RefHeading___Toc78864378 .anchor}Exhibit 5-3: The Expected Changes
in Phase I ESA Activities under the AAI Regulation

+------------------------------+---------------------------------------+
| #                            | Expected Changes in Phase I ESA       |
| ##### Phase I ESA Activities | Activities under the AAI Regulation   |
+------------------------------+---------------------------------------+
| Interviews with the property | Conduct interviews with neighboring   |
| owner(s), operators, and     | property owners and/or occupants for  |
| occupants                    | abandoned properties                  |
+------------------------------+---------------------------------------+
| Review of historical use     | No Change                             |
| information                  |                                       |
+------------------------------+---------------------------------------+
| Review of Federal and state  | No Change                             |
| regulatory databases         |                                       |
+------------------------------+---------------------------------------+
| Review of state and local    | No Change                             |
| environmental records        |                                       |
+------------------------------+---------------------------------------+
| Site visit                   | No Change                             |
+------------------------------+---------------------------------------+
| Review of site documents, if | No Change                             |
| provided by client           |                                       |
+------------------------------+---------------------------------------+
| Interviews with local        | No Change                             |
| government officials         |                                       |
+------------------------------+---------------------------------------+
| Preparation of Phase I ESA   | -   Document the results of the       |
| report                       |     searches for recorded             |
|                              |     environmental cleanup liens       |
|                              |                                       |
|                              | -   Document the relationship of the  |
|                              |     purchase price to the value of    |
|                              |     the property, if the property was |
|                              |     not contaminated                  |
|                              |                                       |
|                              | -   Document the degree of            |
|                              |     obviousness of the presence or    |
|                              |     likely presence of contamination  |
|                              |     at the property                   |
+------------------------------+---------------------------------------+

> Source: ICF Analysis.

#### 5.6.5.2 Incremental Cost -- Interviews with Neighboring Property Owners and/or Occupants 

[]{.mark}

Under the ASTM E1527-2000 standard, interviews with the property owner,
operator(s), and occupant(s) are conducted to obtain information to help
identify recognized environmental conditions in connection with the
subject property. In addition, current practice includes identifying and
interviewing past owners and occupants of a property to the extent
necessary to identify and understand historical uses and ownerships of
the property. Interviews are typically performed in person during the
site visit, although, they may also be done in writing or by telephone
before or after the site visit, or in some combination thereof. The
proposed AAI standard does not impose any incremental requirements above
those currently performed when conducting an environmental site
assessment using the ASTM standards in those cases in which the current
owners and/or occupants of a property can be identified.

Questions asked during the interviews should attempt to obtain
information related to the current and past uses and conditions of the
property, information related to helpful site documents, and any
information related to known litigation, administrative proceedings,
violations, or governmental actions relevant to hazardous substances or
petroleum products in, on, or from the property. Thus, the scope of the
interviews would be similar to the interviews performed under the
current ASTM standard and would likely be conducted before, during, or
after the site visit, as deemed appropriate by the environmental
professional. Therefore, the proposed AAI rule would not impose any
additional burden with respect to interviewing the subject property
owner(s) and occupant(s).[^21]

Unlike the current ASTM standard, the proposed AAI standard imposes
specific interviewing requirements for abandoned properties. In the case
of the all appropriate inquiries conducted at abandoned properties, the
proposed rule requires that owners and occupants of neighboring or
nearby properties be interviewed for the purposes of obtaining
information regarding the uses and potential conditions of the property.
Questions asked during the interview should attempt to obtain
information related to historic uses of the subject property, as well as
any information related to potential unauthorized uses of the subject
property that could affect environmental conditions at the property.

> []{.mark}

For the purposes of this analysis, we have assumed that the
environmental scientist/specialist would perform the required
neighboring property interview. Based on ICF Consulting's experience in
conducting interviews for ESAs, it is our judgment that each neighboring
property interview would take approximately one hour for small abandoned
undeveloped and residential properties and up to three hours for large
abandoned industrial properties. These labor estimates are approximately
one-half the estimated time for conducting interviews with the subject
property owners/occupants. The rationale for the reduced labor estimate
is based on the likelihood that the neighboring property
owners/occupants will have less knowledge regarding the environmental
conditions at the subject property than the owners/occupants of the
subject property. When developing the hour burden estimates, however, we
have taken into consideration that owners/occupants of neighboring
properties may be harder to locate and establish a contact with than the
subject property current owner/occupants. The neighboring property
interview would involve obtaining and documenting information regarding
past owners and uses of the subject property. Efforts must be made to
make contact with the appropriate person at the neighboring property,
coordinate the interview, and conduct the interview. Logistically, the
neighboring property interview may not necessarily occur at the same
time as the subject property site visit. We expect that such interviews
would likely be done in writing or by telephone before or after the site
visit, or in some combination thereof. The higher hour estimate for
interviewing neighbors of commercial/industrial properties (2 to 3 hours
per interview) is due to the likelihood that these types of properties
will have a greater potential for identified environmental conditions,
therefore requiring more interviewing time and follow-up questioning.

To develop the overall cost impact of the required neighboring property
interviews, we needed to make an assumption regarding the distribution
of the number of interviews that might be required for different types
of abandoned properties. In other words, for each abandoned property,
how many interviews of neighboring properties would be required to
achieve the objectives of the proposed AAI rule (e.g., identifying
potential past uses of the property and potential environmental
conditions)?. The number of required interviews will depend not only on
the perceived environmental conditions of the abandoned property but
also on factors such as the turnover rate of neighboring properties. We
have assumed the following distribution, regardless of property type:

-   60% of abandoned sites would require one neighboring property
    interview

-   30% of abandoned sites would require two neighboring property
    interviews

-   10% of abandoned sites would require three neighboring property
    interviews.

Generally, all abandoned sites would require at least one neighboring
property interview, 40 percent would require more than one, and 10
percent would require three. Based on ICF Consulting's experience in
conducting ESAs, we expect that, in most cases, two interviews would be
sufficient to gather relevant information about the subject property.

To develop the overall cost impact of this requirement, we needed to
make an assumption regarding the distribution of abandoned properties
and properties with known owners. Because data on abandoned properties
are, at best, scarce, we modeled the distribution of abandoned and
non-abandoned sites as a range. The lower and upper bound estimates of
the range were based on an estimate of vacant lands in urban areas and
an estimate of abandoned Superfund sites, respectively.

In the 2000 study "Vacant Land in Cities: An Urban Resource," the
Brookings Institution's Center on Urban and Metropolitan Policy
investigated the prevalence of vacant and abandoned structures in 70
cities nation-wide. The study found that "on average, fifteen percent of
a city's land was deemed vacant." Although abandoned properties are a
subset of vacant lands, for sake of simplicity, we assumed that at least
15 percent of all commercial property transactions subject to the all
appropriate inquiries requirements involve abandoned properties. This
estimate, therefore, was modeled as a lower bound of the range.

To estimate an upper bound of the range, we used EPA data on Superfund
sites. EPA statistics on the National Priorities List (NPL) sites show
that approximately 28 percent of all Superfund sites are either
abandoned or have no known potentially responsible party (PRP) from whom
to recover costs.[^22] Unlike abandoned Superfund sites, the universe of
all commercial properties that are abandoned are not necessarily
contaminated. Therefore, we would expect that the percentage of all
commercial properties that are abandoned is not higher than the number
of abandoned Superfund sites, expressed as a fraction of the total
number of the NPL sites. Thus, for the purpose of this analysis, we
assumed that not more than 28 percent of all commercial properties
subject to the all appropriate inquiries requirements are abandoned.

#### 5.6.5.3 Incremental Cost -- Relationship of the Purchase Price to the Value of the Property 

Under the current ASTM E1527-2000 standard (Section 5.4, Reason for
Significantly Lower Purchase Price), if a user has actual knowledge that
the purchase price of the property is significantly less than the
purchase price of comparable properties, the user should provide an
explanation for the reduced price and make a written record of the
explanation. The ASTM E1527-2000 requires that some research of the
local real estate market be performed to determine if the purchase price
reflects the fare market value of a property. The requirement imposed by
the proposed AAI rule is not significantly different from the interim
standard. The environmental professional does not need to perform a real
property appraisal of the property. However, the prospective owner must
consider whether or not the purchase price generally reflects the fair
market value of the property, assuming the property is not contaminated.
The requirement applies to *all* properties on which a Phase I ESA is
been performed. Therefore, we have assumed that some research of the
local real estate market would be performed in *all* property
transactions to determine whether the purchase price differs
significantly from the market value of the subject property. This
activity represents no incremental burden over the general research
conducted in the base case.

To determine whether the purchase price reflects the fair market value
of the subject property, a prospective purchaser is expected to use
publicly available data or to consult a local real estate agent. Again,
a real property appraisal of the subject property is not required.
Because the proposed rule does not require a more extensive search than
currently performed under the ASTM E1527-2000, there would be no
incremental cost to the user associated with obtaining the necessary
information.

In the cases where there is a significant difference between the
purchase price and the fair market value of the subject property, the
AAI regulation imposes an additional requirement. The proposed
regulation requires the environmental professional to document in the
all appropriate inquiries report the information received from the user
regarding the reason for the difference between the purchase price and
the fair market value. The time required to document the information
represents the incremental labor hour burden under this activity task.

The hour burden for this requirement is expected to be relatively
minimal. Based on ICF Consulting's experience, we expect that
explanations of purchase price/market value discrepancies are generally
simple, and would require no more than one-half page of text to document
in the Phase I ESA report. ICF's experience indicates that composing,
reviewing, and editing this amount of text takes approximately one-half
hour of time for the environmental professional, regardless of the
property type and size. This incremental labor involves the time
required for the environmental professional to request the explanation
for the reduced purchase price from the user, and to document the
information in the all appropriate inquiries report.

The proposed regulation's requirement that the difference between the
purchase price and the fair market value of the subject property be
considered would affect *all* properties on which a Phase I ESAs are
performed. We expect, however, that only a small fraction of prospective
property owners would find the purchase price to be significantly lower
than the prices paid for similar properties located in the same vicinity
as the subject property. Therefore, the documentation requirement is
expected to affect only a small fraction of the properties on which
Phase I ESAs are performed. These are likely the properties with a
perceived risk of contamination or likely contamination, where the
market has already discounted the price for the perceived risk. We have
assumed that 15 percent of the properties will be affected. The
assumption is based on the EDR estimate that between 10 and 15 percent
of Phase I ESAs lead to Phase II ESAs. Since it is uncertain what type
of properties (in terms of size and type) the additional requirement may
impact, we assumed that all properties are equally likely to be
affected.

*5.6.5.4 Incremental Cost -- Search for Environmental Liens and
Institutional Controls*

Under the current ASTM E1527-2000 standard (Section 5.2), it is the
user's responsibility to check title records for environmental liens or
activity and land use limitations (or deed restrictions) (if any) that
are recorded against the property, and report any of these to the
environmental professional performing the Phase I ESA. This task is not
the responsibility of the environmental professional performing the
Phase I ESA. Under the current industry practices, a user is most likely
to engage a title company or title professional to check for the
required records, rather then perform the search himself.

Unlike the current ASTM standard, the AAI regulation does not explicitly
state that it is the user's responsibility to perform the search for
environmental liens and institutional controls (ICs). In determining the
unit cost for this activity, we assumed that the user would choose the
least costly option that would satisfy the AAI requirement. It is
believed that, on average, the opportunity cost to the user for
searching for ICs should be lower than what he or she would need to pay
the environmental professional to perform the search. Therefore, for the
purpose of this analysis, we have assumed that the user would be
responsible for the search for environmental liens and ICs and provide
the search results to the environmental professional. This essentially
is the same scenario as the baseline case.

It is believed that the labor hour burden to the user to perform the
search would not increase under the AAI regulation. We also assumed that
the ODCs would not increase under the proposed regulation. The labor
hour burden associated with the search for environmental liens and
institutional controls could range from approximately one-half hour for
undeveloped/residential properties to two hours for
commercial/industrial properties. The higher labor hours for the
commercial/industrial sites are due to the greater likelihood that these
types of properties have possible environmental liens or institutional
controls associated with them. The ODCs associated with these activities
could range from minimal (e.g., \$15/property) for photocopying obtained
records up to approximately \$100/property for having a commercial title
company perform the search. We would expect that, in most cases, the
user would have a commercial title company perform the search.

Unlike the current ASTM standard, the AAI regulation is explicit in
requiring the environmental professional to document the search results
in the Phase I ESA report. This AAI requirement is expected to affect
all properties on which a Phase I ESA is performed. Based on ICF
Consulting's experience, it is our judgment that it would require no
more than one-half to one page of text to document the user's
environmental lien and institutional control search results in the Phase
I ESA report. Our experience indicates that composing, reviewing, and
editing this amount of text would take between one-half hour to one hour
of time for the environmental professional, with the range depending on
the complexity of the site. We therefore estimated one-half hour for the
undeveloped/residential properties and up to one hour for the
commercial/industrial properties. The higher incremental hours for
documenting the search results for commercial/industrial properties are
due to the greater likelihood that these types of properties will have
environmental liens or institutional controls associated with them, and
therefore will require more effort to review and summarize in the all
appropriate inquiries report.

*5.6.5.5 Incremental Cost -- The Degree of Obviousness of the Presence
or Likely Presence of*

*Contamination*

Under the AAI regulation, the environmental professional would be
required to include a discussion regarding the degree of obviousness of
the presence or likely presence of contamination in the Phase I ESA
report. The discussion would be based on the conclusions that summarize
all recognized environmental conditions connected with the property and
the potential impact of these recognized environmental conditions on the
property. In addition, the environmental professional may provide
recommendations for next steps that the user should consider in the ESA
process. The recommendations could include activities or considerations
that are outside the current scope of the ASTM E1527-2000 standard (as
appropriate), that might help the user to more fully characterize the
impact of the recognized environmental conditions on the property and
the potential liabilities associated with the identified conditions. The
all appropriate inquiries report might, for example, recommend that the
user perform selected additional non-scope activities such as radon
testing, lead-based paint testing, asbestos surveying, health and safety
assessment, or a full Phase II site assessment.

For the purposes of the cost model, we assumed that the environmental
scientist/specialist would prepare the discussion related to the degree
of obviousness of the presence or likely presence of contamination and
any next step recommendations. The environmental engineer would likely
review any recommendations prepared by the environmental
scientist/specialist. Based on ICF Consulting's experience, the
incremental labor hours to perform this additional discussion are
expected to be relatively minimal. We estimate that the incremental
hours could range from approximately one-half hour for
undeveloped/residential properties to one hour for commercial/industrial
properties. This incremental labor involves the time required for the
environmental professional to develop, review, and edit the discussion
regarding the degree of obviousness of the presence or likely presence
of contamination, and the recommendations for next steps that the user
should consider in the ESA process. The higher incremental hours for the
commercial/industrial properties are due to the likelihood that these
types of properties will have more identified environmental conditions
that may warrant further assessment, and therefore will require more
effort to incorporate recommendations into the all appropriate inquiries
report.

Based on the EDR estimate of the likelihood that a Phase I will lead to
a more comprehensive environmental site investigation, we have assumed
that 15 percent of properties would be affected by this requirement.
Since it is uncertain what type of properties (in terms of size and
type) the additional requirement may impact, we have assumed that all
properties are equally likely to be affected.

#### 5.6.5.6 Incremental Costs -- Transition from Transaction Screens

Incremental costs for the users transitioning from transaction screens
to Phase I ESAs under the AAI regulation were estimated as a difference
between the cost of a transaction screen and the cost of an AAI Phase I
ESA. To estimate the cost of a transaction screen by property type and
size, we used the same approach as explained in Section 5.6.1. We
grouped the transaction screen activities into the following activity
categories:

-   Review of Federal/state databases and historical use information

-   Site visit

-   Owner/occupant interviews

-   Completion of transaction screen questionnaire.

The hour burden was estimated for each activity. We assumed that all
activities are performed by an environmental scientist/specialist and
that the environmental scientist needs to purchase a database report for
\$250.

## 5.7 The AAI Options

This section presents the methodology for estimating unit costs of three
regulatory options that were considered by the Regulatory Negotiating
Committee, but were not adopted. Estimates of total and incremental
costs for each regulatory option are provided in Chapter 7.

### 5.7.1 Considered Option 1 - Environmental Professional

Under this AAI regulatory option, all major activities would be
performed by the environmental professional, as defined by the AAI
regulation under §312.10. This option was modeled by changing the
distribution of labor as presented in Exhibit 5-4.

[]{#__RefHeading___Toc78864379 .anchor}Exhibit 5-4: Distribution of
Labor, by Labor Category under an Alternative AAI Regulatory Option

+-------------------------------------------------+--------------------+
| #### Labor Category                             | #### Dis           |
|                                                 | tribution of Labor |
+-------------------------------------------------+--------------------+
| #### Environmental Engineers                    | 95%                |
+-------------------------------------------------+--------------------+
| Environmental Scientists and Specialists,       | 0 %                |
| Including Health                                |                    |
+-------------------------------------------------+--------------------+
| Environmental Engineering Technicians           | 0 %                |
+-------------------------------------------------+--------------------+
| Administrative Assistant                        | 5 %                |
+-------------------------------------------------+--------------------+
| #### Total                                      | 100 %              |
+-------------------------------------------------+--------------------+

### 5.7.2 Considered Option 2 - Interview Requirement

Under this AAI option, the interview requirements would be the same as
under the current ASTM standard. For the purpose of this analysis, we
have assumed that the environmental scientist/specialist would interview
current owner and occupants. In the cases where current owner cannot be
identified, the environmental scientist/specialist would interview past
owners, occupants, and/or operators. The labor included in the cost
models for this activity includes the estimated time required to perform
the interviews with the property owner, occupants, and/or operators.

### 5.7.3 Considered Option 3 - Sampling

Under this AAI option, limited sampling would be required for properties
with perceived risk of contamination.

Environmental sampling and testing of various media (e.g., soil,
groundwater, surface water, air, sediment, building materials, etc.) at
a property can provide a user with additional information to further
characterize the impact that a recognized environmental condition may
have on a property. ASTM E1527-2000 (Section 6.4) does not require any
testing or sampling of materials.

It is difficult to anticipate potential environmental sampling
activities at a property prior to completing a Phase I ESA, particularly
if no prior sampling has been performed on the property. Only after the
Phase I ESA has been completed, does an environmental professional begin
to have a sufficient understanding of the potential impacts that
recognized environmental conditions might have on the property.
Incremental costs associated with environmental sampling are usually
significant relative to the cost of the Phase I ESA itself. Labor
associated with collecting samples, laboratory analytical costs,
subcontracted services, and field sampling equipment costs all
contribute to this significant incremental cost.

For the purposes of this AAI option, three typical environmental
sampling activities that are commonly performed at properties as a
follow-up to a Phase I ESA are identified below, and cost estimates are
developed for each. The activities include groundwater monitoring well
installation, groundwater monitoring well sampling, and surface soil
sampling.

*Groundwater Monitoring Well Installation*. Groundwater monitoring wells
are installed at properties in order to determine impacts to groundwater
from recognized environmental conditions (such as spills and releases)
and to gain a better understanding of hydrogeologic conditions at a
property. Monitoring wells are installed at all different types of
properties. For example, monitoring wells are often installed on
residential or commercial properties that have a leaking underground
storage tank(s) (LUST) used for the storage of petroleum product.

For the purpose of this analysis, we have estimated labor and expense
costs associated with installing three shallow (20-feet deep) monitoring
wells at a property. The total cost estimate for three wells is
approximately \$13,000, or approximately \$4,300 per well. This includes
costs associated with mobilization/demobilization, drill rig and crew
labor, well materials, supervision by the environmental professional,
disposal of cuttings and development water, engineering costs, and
contingency costs. Travel-related costs (i.e., airfare, hotel, meals,
mileage, car rental, etc.) that may be incurred during well installation
activities are not included. Detailed cost estimates are presented in
Appendix III.

*Groundwater Monitoring Well Sampling*. Following the installation of
monitoring wells, groundwater samples are collected and analyzed for
various chemical constituents. The results from these analyses provide
information on the impacts of identified environmental conditions on the
groundwater associated with the property. Groundwater samples can also
be collected at properties that have existing monitoring wells.

For the purpose of this analysis, we have derived labor and expense
costs estimates associated with sampling three shallow (20 feet deep)
monitoring wells at a property. The total cost estimate for three wells
is approximately \$6,000, or approximately \$2,000 per well. This cost
includes the labor to collect the samples, the cost of the laboratory
analyses, data review, reporting, supervision, and contingency costs.
Travel-related costs (i.e., airfare, hotel, meals, mileage, car rental,
etc.) that may be incurred during well sampling activities are not
included. Detailed cost estimates are presented in Appendix III.

*Surface Soil Sampling*. Surface soil sampling is performed at
properties to determine impacts to soil from recognized environmental
conditions (such as spills and releases) at a property. For example,
soil samples are often collected and analyzed in areas adjacent to
PCB-containing transformers, hazardous waste storage areas, solid waste
disposal areas, etc. to provide information on the impacts of identified
environmental conditions on the soil associated with the property.

For the purpose of this analysis, we have derived labor and expense cost
estimates associated with collecting and analyzing three surface soil
samples at a property. The total cost estimate for three samples is
approximately \$4,200, or approximately \$1,400 per soil sample. This
cost includes the labor to collect the samples, the cost of the
laboratory analyses, data review, reporting, supervision, and
contingency costs. Travel-related costs (i.e., airfare, hotel, meals,
mileage, car rental, etc.) that may be incurred during soil sampling
activities are not included.

Detailed cost estimates are presented in Appendix III.

As discussed above, it is difficult to anticipate the level of potential
environmental sampling that might be required at a property. It is
therefore difficult to assign an incremental cost for the purposes of
this EIA. In an effort to provide a representative range of sampling
costs that might reflect a range of various sampling activities at a
range of possible properties, we have assumed the following:

-   Surface soil samples would be collected for undeveloped and
    residential properties;

-   Well installation and groundwater sampling would be required for
    commercial properties; and

-   Soil sample collection, well installation, and groundwater sampling
    would be performed on industrial sites.

In modeling this AAI regulatory option, we have assumed that a smaller
fraction of industrial properties would be affected relative to other
property types. Industrial sites are more likely, relative to other
property types, to already have some type of sampling conducted on them.

4.  *Less Stringent Alternative: The ASTM E1527-2000 Standard*

Under this option, the all appropriate inquiries standard would be the
most recent standard developed by ASTM for Phase I environmental site
assessments, the ASTM E1527-2000 standard. This alternative is
essentially no change from the base case. Only property transactions
where purchasers currently assess a property's uses and ownership using
only a transaction screen and who would switch to the AAI standard to
obtain the CERCLA liability protections would incur incremental costs.

# CHAPTER 6: Analytical Approach to Estimating Benefits

## 

Theoretically, to find the social benefits of the AAI regulation, we
compare the state of the world with and without the regulation,
identifying and then valuing the differences other than the costs of the
compliance. Here, we need to identify the direct effect of the AAI
regulation and then follow through the consequences.

According to OMB's "Circular A-4" guidance and EPA's *Guidelines for
Preparing Economic Analysis* (2000)[^23], the appropriate measure of the
benefits of a policy is the sum of individual willingness to pay (WTP)
values. WTP is the maximum amount of money an individual would pay for
an environmental improvement. In the case of AAI, this would be the
amount an individual would be willing to pay for the liability
protection offered by the rule. Unfortunately, and not surprisingly, WTP
values of this nature are unavailable. Therefore, we rely on a
qualitative discussion of the benefits of this rule.

## 6.1 Benefits After Promulgation

The AAI proposed regulation, for the vast majority of users who conduct
an assessment that complies fully with its provisions, sets standards
for meeting an essential criterion to qualify for CERCLA liability
protection that would be either unavailable or more expensive otherwise.
More specifically, this protection is unavailable to owners who comply
only with the ASTM E1527-2000, as is the case in the base case for a
majority. The effect of this liability protection is to prevent the U.S.
government from collecting funds for environmental damages and cleanups
under CERCLA in those cases in which the property owners might have been
held liable in the absence of AAI and the other statutory provisions for
obtaining the liability protections.

In addition to change in liability, the AAI regulation will result in
the collection of some measure of additional information regarding the
actual and potential environmental conditions at a property, which can
result in benefits. The benefits that accrue due the availability of
this additional information include allowing purchasers to make more
informed choices regarding property transactions which may result in
changes in a purchaser's preference for any particular property as well
as a purchaser's decision not to buy property. By helping to ensure that
adequate information on prior uses and environmental conditions is
uncovered, the regulation may be expected to result in purchasers
uncovering cases of soil and water contamination sooner than would
otherwise be the case. In turn, contamination that is uncovered and
dealt with sooner will often be less extensive, less expensive to
reverse, cause less exposure, and do less damage to human health and the
environment The changes in relative costs result in the benefit of
increased purchases of brownfields.

The direct effect of changing liability is a shift of costs between the
Superfund or other public sources of cleanup funds, and property owners
who would be liable for environmental damages without the AAI standards:
if the same sites are cleaned up no matter what the source of funds, the
change in the source of funds is only a resource transfer within the
economy, not a benefit. In other words, the benefit to a landowner of
not being held liable for the costs of environmental damages on a newly
purchased property is cancelled out from a social perspective by the
cost to taxpayers, and society as a whole should, in some sense, be
indifferent.

The change in the source of funds, however, is not the only effect of
the change in liability. Because individual prospective purchasers
themselves are by no means indifferent to the source of funds, whatever
the view of society as a whole, the risks of being held liable for
cleanups at a newly purchased site have real effects on their decisions.
Removing their liability therefore can change these decisions, resulting
in real resource savings from a social perspective.

The decisions made by prospective purchasers in response to potential
liability can be divided into two categories: effects on the number of
real estate transactions that involve brownfields or contaminated
properties, and effects on existing transactions. Reducing concerns
about liability can be expected to reduce the costs of owning certain
properties such as brownfields, and thereby increase the number of
transactions that involve such properties. Each additional transaction
would provide benefits to society equal to the difference between the
property's value to the buyer and its value to the seller, plus any
indirect and "external" benefits to society that would result from
additional cleanups, reduced pollution and blight. Of course, in
addition to these additional benefits, there are additional external or
indirect costs associated with the rule, the most obvious is the costs
associated with the clean up of brownfields. The liability protections
afforded under CERCLA to purchasers who conduct AAI and comply with
other statutory provisions may increase certain purchasers' preferences
for brownfields over previously undeveloped properties or greenfields.

The impact of the proposed AAI standards on existing transactions may
result in a change in the value of a property because of the greater
certainty regarding potential contamination. If the property is
determined to be clean as a result of the AAI then the value of the
property may increase. One way in which the relative value of a
brownfields property versus a greenfield may increase is through a
change in the insurance premiums associated with the brownfield
property, as discussed below.[^24] Although changes in the cost of
insurance premiums may not represent a net social benefit attributable
to the AAI rule, the reduction in insurance premiums does illustrate how
transaction costs for prospective property buyers may change due to
changes in environmental liabilities.

The additional liability protection afforded to prospective purchasers
who comply with the proposed AAI standards may have the effect of lowing
insurance rates. Because individual property owners cannot count on
having enough resources to pay for cleanups if they are held liable
under CERCLA, they will often protect themselves by purchasing property
insurance that includes coverage for known and potential risks. In many
cases, the insurance policies explicitly cover environmental
liabilities. In other cases, businesses have what are called
comprehensive general liability (CGL) policies, which are not intended
to cover pollution liabilities but may do so in some cases.[^25]
Insurance policies that cover pollution liabilities shift the risks of
claims for cleanups costs from the property owners to the insurance
company. This coverage comes at a cost, referred to as a premium.

The premiums are set, in a competitive market, to cover not only the
insurance company's expected payouts if its clients are held liable but
also its administrative costs (such as the costs of assessing liability
and dealing with claims). This fact has two consequences: first, as
expected payouts decline, premiums can be expected to decline as well.
Second, because the administrative costs that are built into premiums --
which include costs of litigation and estimation of risks -- are related
to the potential losses to the insurance company, there is likely to be
a reduction in administrative costs along with the premiums.

The shift in liability from the landowners to the insurance companies is
neutral from the point of view of social costs (because the reduced
liability for landowners is cancelled out by the increase for insurance
companies). Thus, reductions in the cost of insurance premiums due to
the proposed AAI rule and attributable to the expected payouts for
cleanups do not yield a net social benefit, but are merely a transfer in
costs from one sector of the economy to another. Changes in the rest of
the premiums, however, may represent benefits: by reducing the amount of
insurance needed by property owners, the AAI regulation may reduce the
resources that are currently going to the insurance industry for
insurance-related expenses other than claims.

Insurance premiums are often set at prices that exceed the expected
value of the loss that is being insured against to cover the
administrative costs of running the insurance business and to cover the
opportunity cost of the capital the insurance companies have to set
aside as a reserve against potential liabilities. Therefore, not all of
the potential reduction in insurance premiums, due to the increased
information provided as a result of the AAI rule, is a transfer, because
not all of the reduction in the cost of insurance premiums is
necessarily directly related to the change in expected liability. So,
although a substantial portion of any change in insurance premium costs
just represents a transfer (and does not yield a net social benefit),
because insurance companies base the price of environmental liability
insurance on more than the expected cost of liability (e.g., to cover
their administrative and potential litigation costs), some portion of
the reduction in payments made by property buyers to the insurance
companies represents social costs that will indeed be reduced. The
reduction in insurance costs associated with reduced administrative
costs for insurers and the reductions in the opportunity cost of capital
will constitute net social benefits.

To an unknown extent, this reduction in administrative costs to
insurance companies could be offset or reinforced by changes in
administrative costs assumed by the public sectors as a result of the
liability transfer and to the extent that these cost reductions are
off-set, the net social benefits that may be attributed to the proposed
AAI rule are reduced. However, because of the size of the public sector
compared to property owners, it can act much more risk-neutral in the
face of potential clean-up expenses. The public sector is unlikely,
therefore, to purchase insurance to help it avoid the risks of clean-up
costs and other damages when liability is transferred to it by the AAI
regulation. Thus, there is no reason to expect a direct offset to the
savings of insurance-related costs when the liability is transferred.
Nor will the public sector be likely to incur the insurance-related
costs that the private sector avoids in the transfer of liability: the
public sector has much less need to predict the expected liabilities
from each site, and so will not be likely to increase its administrative
costs for that reason.[^26] The other major insurance-related cost that
could possibly be shifted from the private to the public sector -- the
costs of litigating to ensure that payouts are not made when they are
not absolutely necessary -- would not necessarily be shifted to the
public sector either. In fact, it is not clear a priori whether the
public sector's litigation costs would rise or fall as the number of
potential targets for cost recovery were reduced by the liability
protections provided by the AAI rule.

## 6.2 Interim Period

This view would not apply during the interim period, in which the base
case practices of a large majority comply with ASTM E1527-2000. Because
the Brownfields Amendments grant liability protection during the interim
period to owners who have conducted Phase I ESA under ASTM E1527-2000,
compliance with the somewhat different AAI regulation provisions would
offer no incremental liability protection and would therefore have no
benefits. After the date specified by Congress as the end of the interim
period and the date for the promulgation of the AAI regulation,
compliance with ASTM E1527-2000 by itself will no longer provide
liability protection. Only a Phase I ESA that complies with the 10
criteria set out by the Brownfields Amendments will at that point confer
liability protection, and the interim protection provided by ASTM
E1527-2000 would lapse if it did not address all criteria.

For this reason, the benefits associated with the AAI regulation after
its promulgation are attributable to full compliance with its
provisions, rather than to the Brownfields Amendments in combination
with ASTM E1527-2000. (The costs of the AAI regulation, on the other
hand, are measured as the increment over the base case situation in
which most property owners and prospective purchasers conduct Phase I
ESAs under ASTM E1527-2000; thus, only the difference between current
costs and the costs that we project under the AAI regulation are
attributable to that regulation.)

## 6.3 Benefits from the Cleanup and Redevelopment of Brownfields

**Categorization of Benefits, Based on Literature**

As discussed above, the benefits of the AAI regulation can be divided
into two types: benefits accruing to parties to existing transactions,
and benefits related to increases in transactions that involve
brownfields. We explained in Chapter 2 that previously undeveloped
properties ("greenfields") and existing properties that may be
contaminated ("brownfields") compete within the same commercial real
estate market. Although brownfields often have the advantages of
existing infrastructure and more convenient locations, they also have
the disadvantage of greater risks of clean-up liabilities that, prior to
the AAI rule, made such properties less desirable relative to
greenfields. The AAI regulation will help reduce the potential
liabilities of purchasing a property that might be contaminated. As a
result of the regulation, brownfields and greenfields will be closer
substitutes, and therefore the number of brownfields sold, assessed,
cleaned up, and then developed is expected to increase.[^27]

This section provides a qualitative discussion of the benefits that may
be realized from brownfields redevelopment but does not focus
exclusively on social benefits. It is not possible to monetize these
benefits and therefore we rely on a qualitative discussion.

Numerous studies have documented the benefits of cleaning up and
redeveloping brownfields sites. Some of these benefits, which are
discussed in the section, include:

-   Reduction in releases of pollutants to the environment.

-   Greenspace and transportation benefits, such as reduction in use of
    greenfields for development, a resultant decrease in vehicles miles
    traveled by cars, and associated reductions in air pollution and
    traffic congestion.

-   Increase in property values and tax revenues for localities.

-   Improved quality of life.[^28]

*Environmental Benefits*

Given their industrial legacy, brownfields are stigmatized by the
perceived or known presence of contamination. Some brownfields sites are
assessed and no contamination is found at the site. Many brownfields,
however, lie abandoned and contaminated. A variety of contaminants can
be present at a site, depending on its prior use, and contamination can
involve a variety of media, such as soil, groundwater, and surface
water. Without redevelopment, contamination is likely to persist at
these sites, because no one steps forward to assess and remediate them.

Old factories, abandoned gas stations, decrepit junk and salvage yards,
and abandoned rail yards, among other brownfields, can all pose a threat
to the environment and human health as contaminated soil, groundwater,
and surface water go unassessed and unremediated. A brownfields site
that consists of an abandoned industrial factory might have soil and
surface water contamination from past chemical leaks or dumping. If
contamination and chemicals have leached into the soil, contamination
could reach groundwater, threatening drinking water supplies and human
health. An abandoned gas station might still have leaking underground
storage tanks that would not be discovered and removed if not for
assessment, cleanup, and redevelopment of the brownfields site.

Brownfields redevelopment can positively impact water quality for an
entire city or region. When development takes place on previously
undeveloped space, it is usually less dense than the development
surrounding brownfields. A less dense development leads to creation of
more impervious area, such as numerous new roads, sidewalks, and large
parking lots. One study found that an apartment building of 10 units on
one acre, such as might be built on a brownfields site, can have less
impervious surface area than six single family homes on the same
acre.[^29] More impervious surface leads to high levels of runoff,
causing sewer overflows during storm water events. These sewer
overflows, accompanied by the contamination (such as oil, antifreeze,
and road salt) from roads and parking lots, causes a decline in surface
water quality.

In addition to these benefits, redevelopment of brownfields can also
lead to reductions in air emissions, as discussed in the section below
on greenspace and transportation benefits.

*Greenspace and Transportation Benefits*

Redevelopment of brownfields can yield reduced use of open space and
transportation benefits like reduced vehicles miles traveled, which
results in reduced travel time, less congestion, and decreases in air
emissions from vehicles.

Brownfields redevelopment allows communities to reuse land that is often
located in urban centers, thus reducing the pressure to develop unused
land in outlying areas, sometimes called "greenfields." Because
brownfields properties are often located on parcels of land bounded by
roads, sidewalks, and other properties, development is much more
compact. A 2001 study by George Washington University found that for
every brownfield acre redeveloped, the same project would have required
4.5 acres on greenfields. The study analyzed redevelopment by category
and found that each brownfield acre redeveloped for industrial purposes
would have required 6.2 greenfield acres for the same use. For
commercial purposes, 2.4 acres of greenfield would have been used, and
for residential purposes, 5.6 acres would be used.[^30]

Development on brownfields instead of greenfields produces
transportation benefits, including reduced travel time and congestion
and reduced air pollutant emissions. Computer analysis of case studies
shows that average trip distances, travel times, and per capita vehicles
miles traveled are much lower for brownfields sites than for the same
type of development on greenfields sites.[^31] These differences exist
because brownfields are often located in urban centers with a variety of
uses. Therefore, residents might be able to live within a few blocks of
where they work and shop, reducing the need for automobile travel.
Greenfield development tends to be much more spread out and is not
typically pedestrian-friendly. As a result, residents must drive miles
to get to work or stores from home. Having fewer cars on the road also
leads to less traffic congestion, shortening travel times.

An added benefit of fewer vehicle miles traveled and shorter travel
times is a reduction in air emissions from automobiles. As cars travel
fewer miles, air emissions decrease, simply because the engines are not
running for the same length of time. In addition, a reduction in
congestion results in lower air emissions because less time spent idling
in traffic means reduced tailpipe emissions. Case study analysis
suggests that brownfield redevelopment can cause a decrease in NOx and
CO~2~ emissions ranging from 40 to 60 percent of the emissions
associated with greenfields development.[^32]

*Quality of Life Benefits*

Brownfields redevelopment also provides immeasurable benefits in the
form of more beautiful communities and increased access to services.
Throughout the US, brownfields are being remediated and transformed from
blighted eyesores to new businesses and government service centers,
parks and recreational areas, housing, and cultural, educational, and
community centers. Although it cannot be measured, the pride associated
with a renewed community is real.

The benefits of brownfields redevelopment are not limited to those
summarized in this section.[^33] We should note, however, that the
benefits are predicated on brownfields being cleaned up. The cleanup, in
turn, would entail some added costs. This EIA does not include an
estimate of the cost of cleanups. A qualitative discussion of the
potential costs that may result from brownfields redevelopment is
provided below.

*Potential for Increases in Costs*

In addition to the potential benefits discussed in this appendix,
increased development of brownfields would entail some added costs.
First, increased sales of brownfield sites would require increased
spending on environmental site assessments. These costs would be offset
to some degree by reductions in spending on greenfield sites. Because
previously undeveloped sites are less complex and hence time-consuming
to assess, however, the cost savings would not entirely cover the
increased costs of ESAs for brownfields. Second, to the extent that the
site assessments at brownfields revealed existing contamination, there
would be increased costs for cleanup. Assuming efficiency in the
selection of remedies, these costs would be less than the damages that
would be borne if the clean-ups were not undertaken.

# CHAPTER 7: Data Collection

## 7.1 Source for the Annual Number of ESAs

### 7.1.1 Environmental Data Resources, Inc. 

As previously stated, there are very few sources of data on the volume
of Phase I ESAs. As of the writing of this EIA, Environmental Data
Resources, Inc. (EDR) was identified as the only firm collecting Phase I
ESA industry data at the national level.

EDR has provided the data on the annual number of Phase I ESAs conducted
in the period 1997 to 2002. The annual number of ESAs is estimated with
a five percent margin of error. EDR's methodology for collecting and
estimating the annual volume of Phase I ESAs is presented in Appendix
IV. Chapter 9 presents the results of sensitivity analyses conducted to
show how sensitive our results are to assumptions made using the EDR
data.

EDR classifies Phase I ESAs by the type of property on which they are
performed. Property type indicates the use of the subject property at
the time an environmental investigation was conducted. Property
distribution by type is presented in Exhibit 7-1.

[]{#__RefHeading___Toc78864380 .anchor}Exhibit 7-1: Property
Distribution by Type

+-------------------------------------------+--------------------------+
| **Type**                                  | #### **Distribution**    |
+-------------------------------------------+--------------------------+
| Undeveloped                               | 18 %                     |
+-------------------------------------------+--------------------------+
| Residential                               | 13 %                     |
+-------------------------------------------+--------------------------+
| Commercial                                | 53 %                     |
+-------------------------------------------+--------------------------+
| Industrial                                | 16 %                     |
+-------------------------------------------+--------------------------+

> Note: Commercial properties include: commercial/office, retail,
> telecommunications,
>
> and hotel properties.
>
> Source: EDR, ICF Analysis.

We used the EDR data on the property distribution by type to estimate
the average cost of a Phase I ESA.

## 7.2 Distribution of Properties by Size

The data on the distribution of properties on which Phase I ESAs have
been performed were not available from any public source. It is not
clear whether any institution collects such data.

In developing the cost model, we therefore constructed a proxy variable
for the property distribution by size. The proxy distribution was
derived using the data on the size of brownfields properties in
approximately 200 major cities from the US Conference of Mayors
*Recycling America's Land: A National Report on Brownfields
Redevelopment.*[^34] We assumed that the size distribution of properties
on which ESAs are performed mirrors the size distribution of brownfields
sites. The property distribution by size is presented in Exhibit 7-2.

[]{#__RefHeading___Toc78864381 .anchor}Exhibit 7-2: Property
Distribution by Size

+---------------+--------------------------------------+---------------+
|               | ##### Size                           | ####          |
|               |                                      |  Distribution |
+---------------+--------------------------------------+---------------+
| Small         | \< 5 acres or \< 5,000 ft^2^         | 71 %          |
+---------------+--------------------------------------+---------------+
| Medium        | 5 -100 acres or 5,000 - 50,000 ft^2^ | 28 %          |
+---------------+--------------------------------------+---------------+
| Large         | \> 100 acres or \> 50,000 ft^2^      | 1 %           |
+---------------+--------------------------------------+---------------+

> Note: The square feet size threshold refers to structure sizes.
>
> Source: US Conference of Mayors, ICF Analysis.

## 7.3 Unit costs

### 

ICF Consulting developed unit costs for each of the eight Phase I ESA
activities and each of the four transaction screen activities discussed
in Chapter 5. These activities are consistent with the current ASTM
standards (ASTM E1527 and ASTM E1528) and include the typical activities
performed by many companies experienced with Phase I ESAs and
transaction screens.

The unit cost estimates for each activity were developed based on ICF
Consulting's extensive experience in performing Phase I ESAs and Phase
II ESAs. Input from our licensed environmental professionals (geologists
and engineers) who perform these assessments was considered in
developing the unit costs. The ICF Consulting environmental
professionals have performed hundreds of Phase I ESAs and Phase II ESAs
at properties ranging from small, undeveloped parcels of land to large,
complex industrial sites.

[]{.mark}

### 7.3.1 Estimates of Hour Burden 

This section presents the estimated hour burden for performing a Phase I
ESA and a transaction screen under the base case scenario.

#### 7.3.1.1 Estimates of Hour Burden - ASTM E1527-2000 Phase I ESA

Using the methodology presented in Section 5.6, we estimated the labor
hour burden for each ESA activity performed under the ASTM E1527-2000
standard. Our labor hour burden estimates indicate that the preparation
of the Phase I ESA report is the most labor-intensive activity, with the
estimated hour burden ranging from eight to 16 hours, depending on the
property size and type. The estimated total labor hour burden ranges
from 22 hours for small and medium undeveloped properties to 66 hours
for large industrial properties. Our estimates indicate that the labor
hour burden is more driven by a site's complexity (i.e., property type),
than by property size. The labor hour burden by property type and size
is presented in Exhibit 7-3. We also present, in Exhibit 7-4, the
estimated total labor hours spent by each labor category involved in
performing a Phase I ESA.

[]{#__RefHeading___Toc78864382 .anchor}Exhibit 7-3: ASTM E1527-2000
(Base Case) - Estimated Level of Effort in Hours, by Activity and
Property Size/Type

  ---------- -------------- -------------- --------------- ------------- --------------- --------- ------------ -------------- --------------- ---------
  **Size**   **Type**       **Interviews   **Review of     **Review of   **Review of     **Site    **Review of  **Interviews   **Preparation   **Total
                            with the       historical use  Federal and   State and Local visit**   site         with local     of Phase I ESA  Hours**
                            property       information**   State         environmental             documents,   government     report**        
                            owner(s)                       regulatory    records**                 if provided  officials**                    
                            and/or                         databases**                             by client**                                 
                            property                                                                                                           
                            managers**                                                                                                         

  Small      Undeveloped/   2              2               2             2               2         2            2              8               22
             Agricultural                                                                                                                      

             Residential    2              2               2             2               4         2            2              8               24

             Commercial     4              4               4             4               6         4            2              8               36

             Industrial     4              6               4             6               6         6            4              10              46

  Medium     Undeveloped/   2              2               2             2               2         2            2              8               22
             Agricultural                                                                                                                      

             Residential    2              2               2             2               6         2            2              10              28

             Commercial     4              4               4             4               8         4            2              10              40

             Industrial     4              6               4             6               10        6            4              12              52

  Large      Undeveloped/   2              2               2             2               4         2            2              8               24
             Agricultural                                                                                                                      

             Residential    2              2               2             2               8         2            2              12              32

             Commercial     4              4               4             6               10        6            4              14              52

             Industrial     6              6               6             6               12        8            6              16              66
  ---------- -------------- -------------- --------------- ------------- --------------- --------- ------------ -------------- --------------- ---------

Source: ICF Analysis.

Exhibit 7-4 presents the distribution of the total labor hours by labor
category and by property type and size. The distribution is derived
using the total labor hours presented in Exhibit 7-3 and assumed labor
distribution shown in Exhibit 5-1. For example, we estimated that it
takes, on average, 22 hours to perform a Phase I ESA on a small
undeveloped property. We assumed that, on average, 65 percent of that
time is spent by an environmental scientist/specialist. Therefore, the
estimated total labor hour burden for an environmental
scientist/specialist performing a Phase I ESA on a small undeveloped
property is, on average, 14 hours (22 hours \* 65% = 14.3 hours).

[]{#__RefHeading___Toc78864383 .anchor}Exhibit 7-4: Distribution of
Labor Hours, by Labor Category (under ASTM E1527-2000)

  -------------- -------------- ----------------- ----------------- ----------------- ------------------ ---------
  **Property**                  **Labor Hours**                                                          **Total
                                                                                                         Labor
                                                                                                         Hours**

  **Size**       **Type**       **Environmental   **Environmental   **Environmental   **Administrative   
                                Engineers**       Scientists/\      Engineering       Assistants**       
                                                  Specialists**     Technicians**                        

  Small          Undeveloped/   3.3               14.3              3.3               1.1                22
                 Agricultural                                                                            

                 Residential    3.6               15.6              3.6               1.2                24

                 Commercial     5.4               23.4              5.4               1.8                36

                 Industrial     6.9               29.9              6.9               2.3                46

  Medium         Undeveloped/   3.3               14.3              3.3               1.1                22
                 Agricultural                                                                            

                 Residential    4.2               18.2              4.2               1.4                28

                 Commercial     6.0               26.0              6.0               2.0                40

                 Industrial     7.8               33.8              7.8               2.6                52

  Large          Undeveloped/   3.6               15.6              3.6               1.2                24
                 Agricultural                                                                            

                 Residential    4.8               20.8              4.8               1.6                32

                 Commercial     7.8               33.8              7.8               2.6                52

                 Industrial     9.9               42.9              9.9               3.3                66
  -------------- -------------- ----------------- ----------------- ----------------- ------------------ ---------

Source: ICF Analysis.

#### 7.3.1.2 Other Sources of Hour Burden - ASTM E1527-2000 Phase I ESA

In the fall of 2003, the National Ground Water Association (NGWA)
conducted a survey of its members on the labor hour burden associated
with Phase I ESA activities. The members were asked to provide estimates
of the minimum and maximum labor hour burden to perform each Phase I ESA
activity. The Phase I activities in the NGWA survey corresponded to the
Phase I activities specified by ICF Consulting (see Chapter 5).
According to the survey instructions, minimum hour burden corresponds to
the time spent on small properties with limited history, and no obvious
sensitive use issues. Maximum hour burden is for large properties (more
than 20 acres) with complex issues (multiple and lengthy historical
uses, history of using various hazardous material, environmental
sensitivities, and the like).

ICF Consulting tabulated the survey results for the industrial
properties. Based on the survey results, the median hour burden for
performing a Phase I ESA on a small industrial property with no obvious
sensitive use issues is 32. The hour burden estimates range from eight
to 159 hours. The median hour burden for performing a Phase I ESA on a
large and complex industrial property is 84. The estimates range from 25
to 448 hours.

The NGWA survey results are comparable with the ICF estimates. The ICF
estimate of labor hour burden for small industrial properties is 46, and
the estimate for large industrial properties is 66. The ICF estimate of
hour burden for small industrial properties includes properties with no
obvious sensitive use issues as well as those with obvious sensitive use
issues. Therefore, it should be expected that the ICF estimate would be
larger than the NGWA estimate. Similarly, the ICF estimate of hour
burden for large industrial properties includes properties with no
obvious sensitive use issues as well as those with obvious sensitive use
issues. It should be then expected that the ICF estimate of hour burden
would be smaller than the NGWA estimate.

#### 7.3.1.3 Estimates of Hour Burden - Transaction Screen

### 

Using the methodology presented in Section 5.6.5.6, we estimated the
hour burden for transaction screen activities. The estimated total labor
hour burden ranges from four hours for small undeveloped properties to
14 hours for medium and large industrial properties. The labor hour
burden by property size and type is presented in Exhibit 7-5.

[]{#__RefHeading___Toc78864384 .anchor}Exhibit 7-5: Transaction Screen
(Base Case) - Estimated Level of Effort in Hours, by Activity and
Property Size/Type

+-----+---------+-----------+-------+------------+-----------+------+
| **  | *       | **Limited | *     | **         | **Pr      | **T  |
| Siz | *Type** | database  | *Site | Interviews | eparation | otal |
| e** |         | search,   | vi    | with the   | of        | Hou  |
|     |         | h         | sit** | property   | Tr        | rs** |
|     |         | istorical |       | owner(s)   | ansaction |      |
|     |         | use       |       | and/or     | Screen    |      |
|     |         | in        |       | property   | Questi    |      |
|     |         | formation |       | managers** | onnaire** |      |
|     |         | / records |       |            |           |      |
|     |         | search**  |       |            |           |      |
+-----+---------+-----------+-------+------------+-----------+------+
| Sm  | Undev   | 1         | 1     | 1          | 1         | 4    |
| all | eloped/ |           |       |            |           |      |
|     | Agric   |           |       |            |           |      |
|     | ultural |           |       |            |           |      |
|     |         |           |       |            |           |      |
|     |         |           |       |            |           |      |
|     |         |           |       |            |           |      |
|     |         |           |       |            |           |      |
+-----+---------+-----------+-------+------------+-----------+------+
|     | Resi    | 1         | 2     | 2          | 1         | 6    |
|     | dential |           |       |            |           |      |
+-----+---------+-----------+-------+------------+-----------+------+
|     | Com     | 2         | 3     | 3          | 2         | 10   |
|     | mercial |           |       |            |           |      |
+-----+---------+-----------+-------+------------+-----------+------+
|     | Ind     | 2         | 3     | 4          | 3         | 12   |
|     | ustrial |           |       |            |           |      |
+-----+---------+-----------+-------+------------+-----------+------+
| Med | Undev   | 1         | 1     | 1          | 1         | 4    |
| ium | eloped/ |           |       |            |           |      |
|     | Agric   |           |       |            |           |      |
|     | ultural |           |       |            |           |      |
|     |         |           |       |            |           |      |
|     |         |           |       |            |           |      |
|     |         |           |       |            |           |      |
|     |         |           |       |            |           |      |
+-----+---------+-----------+-------+------------+-----------+------+
|     | Resi    | 1         | 3     | 2          | 1         | 7    |
|     | dential |           |       |            |           |      |
+-----+---------+-----------+-------+------------+-----------+------+
|     | Com     | 2         | 4     | 3          | 3         | 12   |
|     | mercial |           |       |            |           |      |
+-----+---------+-----------+-------+------------+-----------+------+
|     | Ind     | 3         | 4     | 4          | 3         | 14   |
|     | ustrial |           |       |            |           |      |
+-----+---------+-----------+-------+------------+-----------+------+
| La  | Undev   | 1         | 2     | 2          | 1         | 6    |
| rge | eloped/ |           |       |            |           |      |
|     | Agric   |           |       |            |           |      |
|     | ultural |           |       |            |           |      |
|     |         |           |       |            |           |      |
|     |         |           |       |            |           |      |
|     |         |           |       |            |           |      |
|     |         |           |       |            |           |      |
+-----+---------+-----------+-------+------------+-----------+------+
|     | Resi    | 1         | 3     | 2          | 2         | 8    |
|     | dential |           |       |            |           |      |
+-----+---------+-----------+-------+------------+-----------+------+
|     | Com     | 2         | 4     | 3          | 3         | 12   |
|     | mercial |           |       |            |           |      |
+-----+---------+-----------+-------+------------+-----------+------+
|     | Ind     | 3         | 4     | 4          | 3         | 14   |
|     | ustrial |           |       |            |           |      |
+-----+---------+-----------+-------+------------+-----------+------+

Source: ICF Analysis.

### 7.3.2 Estimates of Other Direct Costs

Based on ICF Consulting's experience in conducting ESAs, we derived
estimates of ODCs incurred during the course of performing a Phase I
ESA. The estimated ODCs are presented in

Exhibit 7-6.

[]{#__RefHeading___Toc78864385 .anchor}Exhibit 7-6: ASTM E1527-2000
(Base Case) -- Estimated Other Direct Costs

+----------------------------------------+-----------------------------+
| **Property Type**                      | ####                        |
|                                        | ## Total Other Direct Costs |
+----------------------------------------+-----------------------------+
| Undeveloped / Agricultural             | \$320                       |
+----------------------------------------+-----------------------------+
| Residential                            | \$320                       |
+----------------------------------------+-----------------------------+
| Commercial                             | \$375                       |
+----------------------------------------+-----------------------------+
| Industrial                             | \$375                       |
+----------------------------------------+-----------------------------+

> Source: ICF Analysis.

As stated in Section 7.6.5.6, the ODCs for performing a transaction
screen are estimated at \$250.

### 7.3.3 Incremental Cost -- AAI Regulation

This section summarizes incremental costs under the AAI regulation. The
incremental cost was estimated using the methodology presented in
Section 5.6.

The estimated incremental hour burden by Phase I ESA activity is
presented in Exhibits 7-7 and 7-8, column four. We estimated that only a
fraction of the relevant properties would be affected by the
requirements set forth in §312.23, §312.29 and §312.31 of the proposed
regulation.

[]{#__RefHeading___Toc78864386 .anchor}Exhibit 7-7: Incremental Labor
Hour Burden under AAI Regulation - Properties Transitioning from ASTM
E1527-2000

  ------------------------------------------------------------------------------------
  **AAI Regulatory        **ESA          **Property     **Incremental   **Percent of
  Requirements**          Activity**     Type           Hour Burden**   Affected
                                         Affected**                     Properties**
  ----------------------- -------------- -------------- --------------- --------------
  Sec. 312.21 -- Results  Preparation of All            0               0%
  of inquiries by an      Phase I ESA                                   
  environmental           report                                        
  professional                                                          

  Sec. 312.23 --          Interviews     Undeveloped    1^1^            15%
  Interviews with past    with the       and                            
  and present owners,     property       Residential                    
  operators, and          owner(s),                                     
  occupants               operators, and                                
                          occupants                                     

                                         Commercial and 2 - 3^1,2^      
                                         Industrial                     
  ------------------------------------------------------------------------------------

  ----------------------- --------------- -------------- ---------- ---------
  Sec. 312.24 -- Reviews  Review of       All            0          0%
  of historical sources   historical use                            
  of information          information                               

  Sec. 312.25 -- Searches Preparation of  Undeveloped    0.5        100%
  for recorded            Phase I ESA     and                       
  environmental cleanup   report          Residential               
  liens                                                             

                                          Commercial and 1          
                                          Industrial                

  Sec. 312.26 -- Reviews  Review of       All            0          0%
  of Federal, State,      Federal and                               
  Tribal and local        state                                     
  government records      regulatory                                
                          databases and                             
                          review of state                           
                          and local                                 
                          environmental                             
                          records                                   

  Sec. 312.27 -- Visual   Site visit      All            0          0%
  inspections of the                                                
  facility and of                                                   
  adjoining properties                                              

  Sec. 312.28 --          Review of site  All            0          0%
  Specialized knowledge   documents, if                             
  or experience on the    provided by                               
  part of the defendant   client                                    

  Sec. 312.29 -- The      Preparation of  All            0.5        15%
  relationship of the     Phase I ESA                               
  purchase price to the   report                                    
  value of the property,                                            
  if the property was not                                           
  contaminated                                                      

  Sec. 312.30 -- Commonly Interviews with All            0          0%
  known or reasonably     local                                     
  ascertainable           government                                
  information about the   officials and                             
  property                preparation of                            
                          Phase I ESA                               
                          report                                    

  Sec. 312.31 -- The      Preparation of  Undeveloped    0.5        15%
  degree of obviousness   Phase I ESA     and                       
  of the presence or      report          Residential               
  likely presence of                                                
  contamination at the                                              
  property, and the                                                 
  ability to detect the                                             
  contamination by                                                  
  appropriate                                                       
  investigation                                                     

                                          Commercial and 1          
                                          Industrial                
  ----------------------- --------------- -------------- ---------- ---------

1)  Incremental hour burden per interview with owners and occupants of
    neighboring properties. The incremental hour burden would be
    incurred only at abandoned properties. We assumed that all abandoned
    sites would require at least one neighboring property interview, 40
    percent would require more than one, and 10 percent would require
    three interviews.

2)  For large abandoned industrial properties the incremental hour
    burden would be three hours.

Source: ICF Analysis.

### 

Based on our analysis, the ODCs would not increase under the AAI
regulation for the users transitioning from the ASTM E1527-2000.

[]{#__RefHeading___Toc78864387 .anchor}Exhibit 7-8: Incremental Labor
Hour Burden under AAI Regulation - Properties Transitioning from
Transaction Screen

+--------------------------+------------+------+----------+----------+
| **AAI Regulatory         | **ESA      | **   | **       | *        |
| Requirements**           | Activity** | Prop | Weighted | *Percent |
|                          |            | erty | Average  | of       |
|                          |            | Type | Inc      | Affected |
|                          |            | Af   | remental | Prop     |
|                          |            | fect | Hour     | erties** |
|                          |            | ed** | Bur      |          |
|                          |            |      | den^1^** |          |
+==========================+============+======+==========+==========+
| Sec. 312.23 --           | Interviews | All  | 0.6      | 100%     |
| Interviews with past and | with the   |      |          |          |
| present owners,          | property   |      |          |          |
| operators, and occupants | owner(s),  |      |          |          |
|                          | operators, |      |          |          |
|                          | and        |      |          |          |
|                          | occupants  |      |          |          |
+--------------------------+------------+------+----------+----------+
| Sec. 312.24 -- Reviews   | Review of  | All  | 3.7      | 100%     |
| of historical sources of | historical |      |          |          |
| information              | use        |      |          |          |
|                          | i          |      |          |          |
|                          | nformation |      |          |          |
+--------------------------+------------+------+----------+----------+
| Sec. 312.26 -- Reviews   | Review of  | All  | 5.4      | 100%     |
| of Federal, State,       | Federal    |      |          |          |
| Tribal and local         | and state  |      |          |          |
| government records       | regulatory |      |          |          |
|                          | databases  |      |          |          |
|                          | and review |      |          |          |
|                          | of state   |      |          |          |
|                          | and local  |      |          |          |
|                          | env        |      |          |          |
|                          | ironmental |      |          |          |
|                          | records    |      |          |          |
+--------------------------+------------+------+----------+----------+
| Sec. 312.27 -- Visual    | Site visit | All  | 2.9      | 100%     |
| inspections of the       |            |      |          |          |
| facility and of          |            |      |          |          |
| adjoining properties     |            |      |          |          |
+--------------------------+------------+------+----------+----------+
| Sec. 312.28 --           | Review of  | All  | 3.7      | 100%     |
| Specialized knowledge or | site       |      |          |          |
| experience on the part   | documents, |      |          |          |
| of the defendant         | if         |      |          |          |
|                          | provided   |      |          |          |
|                          | by client  |      |          |          |
+--------------------------+------------+------+----------+----------+
| Sec. 312.30 -- Commonly  | Interviews | All  | 2.3      | 100%     |
| known or reasonably      | with local |      |          |          |
| ascertainable            | government |      |          |          |
| information about the    | officials  |      |          |          |
| property                 |            |      |          |          |
+--------------------------+------------+------+----------+----------+
| Sec. 312.21 -- Results   | P          | All  | 7.9      | 100%     |
| of inquiries by an       | reparation |      |          |          |
| environmental            | of Phase I |      |          |          |
| professional             | ESA report |      |          |          |
|                          |            |      |          |          |
| Sec. 312.25 -- Searches  |            |      |          |          |
| for recorded             |            |      |          |          |
| environmental cleanup    |            |      |          |          |
| liens                    |            |      |          |          |
+--------------------------+------------+------+----------+----------+
| Sec. 312.29 -- The       |            |      |          | 15%      |
| relationship of the      |            |      |          |          |
| purchase price to the    |            |      |          |          |
| value of the property,   |            |      |          |          |
| if the property was not  |            |      |          |          |
| contaminated             |            |      |          |          |
|                          |            |      |          |          |
| Sec. 312.31 -- The       |            |      |          |          |
| degree of obviousness of |            |      |          |          |
| the presence or likely   |            |      |          |          |
| presence of              |            |      |          |          |
| contamination at the     |            |      |          |          |
| property, and the        |            |      |          |          |
| ability to detect the    |            |      |          |          |
| contamination by         |            |      |          |          |
| appropriate              |            |      |          |          |
| investigation            |            |      |          |          |
+--------------------------+------------+------+----------+----------+

1)  The weighted average incremental burden was estimated using the
    property distribution by type and size.

Source: ICF Analysis.

The users transitioning from transaction screens to Phase I ESAs would
incur additional direct costs. The ODCs would increase by \$70 for
undeveloped and residential properties, and by \$125 for commercial and
industrial properties.

[]{.mark}

### 7.3.4 Incremental Cost -- Considered Option 3

#### 

As discussed in Section 5.7, we have assumed the following sampling
activities by property type: surface soil samples would be collected for
undeveloped and residential properties; well installation and
groundwater sampling would be required for commercial properties; and
soil sample collection, well installation, and groundwater sampling
would be performed on industrial sites. Exhibit 7-9 presents our
estimates of incremental costs and affected properties based on the
assumed sampling activities.

[]{#__RefHeading___Toc78864388 .anchor}Exhibit 7-9: Sampling Incremental
Costs

+---------+------------+--------------------+--------------+----------+
| **P     | **Property | Possible Sampling  | ###### Incr  | **       |
| roperty | Size**     | Scenario           | emental Cost | Affected |
| Type**  |            |                    |              | Prop     |
|         |            |                    | (Labor costs | erties** |
|         |            |                    | and ODCs)    |          |
+=========+============+====================+==============+==========+
| Small   | Un         | Collect 3 surface  | \$4,125      | 15%      |
|         | developed/ | soil samples       |              |          |
|         | Ag         |                    |              |          |
|         | ricultural |                    |              |          |
+---------+------------+--------------------+--------------+----------+
|         | R          | Collect 3 surface  | \$4,125      | 15%      |
|         | esidential | soil samples       |              |          |
+---------+------------+--------------------+--------------+----------+
|         | Commercial | Install 3 new      | \$18,678     | 10%      |
|         |            | monitoring wells,  |              |          |
|         |            | and sample 3 new   |              |          |
|         |            | monitoring wells   |              |          |
+---------+------------+--------------------+--------------+----------+
|         | Industrial | Collect 3 surface  | \$22,803     | 5%       |
|         |            | soil samples,      |              |          |
|         |            | install 3 new      |              |          |
|         |            | monitoring wells,  |              |          |
|         |            | and sample 3 new   |              |          |
|         |            | monitoring wells   |              |          |
+---------+------------+--------------------+--------------+----------+
| Medium  | Un         | Collect 3 surface  | \$4,125      | 15%      |
|         | developed/ | soil samples       |              |          |
|         | Ag         |                    |              |          |
|         | ricultural |                    |              |          |
+---------+------------+--------------------+--------------+----------+
|         | R          | Collect 3 surface  | \$4,125      | 15%      |
|         | esidential | soil samples       |              |          |
+---------+------------+--------------------+--------------+----------+
|         | Commercial | Install 3 new      | \$18,678     | 10%      |
|         |            | monitoring wells,  |              |          |
|         |            | and sample 3 new   |              |          |
|         |            | monitoring wells   |              |          |
+---------+------------+--------------------+--------------+----------+
|         | Industrial | Collect 6 surface  | \$26,928     | 5%       |
|         |            | soil samples,      |              |          |
|         |            | install 3 new      |              |          |
|         |            | monitoring wells,  |              |          |
|         |            | sample 3 new       |              |          |
|         |            | monitoring wells,  |              |          |
|         |            | and sample 3       |              |          |
|         |            | existing wells     |              |          |
+---------+------------+--------------------+--------------+----------+
| Large   | Un         | Collect 6 surface  | \$8,250      | 15%      |
|         | developed/ | soil samples       |              |          |
|         | Ag         |                    |              |          |
|         | ricultural |                    |              |          |
+---------+------------+--------------------+--------------+----------+
|         | R          | Collect 6 surface  | \$8,250      | 15%      |
|         | esidential | soil samples       |              |          |
+---------+------------+--------------------+--------------+----------+
|         | Commercial | Collect 3 surface  | \$22,803     | 10%      |
|         |            | soil samples,      |              |          |
|         |            | install 3 new      |              |          |
|         |            | monitoring wells,  |              |          |
|         |            | and sample 3 new   |              |          |
|         |            | monitoring wells   |              |          |
+---------+------------+--------------------+--------------+----------+
|         | Industrial | Collect 6 surface  | \$26,928     | 5%       |
|         |            | soil samples,      |              |          |
|         |            | install 3 new      |              |          |
|         |            | monitoring wells,  |              |          |
|         |            | sample 3 new       |              |          |
|         |            | monitoring wells,  |              |          |
|         |            | and sample 3       |              |          |
|         |            | existing wells     |              |          |
+---------+------------+--------------------+--------------+----------+

> Note: Detailed cost estimates are presented in Appendix III.
>
> Source: ICF Analysis.

### 7.3.5 Estimates of Hourly Labor Costs

[]{.mark}

#### 7.3.5.1 Estimates of Hourly Labor Costs by Labor Category

> []{.mark}

The unit labor cost by occupation was calculated using the median
national wage rate from the Bureau of Labor Statistics (BLS) 2002
national employment and wage estimates. The BLS estimates are based on
the *Occupational Employment Statistics Survey by Occupation.*[^35] The
rates are inflated to 2003 dollars based on the BLS employment cost
index for wages and salaries in services, loaded with fringe at 39
percent (BLS average national fringe estimate) and overhead at 59
percent of total compensation.

[]{#__RefHeading___Toc78864389 .anchor}Exhibit 7-10: Unit Labor Cost, by
Labor Category

+-------------------------------------------------+--------------------+
| #### Labor Category                             | ####               |
|                                                 | Loaded Hourly Rate |
+-------------------------------------------------+--------------------+
| #### Environmental Engineers                    | \$ 67.0            |
+-------------------------------------------------+--------------------+
| Environmental Scientists and Specialists,       | \$ 51.9            |
| Including Health                                |                    |
+-------------------------------------------------+--------------------+
| Environmental Engineering Technicians           | \$ 40.2            |
+-------------------------------------------------+--------------------+
| Administrative Assistant                        | \$ 27.6            |
+-------------------------------------------------+--------------------+

Source: BLS, ICF Analysis.

#### 7.3.5.2 Weighted Average Labor Rate

The labor costs in the model were calculated using a weighted average
labor rate. To model the labor costs under the base case, the proposed
AAI regulation, and the considered regulatory option 2, we derived the
weighted average labor rate using the labor distribution presented in
Exhibit 5-1 and hourly labor rates presented in Exhibit 7-10.[^36] The
calculations are presented in the following equation:

( \$67 \* 15% ) + ( \$51.9 \* 65% ) + ( \$40.2 \* 15% ) + ( \$27.6 \* 5%
) = \$51.2

To model the labor cost under the considered option 1, the weighted
average labor rate was calculated using the labor distribution presented
in Exhibit 5-4 and hourly labor rates presented in Exhibit 7-10. The
weighted average labor rate was calculated as follows:

( \$67 \* 95% ) + ( \$27.6 \* 5% ) = \$65.0

# CHAPTER 8: Estimates of Costs

## 8.1 Base Case Estimates 

### 8.1.1 Phase I ESA

To derive the total cost of a Phase I ESA for a specific property
category (e.g., small industrial property), we first calculated the
total labor cost associated with performing a Phase I ESA. The labor
costs were calculated by multiplying the estimated total labor hours for
performing a Phase I ESA by the weighted average labor rate. The total
cost was then calculated as a sum of the total labor cost and the
estimated total direct costs. As an example of the calculations, using
the total hour burden presented in the fifth row of Exhibit 7-3 and ODCs
presented in the fifth row of Exhibit 7-6, the total cost of a Phase I
ESA performed on a small industrial property was estimated as follows:

( 46 hours \* \$51.2 ) + \$375 = \$2,730

Using the same methodology, we estimated the total cost of a Phase I ESA
for each of the property categories included in the analysis. Such
estimated cost of a Phase I ESA ranges from \$1,446 for small
undeveloped properties to \$3,754 for large industrial properties. The
unit costs by property type and size are presented in Exhibit 8-1.

To estimate the average total cost of a Phase I ESA, we first derived a
distribution of properties by property type and size. The property
distribution was derived using the EDR data on the type of properties on
which Phase I ESAs were performed in 2002 and the US Conference of
Mayors data on the size of brownfields properties. This derived
distribution of properties is presented in Exhibit 8-1, third column.
Using the property distribution and the estimated total Phase I ESA cost
by property type and size, we then calculated the average cost of a
Phase I ESA. The estimated average cost of a Phase I ESA is
approximately \$2,132. Our estimate is very close to the 2002 average
price reported by EDR of \$2,050.[^37]

[]{#__RefHeading___Toc78864390 .anchor}Exhibit 8-1: ASTM E1527-2000
(Base Case) - Estimated Unit Cost

  ------------------------------------------------------------------------------------------------
  **Size**       **Type**       **Assumed           **Total    **Total    **Total    **Total
                                Distribution^1^**   Hours**    Labor      Direct     Cost**
                                                               Cost**     Cost**     
  -------------- -------------- ------------------- ---------- ---------- ---------- -------------
  Small          Undeveloped/   12.8%               22         \$1,126    \$320      \$1,446
                 Agricultural                                                        

                 Residential    9.2%                24         \$1,229    \$320      \$1,549

                 Commercial     37.6%               36         \$1,843    \$375      \$2,218

                 Industrial     11.4%               46         \$2,355    \$375      \$2,730

  Medium         Undeveloped/   5%                  22         \$1,126    \$320      \$1,446
                 Agricultural                                                        

                 Residential    3.6%                28         \$1,433    \$320      \$1,753

                 Commercial     14.8%               40         \$2,048    \$375      \$2,423

                 Industrial     4.5%                52         \$2,662    \$375      \$3,037

  Large          Undeveloped/   0.2%                24         \$1,229    \$320      \$1,549
                 Agricultural                                                        

                 Residential    0.1%                32         \$1,638    \$320      \$1,958

                 Commercial     0.5%                52         \$2,662    \$375      \$3,037

                 Industrial     0.2%                66         \$3,379    \$375      \$3,754

  **Average ASTM                                                                     **\$2,132**
  E1527-2000**                                                                       
  **Phase I ESA                                                                      
  Cost**                                                                             
  ------------------------------------------------------------------------------------------------

1\) The assumed property distribution was derived by multiplying the
property size distribution by the property type distribution for each of
the property categories. For example, EDR estimates that 16 percent of
the properties on which a Phase I ESA was performed in 2002 were
industrial properties. Using the US Conference of Mayors data, we
estimated that 71 percent of brownfields properties are small properties
(i.e., less than 5 acres). As explained in Chapter 6, we assumed that
the size distribution of properties on which Phase I ESAs are performed
mirrors the size distribution of brownfields. Multiplying 16 percent by
71 percent, we estimated that 11.4 percent of properties on which Phase
I ESAs are performed are small industrial properties.

Source: ICF Analysis.

### 8.1.2 Transaction Screen

# 

As stated in Section 5.1, the ASTM E1527-2000 Phase I ESA standard was
established as a base case for this analysis. Transaction screens, thus,
were not considered a part of the base case. It is, however, expected
that a fraction of the property owners who, absent the AAI regulation,
would opt for a transaction screen would find the incremental cost of
the AAI Phase I ESA worth the liability protection. To properly account
for the total incremental costs under the AAI regulation, it was
necessary to derive unit costs for transaction screens performed under
the base case.

Based on the estimated labor hour burden presented in Exhibit 7-5 and
ODCs presented in Section 7.3.2, we estimated the average cost of a
transaction screen to be approximately \$726.[^38]

[]{#__RefHeading___Toc78864391 .anchor}Exhibit 8-2: Transaction Screen
(Base Case) - Estimated Unit Cost

+--------+------------+---------+---------+------+---------+--------+
| **     | **Type**   | **P     | **Tran  |      |         |        |
| Size** |            | roperty | saction |      |         |        |
|        |            | Dis     | Screen  |      |         |        |
|        |            | tributi | Cost**  |      |         |        |
|        |            | on^1^** |         |      |         |        |
+--------+------------+---------+---------+------+---------+--------+
|        |            |         | *       | **T  | **Total | *      |
|        |            |         | *Loaded | otal | Direct  | *Total |
|        |            |         | Hourly  | L    | Cost**  | Cost** |
|        |            |         | Labor   | abor |         |        |
|        |            |         | Ra      | Co   |         |        |
|        |            |         | te^2^** | st** |         |        |
+--------+------------+---------+---------+------+---------+--------+
| Small  | Un         | 12.8%   | \$51.9  | \    | \$250   | \$458  |
|        | developed/ |         |         | $208 |         |        |
|        | Ag         |         |         |      |         |        |
|        | ricultural |         |         |      |         |        |
|        |            |         |         |      |         |        |
|        |            |         |         |      |         |        |
|        |            |         |         |      |         |        |
+--------+------------+---------+---------+------+---------+--------+
|        | R          | 9.2%    | \$51.9  | \    | \$250   | \$561  |
|        | esidential |         |         | $311 |         |        |
+--------+------------+---------+---------+------+---------+--------+
|        | Commercial | 37.6%   | \$51.9  | \    | \$250   | \$769  |
|        |            |         |         | $519 |         |        |
+--------+------------+---------+---------+------+---------+--------+
|        | Industrial | 11.4%   | \$51.9  | \    | \$250   | \$873  |
|        |            |         |         | $623 |         |        |
+--------+------------+---------+---------+------+---------+--------+
| Medium | Un         | 5 %     | \$51.9  | \    | \$250   | \$458  |
|        | developed/ |         |         | $208 |         |        |
|        | Ag         |         |         |      |         |        |
|        | ricultural |         |         |      |         |        |
|        |            |         |         |      |         |        |
|        |            |         |         |      |         |        |
|        |            |         |         |      |         |        |
+--------+------------+---------+---------+------+---------+--------+
|        | R          | 3.6%    | \$51.9  | \    | \$250   | \$613  |
|        | esidential |         |         | $363 |         |        |
+--------+------------+---------+---------+------+---------+--------+
|        | Commercial | 14.8%   | \$51.9  | \    | \$250   | \$873  |
|        |            |         |         | $623 |         |        |
+--------+------------+---------+---------+------+---------+--------+
|        | Industrial | 4.5%    | \$51.9  | \    | \$250   | \$977  |
|        |            |         |         | $727 |         |        |
+--------+------------+---------+---------+------+---------+--------+
| Large  | Un         | 0.2%    | \$51.9  | \    | \$250   | \$561  |
|        | developed/ |         |         | $311 |         |        |
|        | Ag         |         |         |      |         |        |
|        | ricultural |         |         |      |         |        |
|        |            |         |         |      |         |        |
|        |            |         |         |      |         |        |
|        |            |         |         |      |         |        |
+--------+------------+---------+---------+------+---------+--------+
|        | R          | 0.1%    | \$51.9  | \    | \$250   | \$665  |
|        | esidential |         |         | $415 |         |        |
+--------+------------+---------+---------+------+---------+--------+
|        | Commercial | 0.5%    | \$51.9  | \    | \$250   | \$873  |
|        |            |         |         | $623 |         |        |
+--------+------------+---------+---------+------+---------+--------+
|        | Industrial | 0.2%    | \$51.9  | \    | \$250   | \$977  |
|        |            |         |         | $727 |         |        |
+--------+------------+---------+---------+------+---------+--------+
| **A    |            |         |         |      |         | **\    |
| verage |            |         |         |      |         | $726** |
| Trans  |            |         |         |      |         |        |
| action |            |         |         |      |         |        |
| Screen |            |         |         |      |         |        |
| Cost** |            |         |         |      |         |        |
+--------+------------+---------+---------+------+---------+--------+

1)  We assumed the same property distribution as for Phase I ESAs.

2)  We assumed that all activities are performed by an environmental
    scientist/specialist.

Note: The total labor costs were derived by multiplying the labor rate
by the total hours presented in

Exhibit 7-5.

Source: ICF Analysis.

### 8.1.3 Total Cost

### 

The total 10-year cost and the annual cost for conducting ASTM
E1527-2000 Phase I ESAs and transaction screens under the base case are
presented in Exhibit 8-3. The total and annual costs were estimated as
follows. Based on the historical Phase I ESA data, we estimated that
Phase I ESAs would continue to grow at an annual rate of three percent.
This growth rate is reflected in the annual volume of Phase I ESAs
presented in Exhibit 8-3, second column. The total annual cost of Phase
I ESAs, presented in column four, was calculated by multiplying the
estimated annual volume of Phase I ESAs by the estimated average cost of
a Phase I ESA of \$2,132. The total annual cost of transaction screens,
presented in the fifth column, was calculated by multiplying the annual
volume of transaction screens, presented in the third column, by the
estimated average cost of a transaction screen of \$726. The sum of the
annual Phase I ESA and transaction screen costs is presented in the
sixth column.

[]{.mark}

To estimate the annual cost under the base case, we first calculated the
present value of the total 10-year cost and then annualized the total
cost over the modeling period. We estimated the total cost and the
annual cost using both the three and seven percent discount rate. The
present value of the total 10-year cost, using a discount rate of three
percent, was estimated at \$5.7 billion. The total annual cost,
amortized over 10 years at a three percent discount rate, was estimated
at \$664 million. Using a discount rate of seven percent, we estimated
the total 10-year cost at \$4.8 billion and the total annual cost at
\$684 million.

It should be noted that we overestimated the present value of the total
10-year cost under the base case by including the total annual costs for
transaction screens.

[]{#__RefHeading___Toc78864392 .anchor}Exhibit 8-3: ASTM E1527-2000
(Base Case) - Estimated Total Cost

+----+-------+---------+------+---------+---------+---------+---------+
| ** | ##### |         | **T  |         |         |         |         |
| Ye | # Ann |         | otal |         |         |         |         |
| ar | ual V |         | An   |         |         |         |         |
| ** | olume |         | nual |         |         |         |         |
|    |       |         | Cost |         |         |         |         |
|    |       |         | (in  |         |         |         |         |
|    |       |         | mil  |         |         |         |         |
|    |       |         | lion |         |         |         |         |
|    |       |         | s)** |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
|    | **    | **Tran  | **P  | **Tran  | **Sum   | **Total | **Total |
|    | Phase | saction | hase | saction | of      | Cost    | Cost    |
|    | I     | Scree   | I    | Sc      | Phase I | Dis     | Disco   |
|    | E     | ns^1^** | ES   | reens** | ESAs    | counted | unted** |
|    | SAs** |         | As** |         | and     | at 3%** |         |
|    |       |         |      |         | Tran    |         | **at    |
|    |       |         |      |         | saction |         | 7%**    |
|    |       |         |      |         | Sc      |         |         |
|    |       |         |      |         | reens** |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 25    | 32,000  | \$5  | \$23.2  | \$569.1 | \$569.1 | \$569.1 |
| 04 | 6,000 |         | 45.9 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 26    | 32,000  | \$5  | \$23.2  | \$585.5 | \$568.4 | \$547.2 |
| 05 | 3,680 |         | 62.2 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 27    | 32,000  | \$5  | \$23.2  | \$602.3 | \$567.8 | \$526.1 |
| 06 | 1,590 |         | 79.1 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 27    | 32,000  | \$5  | \$23.2  | \$619.7 | \$567.1 | \$505.9 |
| 07 | 9,738 |         | 96.5 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 28    | 32,000  | \$6  | \$23.2  | \$637.6 | \$566.5 | \$486.4 |
| 08 | 8,130 |         | 14.4 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 29    | 32,000  | \$6  | \$23.2  | \$656.0 | \$565.9 | \$467.7 |
| 09 | 6,774 |         | 32.8 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 30    | 32,000  | \$6  | \$23.2  | \$675.0 | \$565.3 | \$449.8 |
| 10 | 5,677 |         | 51.8 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 31    | 32,000  | \$6  | \$23.2  | \$694.6 | \$564.7 | \$432.5 |
| 11 | 4,848 |         | 71.4 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 32    | 32,000  | \$6  | \$23.2  | \$714.7 | \$564.2 | \$416.0 |
| 12 | 4,293 |         | 91.5 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 33    | 32,000  | \$7  | \$23.2  | \$735.5 | \$563.7 | \$400.0 |
| 13 | 4,022 |         | 12.2 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| *  |       |         |      |         |         | **\$5,  | **\$4,  |
| *P |       |         |      |         |         | 662.7** | 800.7** |
| re |       |         |      |         |         |         |         |
| se |       |         |      |         |         |         |         |
| nt |       |         |      |         |         |         |         |
| V  |       |         |      |         |         |         |         |
| al |       |         |      |         |         |         |         |
| ue |       |         |      |         |         |         |         |
| of |       |         |      |         |         |         |         |
| T  |       |         |      |         |         |         |         |
| ot |       |         |      |         |         |         |         |
| al |       |         |      |         |         |         |         |
| 1  |       |         |      |         |         |         |         |
| 0- |       |         |      |         |         |         |         |
| ye |       |         |      |         |         |         |         |
| ar |       |         |      |         |         |         |         |
| Co |       |         |      |         |         |         |         |
| st |       |         |      |         |         |         |         |
| ** |       |         |      |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| ** |       |         |      |         |         | **\$    | **\$    |
| An |       |         |      |         |         | 663.8** | 683.5** |
| nu |       |         |      |         |         |         |         |
| al |       |         |      |         |         |         |         |
| Co |       |         |      |         |         |         |         |
| st |       |         |      |         |         |         |         |
| ** |       |         |      |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+

1)  As explained in Chapter 5, a fraction of prospective property
    purchasers will opt for a Phase I ESA instead of a transaction
    screen under the AAI regulation. This transitioning to Phase I ESAs
    will result in a downward shift in the annual number of transaction
    screens. Based on the available industry data, however, it appears
    that the volume of transaction screens has been decreasing at
    approximately eight percent per year in the period 1997-2001.
    Therefore, in addition to the downward shift in the annual number of
    transaction screens that can be attributed solely to the AAI
    regulation, we would expect the downward trend in the annual number
    of transaction screens to continue over the modeling period. The
    rate of decline would likely be lower than the rate of decline prior
    to the passing of the Brownfields Amendments. The rate of decline,
    however, would be difficult to estimate because we do not have
    sufficient data for the analysis. To avoid speculation, we treated
    the annual volume of transaction screens as constant over the
    modeling period. Due to our conservative approach in modeling annual
    volume of transaction screens, the estimated total annual cost is an
    overestimate.

    Source: ICF Analysis.

## 

## 8.2 Estimates under the Proposed AAI Regulation

Due to uncertainties surrounding the number of abandoned properties
subject to the AAI requirements, we estimated the distribution of
abandoned and non-abandoned properties as a range. As a result, the
estimated weighted average cost of a Phase I ESA under the proposed rule
also is presented as a range. To derive an upper bound estimate of the
weighted average cost of a Phase I ESA, we assumed that 15 percent of
all commercial properties subject to the AAI requirements are abandoned.
For a lower bound estimate, we assumed that 28 percent of all commercial
properties subject to the AAI requirements are abandoned.

### 8.2.1 Hour Burden for Conducting Interviews at Abandoned Sites

As explained in Section 5.6, the proposed rule modifies the interview
requirement for abandoned properties by requiring that only neighboring
property owners/occupants be interviewed. We estimated that the AAI
interview requirement would lead to a decrease in the total hour burden
for conducting interviews at abandoned properties relative to the base
case. The interview requirement for the rest of the properties would not
change under the proposed rule. For the ease of understanding how a
decrease in the hour burden for conducting interviews at abandoned
properties was modeled, we present the calculations of the average
incremental hour burden for conducting interviews at small undeveloped
properties.

> As presented in Exhibit 7-3, we estimated that, under the current ASTM
> standard, the hour burden for conducting interviews with the subject
> property owner, occupants, and/or operators is two hours for all small
> undeveloped properties. Under the proposed rule, the hour burden for
> conducting interviews at non-abandoned small undeveloped properties
> would not change. For abandoned properties, however, the estimated
> hour burden for conducting interviews with owner/occupants of
> neighboring properties would be one hour per interview. As presented
> in Section 5.6.5.2, we assumed that more than one interview would be
> required for 40 percent of abandoned properties. Specifically, one
> interview would be required for 60 percent of abandoned properties,
> two interviews would be required for 30 percent of abandoned
> properties, and three interviews for the remaining ten percent of
> abandoned properties. The calculation of the weighted average hour
> burden for small abandoned undeveloped properties is presented in the
> following equation:
>
> (1 hour \* 60%) + (1 hour \* 2 interviews \* 30%) + (1 hour \* 3
> interviews\* 10%) =
>
> = 1.5 hours.
>
> Under the current ASTM standard, the average hour burden for small
> abandoned undeveloped properties is two hours. Thus, the estimated
> reduction in the hour burden under the proposed AAI rule for small
> abandoned undeveloped properties would be, on average, 0.5 hours per
> Phase I ESA (2 hours -- 1.5 hours = 0.5 hours). The estimated
> reduction in the hour burden for small non-abandoned undeveloped
> properties would be zero since the proposed AAI rule imposes the same
> interview requirement as the current ASTM standard.

It is important to note that the EIA estimates the hour burden per Phase
I ESA as a weighted average hour burden (i.e., average of the estimated
hour burden for conducting a Phase I ESA at abandoned properties and the
estimated hour burden for conducting a Phase I ESA at non-abandoned
properties weighted by the assumed distribution of these two types of
properties). Assuming 15 percent of small undeveloped properties are
abandoned, we can calculate a weighted average *decrease* in the hour
burden for conducting interviews at small undeveloped properties under
the AAI rule, relative to the base case, as follows:

[]{.mark}

(0 hours \* 85%) + (0.5 hours \* 15%) ≈ 0.08 hours

Assuming 28 percent of small undeveloped properties are abandoned, the
weighted average *decrease* in the hour burden for conducting interviews
at small undeveloped properties is calculated as follows:

(0 hours \* 72%) + (0.5 hours \* 28%) = 0.14 hours

[]{.mark}

The results from the above two equations show how the distribution of
abandoned and non-abandoned properties impacts the estimated incremental
labor hour burden. Since a Phase I ESA cost is mainly driven by labor
hour burden, we can then conclude that the lower the fraction of
abandoned properties relative to non-abandoned properties, when modeling
Phase I ESA costs under the proposed rule, the higher the estimated
weighted average cost of a Phase I ESA.

### 8.2.2 Phase I ESA Cost

Based on our analysis, the cost of a Phase I ESA under the AAI
regulation would increase, on average, between \$41 and \$47. The
estimated average cost for a Phase I ESA thus ranges between \$2,174 and
\$2,179.

The parameters used in calculating the average incremental cost under
the AAI regulation are presented in Exhibits 8-4 and 8-5.

[]{#__RefHeading___Toc78864393 .anchor}Exhibit 8-4: AAI Regulation -
Estimated Unit Cost (Upper Bound)

  -----------------------------------------------------------------------------------------------------
  **Size**      **Type**       **Assumed        **Average     **Average     **Average     **Average
                               Distribution**   Incremental   Incremental   Incremental   Total
                                                Hours^1^**    Labor Cost**  Direct Cost** Incremental
                                                                                          Cost^2^**
  ------------- -------------- ---------------- ------------- ------------- ------------- -------------
  Small         Undeveloped/   12.8%            0.57          \$29.4        \$0           \$29.4
                Agricultural                                                              

                Residential    9.2%             0.57          \$29.4        \$0           \$29.4

                Commercial     37.6%            1.08          \$55.0        \$0           \$55.0

                Industrial     11.4%            1.08          \$55.0        \$0           \$55.0

  Medium        Undeveloped/   5%               0.57          \$29.4        \$0           \$29.4
                Agricultural                                                              

                Residential    3.6%             0.57          \$29.4        \$0           \$29.4

                Commercial     14.8%            1.08          \$55.0        \$0           \$55.0

                Industrial     4.5%             1.08          \$55.0        \$0           \$55.0

  Large         Undeveloped/   0.2%             0.57          \$29.4        \$0           \$29.4
                Agricultural                                                              

                Residential    0.1%             0.58          \$29.4        \$0           \$29.4

                Commercial     0.5%             1.08          \$55.0        \$0           \$55.0

                Industrial     0.2%             1.00          \$51.2        \$0           \$51.2

  **Average                                                                               **\$47**
  Incremental                                                                             
  Cost**                                                                                  

  **Average                                                                               **\$2,132**
  ASTM                                                                                    
  E1527-2000                                                                              
  Phase I ESA                                                                             
  Cost**                                                                                  

  **Average AAI                                                                           **\$2,179**
  Phase I ESA                                                                             
  Cost**                                                                                  
  -----------------------------------------------------------------------------------------------------

1\) The incremental hour burden and distribution of affected properties
by Phase I ESA activity are discussed in Section 5.6.5 and presented in
Exhibit 7-7. For the ease of understanding how the average incremental
hour burden was calculated, we present here the calculations of the
average incremental hour burden for small undeveloped properties. In
Section 8.2.1, we calculated savings of 0.08 hours per Phase I ESA under
the proposed rule. The proposed rule, however, would impose the
following hour burden: (1) 100 percent of properties would incur a
one-half hour burden for documenting the results of the search for
environmental liens and institutional controls; (2) 15 percent of
properties would incur a one-half hour burden to document the
relationship of the purchase price to the value of the property; and (3)
15 percent of properties would incur a one-half hour burden to document
the degree of obviousness of the presence or likely presence of
contamination. Incremental hour burden under the proposed rule is then
calculated as: ((0.5 hours \* 100%) + (0.5 hours \* 15%) + (0.5 hours \*
15%)) -- 0.08 hours (savings) = 0.57 hours.

2)  Assuming 15 percent of all commercial properties subject to the AAI
    requirements are abandoned.

Note: Totals do not add due to rounding.

Source: ICF Analysis.

[]{#__RefHeading___Toc78864394 .anchor}Exhibit 8-5: AAI Regulation -
Estimated Unit Cost (Lower Bound)

  -----------------------------------------------------------------------------------------------------
  **Size**      **Type**       **Assumed        **Average     **Average     **Average     **Average
                               Distribution**   Incremental   Incremental   Incremental   Total
                                                Hours**       Labor Cost**  Direct Cost** Incremental
                                                                                          Cost^1^**
  ------------- -------------- ---------------- ------------- ------------- ------------- -------------
  Small         Undeveloped/   12.8%            0.51          \$26.1        \$0           \$26.1
                Agricultural                                                              

                Residential    9.2%             0.51          \$26.1        \$0           \$26.1

                Commercial     37.6%            0.95          \$48.4        \$0           \$48.4

                Industrial     11.4%            0.95          \$48.4        \$0           \$48.4

  Medium        Undeveloped/   5%               0.51          \$26.1        \$0           \$26.1
                Agricultural                                                              

                Residential    3.6%             0.51          \$26.1        \$0           \$26.1

                Commercial     14.8%            0.95          \$48.4        \$0           \$48.4

                Industrial     4.5%             0.95          \$48.4        \$0           \$48.4

  Large         Undeveloped/   0.2%             0.51          \$26.1        \$0           \$26.1
                Agricultural                                                              

                Residential    0.1%             0.51          \$26.1        \$0           \$26.1

                Commercial     0.5%             0.95          \$48.4        \$0           \$48.4

                Industrial     0.2%             0.80          \$41.2        \$0           \$41.2

  **Average                                                                               **\$41**
  Incremental                                                                             
  Cost**                                                                                  

  **Average                                                                               **\$2,132**
  ASTM                                                                                    
  E1527-2000                                                                              
  Phase I ESA                                                                             
  Cost**                                                                                  

  **Average AAI                                                                           **\$2,174**
  Phase I ESA                                                                             
  Cost**                                                                                  
  -----------------------------------------------------------------------------------------------------

1\) Assuming 28 percent of all commercial properties subject to the AAI
requirements are abandoned.

Note: Totals do not add due to rounding.

Source: ICF Analysis.

Under the AAI regulation, the average incremental costs for the users
transitioning from transaction screens to Phase I ESAs would range
between \$1,448 and \$1,454 (\$2,174 - \$726 = \$1,448, and \$2,179 -
\$726 ≈ \$1,454; where \$726 is the estimated average cost of a
transaction screen). Although this is a relatively high incremental
cost, only a small percent of the users would be affected annually.

Number range CHAPTERWe estimated that about 97 percent of property
transactions would bear only the incremental cost of the proposed rule
relative to the ASTM E1527-2000 standard. Therefore, under the AAI
regulation, the weighted average incremental cost per ESA per property
transaction is estimated to be between \$84 and \$89 (97% \* \$41 + 3%
\* \$1,448 ≈ \$84 and 97% \* \$47 + 3% \* \$1,454 ≈ \$89).

### 8.2.3 Total Cost

The upper and lower bound of the total 10-year cost and the total annual
cost for conducting Phase I ESAs and transaction screens under the AAI
regulation are presented in Exhibits 8-6 and 8-7, respectively. As under
the base case, we assumed that the volume of Phase I ESAs, presented in
the second column of both exhibits, would grow at an annual rate of
three percent. Multiplying the annual volume of Phase I ESAs by the
average cost of \$2,179 (in Exhibit 8-6) and \$2,174 (in Exhibit 8-7),
we derived the range estimate of the annual total cost of conducting
Phase I ESAs. To estimate the total annual cost of transaction screens,
we multiplied the annual volume of transaction screens by the estimated
average cost of a transaction screen of \$726. It should be noted that
the annual total cost of Phase I ESAs are overestimated since the EPA's
Brownfields Grant recipients were included in the total volume of Phase
I ESAs. The discounted total annual cost for Phase I ESAs and
transaction screens are presented in the last two columns of Exhibits
8-6 and 8-7. The costs are estimated using a three and seven percent
discount rate.

Based on our analysis, the present value of the total 10-year cost would
range between \$5.89 billion and \$5.90 billion, assuming a three
percent annual growth rate in Phase I ESAs and a three percent discount
rate. The total annual cost, amortized over 10 years at a three percent
discount rate, would range between \$690 million and \$692 million.
Using a discount rate of seven percent, we estimated the total 10-year
cost would range between \$4.99 billion and \$5.0 billion and the total
annual cost would range from \$710.5 million to over \$712 million.

[]{#__RefHeading___Toc78864395 .anchor}Exhibit 8-6: AAI Regulation -
Estimated Total Cost (Upper Bound)

+----+-------+---------+------+---------+---------+---------+---------+
| ** | ##### |         | **T  |         |         |         |         |
| Ye | # Ann |         | otal |         |         |         |         |
| ar | ual V |         | An   |         |         |         |         |
| ** | olume |         | nual |         |         |         |         |
|    |       |         | Cost |         |         |         |         |
|    |       |         | (in  |         |         |         |         |
|    |       |         | mi   |         |         |         |         |
|    |       |         | llio |         |         |         |         |
|    |       |         | ns)^ |         |         |         |         |
|    |       |         | 1^** |         |         |         |         |
+====+=======+=========+======+=========+=========+=========+=========+
|    | **    | **Tran  | **P  | **Tran  | **Sum   | **Total | **Total |
|    | Phase | saction | hase | saction | of      | Cost    | Cost    |
|    | I     | Sc      | I    | Sc      | Phase I | Dis     | Disco   |
|    | E     | reens** | ES   | reens** | ESAs    | counted | unted** |
|    | SAs** |         | As** |         | and     | at 3%** |         |
|    |       |         |      |         | Tran    |         | **at    |
|    |       |         |      |         | saction |         | 7%**    |
|    |       |         |      |         | Sc      |         |         |
|    |       |         |      |         | reens** |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 26    | 24,320  | \$5  | \$17.6  | \$592.3 | \$592.3 | \$592.3 |
| 04 | 3,680 |         | 74.7 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 27    | 24,320  | \$5  | \$17.6  | \$609.5 | \$591.8 | \$569.7 |
| 05 | 1,590 |         | 91.9 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 27    | 24,320  | \$6  | \$17.6  | \$627.3 | \$591.3 | \$547.9 |
| 06 | 9,738 |         | 09.7 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 28    | 24,320  | \$6  | \$17.6  | \$645.6 | \$590.8 | \$527.0 |
| 07 | 8,130 |         | 28.0 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 29    | 24,320  | \$6  | \$17.6  | \$664.4 | \$590.3 | \$506.9 |
| 08 | 6,774 |         | 46.8 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 30    | 24,320  | \$6  | \$17.6  | \$683.8 | \$589.9 | \$487.6 |
| 09 | 5,677 |         | 66.2 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 31    | 24,320  | \$6  | \$17.6  | \$703.8 | \$589.4 | \$469.0 |
| 10 | 4,848 |         | 86.2 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 32    | 24,320  | \$7  | \$17.6  | \$724.4 | \$589.0 | \$451.1 |
| 11 | 4,293 |         | 06.8 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 33    | 24,320  | \$7  | \$17.6  | \$745.6 | \$588.6 | \$434.0 |
| 12 | 4,022 |         | 28.0 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 34    | 24,320  | \$7  | \$17.6  | \$767.5 | \$588.2 | \$417.4 |
| 13 | 4,043 |         | 49.8 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| *  |       |         |      |         |         | **\$5,  | \$      |
| *P |       |         |      |         |         | 901.7** | 5,002.9 |
| re |       |         |      |         |         |         |         |
| se |       |         |      |         |         |         |         |
| nt |       |         |      |         |         |         |         |
| V  |       |         |      |         |         |         |         |
| al |       |         |      |         |         |         |         |
| ue |       |         |      |         |         |         |         |
| of |       |         |      |         |         |         |         |
| T  |       |         |      |         |         |         |         |
| ot |       |         |      |         |         |         |         |
| al |       |         |      |         |         |         |         |
| 1  |       |         |      |         |         |         |         |
| 0- |       |         |      |         |         |         |         |
| ye |       |         |      |         |         |         |         |
| ar |       |         |      |         |         |         |         |
| Co |       |         |      |         |         |         |         |
| st |       |         |      |         |         |         |         |
| ** |       |         |      |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| ** |       |         |      |         |         | **\$    | **\$    |
| An |       |         |      |         |         | 691.9** | 712.3** |
| nu |       |         |      |         |         |         |         |
| al |       |         |      |         |         |         |         |
| Co |       |         |      |         |         |         |         |
| st |       |         |      |         |         |         |         |
| ** |       |         |      |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+

1)  Assuming 15 percent of all commercial properties subject to the AAI
    requirements are abandoned.

2)  Calculated as the sum of the annual number of Phase I ESAs absent
    the AAI regulation and the annual number of users switching to a
    Phase I ESA under the AAI regulation. In 2004, the annual volume of
    Phase I ESAs was calculated as: 256,000 + 7,680= 263,680.

3)  We assumed that three percent of annual Phase I ESA volume under the
    AAI regulation would be attributable to the users switching from
    transaction screens to the AAI Phase I ESA standard. The annual
    volume of transaction screens in 2004 was derived by first
    calculating the number of users who are expected to switch to the
    AAI Phase I ESA standard in 2004, and then subtracting that number
    from the annual volume of transaction screens under the base case.
    The number of users switching to the AAI Phase I ESA was calculated
    as 256,000 \* 0.03 = 7,680. The annual volume of transaction screens
    under the AAI regulation was calculated as 32,000 -- 7,680 = 24,320.
    For simplicity, we assumed that the annual volume of transaction
    screens would stay constant over the modeling period.

Source: ICF Analysis.

[]{#__RefHeading___Toc78864396 .anchor}Exhibit 8-7: AAI Regulation -
Estimated Total Cost (Lower Bound)

+----+-------+---------+------+---------+---------+---------+---------+
| ** | ##### |         | **T  |         |         |         |         |
| Ye | # Ann |         | otal |         |         |         |         |
| ar | ual V |         | An   |         |         |         |         |
| ** | olume |         | nual |         |         |         |         |
|    |       |         | Cost |         |         |         |         |
|    |       |         | (in  |         |         |         |         |
|    |       |         | mi   |         |         |         |         |
|    |       |         | llio |         |         |         |         |
|    |       |         | ns)^ |         |         |         |         |
|    |       |         | 1^** |         |         |         |         |
+====+=======+=========+======+=========+=========+=========+=========+
|    | **    | **Tran  | **P  | **Tran  | **Sum   | **Total | **Total |
|    | Phase | saction | hase | saction | of      | Cost    | Cost    |
|    | I     | Sc      | I    | Sc      | Phase I | Dis     | Disco   |
|    | E     | reens** | ES   | reens** | ESAs    | counted | unted** |
|    | SAs** |         | As** |         | and     | at 3%** |         |
|    |       |         |      |         | Tran    |         | **at    |
|    |       |         |      |         | saction |         | 7%**    |
|    |       |         |      |         | Sc      |         |         |
|    |       |         |      |         | reens** |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 26    | 24,320  | \$5  | \$17.6  | \$590.8 | \$590.8 | \$590.8 |
| 04 | 3,680 |         | 73.2 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 27    | 24,320  | \$5  | \$17.6  | \$608.0 | \$590.3 | \$568.2 |
| 05 | 1,590 |         | 90.4 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 27    | 24,320  | \$6  | \$17.6  | \$625.7 | \$589.8 | \$546.5 |
| 06 | 9,738 |         | 08.1 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 28    | 24,320  | \$6  | \$17.6  | \$644.0 | \$589.3 | \$525.7 |
| 07 | 8,130 |         | 26.3 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 29    | 24,320  | \$6  | \$17.6  | \$662.8 | \$588.9 | \$505.6 |
| 08 | 6,774 |         | 45.1 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 30    | 24,320  | \$6  | \$17.6  | \$682.1 | \$588.4 | \$486.3 |
| 09 | 5,677 |         | 64.5 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 31    | 24,320  | \$6  | \$17.6  | \$702.1 | \$588.0 | \$467.8 |
| 10 | 4,848 |         | 84.4 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 32    | 24,320  | \$7  | \$17.6  | \$722.6 | \$587.5 | \$450.0 |
| 11 | 4,293 |         | 04.9 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 33    | 24,320  | \$7  | \$17.6  | \$743.7 | \$587.1 | \$432.9 |
| 12 | 4,022 |         | 26.1 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 34    | 24,320  | \$7  | \$17.6  | \$765.5 | \$586.7 | \$416.4 |
| 13 | 4,043 |         | 47.9 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| *  |       |         |      |         |         | **\$5,  | **\$4,  |
| *P |       |         |      |         |         | 886.8** | 990.3** |
| re |       |         |      |         |         |         |         |
| se |       |         |      |         |         |         |         |
| nt |       |         |      |         |         |         |         |
| V  |       |         |      |         |         |         |         |
| al |       |         |      |         |         |         |         |
| ue |       |         |      |         |         |         |         |
| of |       |         |      |         |         |         |         |
| T  |       |         |      |         |         |         |         |
| ot |       |         |      |         |         |         |         |
| al |       |         |      |         |         |         |         |
| 1  |       |         |      |         |         |         |         |
| 0- |       |         |      |         |         |         |         |
| ye |       |         |      |         |         |         |         |
| ar |       |         |      |         |         |         |         |
| Co |       |         |      |         |         |         |         |
| st |       |         |      |         |         |         |         |
| ** |       |         |      |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| ** |       |         |      |         |         | **\$    | **\$    |
| An |       |         |      |         |         | 690.1** | 710.5** |
| nu |       |         |      |         |         |         |         |
| al |       |         |      |         |         |         |         |
| Co |       |         |      |         |         |         |         |
| st |       |         |      |         |         |         |         |
| ** |       |         |      |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+

1\) Assuming 28 percent of all commercial properties subject to the AAI
requirements are abandoned.

Source: ICF Analysis.

## 8.3 Estimates under Considered Option 1 -- Environmental Professional

Under this AAI regulatory option, all major activities would be
performed by an environmental professional, as defined by the AAI
regulation under §312.10. This option was modeled by changing the
distribution of labor. As a result of the change in the distribution of
labor, the weighted average rate increased from \$51.2 to \$65 (see
Section 7.3).

Under this AAI regulatory option, the average incremental cost would be
\$539. The average cost of a Phase I ESA would then increase to \$2,671.

[]{#__RefHeading___Toc78864397 .anchor}Exhibit 8-8: Considered Option
1 - Estimated Unit Cost

+-----+--------+--------+--------+--------+--------+--------+--------+
| **  | **     | **A    | **A    | **A    | **A    | **A    | **A    |
| Siz | Type** | ssumed | verage | verage | verage | verage | verage |
| e** |        | Di     | Incre  | Incre  | Incre  | Incre  | Total  |
|     |        | stribu | mental | mental | mental | mental | Incre  |
|     |        | tion** | H      | Wage   | Labor  | Direct | mental |
|     |        |        | ours** | Rate** | Cost** | Cost** | Cos    |
|     |        |        |        |        |        |        | t^1^** |
+=====+========+========+========+========+========+========+========+
| Sm  | Undeve | 12.8%  | 0.57   | \$13.8 | \      | \$0    | \      |
| all | loped/ |        |        |        | $341.8 |        | $341.8 |
|     | Agricu |        |        |        |        |        |        |
|     | ltural |        |        |        |        |        |        |
+-----+--------+--------+--------+--------+--------+--------+--------+
|     | Resid  | 9.2%   | 0.57   | \$13.8 | \      | \$0    | \      |
|     | ential |        |        |        | $369.4 |        | $369.4 |
+-----+--------+--------+--------+--------+--------+--------+--------+
|     | Comm   | 37.6%  | 1.08   | \$13.8 | \      | \$0    | \      |
|     | ercial |        |        |        | $568.0 |        | $568.0 |
+-----+--------+--------+--------+--------+--------+--------+--------+
|     | Indu   | 11.4%  | 1.08   | \$13.8 | \      | \$0    | \      |
|     | strial |        |        |        | $706.3 |        | $706.3 |
+-----+--------+--------+--------+--------+--------+--------+--------+
| Med | Undeve | 5%     | 0.57   | \$13.8 | \      | \$0    | \      |
| ium | loped/ |        |        |        | $341.8 |        | $341.8 |
|     | Agricu |        |        |        |        |        |        |
|     | ltural |        |        |        |        |        |        |
+-----+--------+--------+--------+--------+--------+--------+--------+
|     | Resid  | 3.6%   | 0.57   | \$13.8 | \      | \$0    | \      |
|     | ential |        |        |        | $424.8 |        | $424.8 |
+-----+--------+--------+--------+--------+--------+--------+--------+
|     | Comm   | 14.8%  | 1.08   | \$13.8 | \      | \$0    | \      |
|     | ercial |        |        |        | $623.3 |        | $623.3 |
+-----+--------+--------+--------+--------+--------+--------+--------+
|     | Indu   | 4.5%   | 1.08   | \$13.8 | \      | \$0    | \      |
|     | strial |        |        |        | $789.3 |        | $789.3 |
+-----+--------+--------+--------+--------+--------+--------+--------+
| La  | Undeve | 0.2%   | 0.57   | \$13.8 | \      | \$0    | \      |
| rge | loped/ |        |        |        | $369.4 |        | $369.4 |
|     | Agricu |        |        |        |        |        |        |
|     | ltural |        |        |        |        |        |        |
|     |        |        |        |        |        |        |        |
|     |        |        |        |        |        |        |        |
|     |        |        |        |        |        |        |        |
|     |        |        |        |        |        |        |        |
+-----+--------+--------+--------+--------+--------+--------+--------+
|     | Resid  | 0.1%   | 0.58   | \$13.8 | \      | \$0    | \      |
|     | ential |        |        |        | $480.1 |        | $480.1 |
+-----+--------+--------+--------+--------+--------+--------+--------+
|     | Comm   | 0.5%   | 1.08   | \$13.8 | \      | \$0    | \      |
|     | ercial |        |        |        | $789.3 |        | $789.3 |
+-----+--------+--------+--------+--------+--------+--------+--------+
|     | Indu   | 0.2%   | 1.00   | \$13.8 | \      | \$0    | \      |
|     | strial |        |        |        | $978.1 |        | $978.1 |
+-----+--------+--------+--------+--------+--------+--------+--------+
| **A |        |        |        |        |        |        | **\    |
| ver |        |        |        |        |        |        | $539** |
| age |        |        |        |        |        |        |        |
| In  |        |        |        |        |        |        |        |
| cre |        |        |        |        |        |        |        |
| men |        |        |        |        |        |        |        |
| tal |        |        |        |        |        |        |        |
| Cos |        |        |        |        |        |        |        |
| t** |        |        |        |        |        |        |        |
+-----+--------+--------+--------+--------+--------+--------+--------+
| **A |        |        |        |        |        |        | **\$2  |
| ver |        |        |        |        |        |        | ,132** |
| age |        |        |        |        |        |        |        |
| A   |        |        |        |        |        |        |        |
| STM |        |        |        |        |        |        |        |
| E   |        |        |        |        |        |        |        |
| 152 |        |        |        |        |        |        |        |
| 7-2 |        |        |        |        |        |        |        |
| 000 |        |        |        |        |        |        |        |
| Ph  |        |        |        |        |        |        |        |
| ase |        |        |        |        |        |        |        |
| I   |        |        |        |        |        |        |        |
| ESA |        |        |        |        |        |        |        |
| Cos |        |        |        |        |        |        |        |
| t** |        |        |        |        |        |        |        |
+-----+--------+--------+--------+--------+--------+--------+--------+
| **A |        |        |        |        |        |        | **\$2  |
| ver |        |        |        |        |        |        | ,671** |
| age |        |        |        |        |        |        |        |
| Ph  |        |        |        |        |        |        |        |
| ase |        |        |        |        |        |        |        |
| I   |        |        |        |        |        |        |        |
| ESA |        |        |        |        |        |        |        |
| C   |        |        |        |        |        |        |        |
| ost |        |        |        |        |        |        |        |
| for |        |        |        |        |        |        |        |
| AAI |        |        |        |        |        |        |        |
| Opt |        |        |        |        |        |        |        |
| ion |        |        |        |        |        |        |        |
| 1** |        |        |        |        |        |        |        |
+-----+--------+--------+--------+--------+--------+--------+--------+

1\) Assuming 15 percent of all commercial properties subject to the AAI
requirements are abandoned.

Note: Totals do not add due to rounding.

Source: ICF Analysis.

Under this regulatory option, the average incremental costs for the
users transitioning from transaction screens to Phase I ESAs would be
\$1,946 (\$2,671 - \$726 ≈ \$1,946, where \$726 is the estimated average
cost of a transaction screen).

Based on our analysis, the present value of the total 10-year cost would
be approximately \$7.2 billion, assuming a three percent annual growth
rate in Phase I ESAs and a three percent discount rate. The total annual
cost, amortized over 10 years at a three percent discount rate, was
estimated at \$844 million. Using a discount rate of seven percent, we
estimated the total 10-year cost at \$6.1 billion and the total annual
cost at \$869 million.

[]{#__RefHeading___Toc78864398 .anchor}Exhibit 8-9: Considered Option
1 - Estimated Total Cost

+----+-------+---------+------+---------+---------+---------+---------+
| ** | ##### |         | **T  |         |         |         |         |
| Ye | # Ann |         | otal |         |         |         |         |
| ar | ual V |         | An   |         |         |         |         |
| ** | olume |         | nual |         |         |         |         |
|    |       |         | Cost |         |         |         |         |
|    |       |         | (in  |         |         |         |         |
|    |       |         | mi   |         |         |         |         |
|    |       |         | llio |         |         |         |         |
|    |       |         | ns)^ |         |         |         |         |
|    |       |         | 1^** |         |         |         |         |
+====+=======+=========+======+=========+=========+=========+=========+
|    | **    | **Tran  | **P  | **Tran  | **Sum   | **Total | **Total |
|    | Phase | saction | hase | saction | of      | Cost    | Cost    |
|    | I     | Sc      | I    | Sc      | Phase I | Dis     | Disco   |
|    | E     | reens** | ES   | reens** | ESAs    | counted | unted** |
|    | SAs** |         | As** |         | and     | at 3%** |         |
|    |       |         |      |         | Tran    |         | **at    |
|    |       |         |      |         | saction |         | 7%**    |
|    |       |         |      |         | Sc      |         |         |
|    |       |         |      |         | reens** |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 26    | 24,320  | \$7  | \$17.6  | \$722.1 | \$722.1 | \$722.1 |
| 04 | 3,680 |         | 04.5 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 27    | 24,320  | \$7  | \$17.6  | \$743.2 | \$721.6 | \$694.6 |
| 05 | 1,590 |         | 25.6 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 27    | 24,320  | \$7  | \$17.6  | \$765.0 | \$721.1 | \$668.2 |
| 06 | 9,738 |         | 47.4 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 28    | 24,320  | \$7  | \$17.6  | \$787.4 | \$720.6 | \$642.8 |
| 07 | 8,130 |         | 69.8 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 29    | 24,320  | \$7  | \$17.6  | \$810.5 | \$720.1 | \$618.3 |
| 08 | 6,774 |         | 92.9 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 30    | 24,320  | \$8  | \$17.6  | \$834.3 | \$719.7 | \$594.8 |
| 09 | 5,677 |         | 16.7 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 31    | 24,320  | \$8  | \$17.6  | \$858.8 | \$719.2 | \$572.3 |
| 10 | 4,848 |         | 41.2 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 32    | 24,320  | \$8  | \$17.6  | \$884.0 | \$718.8 | \$550.5 |
| 11 | 4,293 |         | 66.4 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 33    | 24,320  | \$8  | \$17.6  | \$910.0 | \$718.4 | \$529.6 |
| 12 | 4,022 |         | 92.4 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 34    | 24,320  | \$9  | \$17.6  | \$936.8 | \$718.0 | \$509.6 |
| 13 | 4,043 |         | 19.2 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| *  |       |         |      |         |         | **\$7,  | **\$6,  |
| *P |       |         |      |         |         | 199.6** | 102.8** |
| re |       |         |      |         |         |         |         |
| se |       |         |      |         |         |         |         |
| nt |       |         |      |         |         |         |         |
| V  |       |         |      |         |         |         |         |
| al |       |         |      |         |         |         |         |
| ue |       |         |      |         |         |         |         |
| of |       |         |      |         |         |         |         |
| T  |       |         |      |         |         |         |         |
| ot |       |         |      |         |         |         |         |
| al |       |         |      |         |         |         |         |
| 1  |       |         |      |         |         |         |         |
| 0- |       |         |      |         |         |         |         |
| ye |       |         |      |         |         |         |         |
| ar |       |         |      |         |         |         |         |
| Co |       |         |      |         |         |         |         |
| st |       |         |      |         |         |         |         |
| ** |       |         |      |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| ** |       |         |      |         |         | **\$    | **\$    |
| An |       |         |      |         |         | 844.0** | 868.9** |
| nu |       |         |      |         |         |         |         |
| al |       |         |      |         |         |         |         |
| Co |       |         |      |         |         |         |         |
| st |       |         |      |         |         |         |         |
| ** |       |         |      |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+

1\) Assuming 15 percent of all commercial properties subject to the AAI
requirements are abandoned.

Source: ICF Analysis.

## 8.4 Estimates under Considered Option 2 -- Interview Requirement

Under this AAI option, the interview requirements would be the same as
under the current ASTM standard. The proposed all appropriate inquiries
would include interviews with current owners and occupants. Under the
AAI option 2, in the cases where the current owners cannot be
identified, the environmental scientist/specialist would interview past
owners, occupants, and/or operators. Locating past owners, occupants,
and/or operators would be more time consuming than locating
owner/occupants of neighboring properties, as required under the
proposed AAI regulation. As a result, the incremental labor hour burden
under this AAI option would be higher than under the proposed AAI
regulation.

The average incremental cost for a Phase I ESA would be \$54 under this
AAI regulatory option. This AAI option is more labor intensive than the
proposed regulation and therefore would result in a higher average
incremental cost. With the average incremental cost of \$54, the cost of
a Phase I ESA would increase, on average, to \$2,186. The incremental
costs by property type and size are presented in Exhibit 8-10.

[]{#__RefHeading___Toc78864399 .anchor}Exhibit 8-10: Considered Option
2 - Estimated Unit Cost

  -----------------------------------------------------------------------------------------------------
  **Size**      **Type**       **Assumed        **Average     **Average     **Average     **Average
                               Distribution**   Incremental   Incremental   Incremental   Total
                                                Hours**       Labor Cost**  Direct Cost** Incremental
                                                                                          Cost^1^**
  ------------- -------------- ---------------- ------------- ------------- ------------- -------------
  Small         Undeveloped/   12.8%            0.6           \$33.3        \$0           \$33.3
                Agricultural                                                              

                Residential    9.2%             0.6           \$33.3        \$0           \$33.3

                Commercial     37.6%            1.2           \$62.7        \$0           \$62.7

                Industrial     11.4%            1.2           \$62.7        \$0           \$62.7

  Medium        Undeveloped/   5%               0.6           \$33.3        \$0           \$33.3
                Agricultural                                                              

                Residential    3.6%             0.6           \$33.3        \$0           \$33.3

                Commercial     14.8%            1.2           \$62.7        \$0           \$62.7

                Industrial     4.5%             1.2           \$62.7        \$0           \$62.7

  Large         Undeveloped/   0.2%             0.6           \$33.3        \$0           \$33.3
                Agricultural                                                              

                Residential    0.1%             0.6           \$33.3        \$0           \$33.3

                Commercial     0.5%             1.2           \$62.7        \$0           \$62.7

                Industrial     0.2%             1.2           \$62.7        \$0           \$62.7

  **Average                                                                               **\$54**
  Incremental                                                                             
  Cost**                                                                                  

  **Average                                                                               **\$2,132**
  ASTM                                                                                    
  E1527-2000                                                                              
  Phase I ESA                                                                             
  Cost**                                                                                  

  **Average                                                                               **\$2,186**
  Phase I ESA                                                                             
  Cost for AAI                                                                            
  Option 2**                                                                              
  -----------------------------------------------------------------------------------------------------

1\) Assuming 15 percent of all commercial properties subject to the AAI
requirements are abandoned.

Note: Totals do not add due to rounding.

Source: ICF Analysis.

Under this regulatory option, the average incremental costs for the
users transitioning from transaction screens to Phase I ESAs would be
\$1,460 (\$2,186 - \$726 = \$1,460, where \$726 is the estimated average
cost of a transaction screen).

Based on our analysis, the present value of the total 10-year cost would
be approximately \$5.9 billion, assuming a three percent annual growth
rate in Phase I ESAs and a three percent discount rate. The total annual
cost, amortized over 10 years at a three percent discount rate, was
estimated at \$694 million. Using a discount rate of seven percent, we
estimated the total 10-year cost at \$5.0 billion and the total annual
cost at \$714 million.

[]{#__RefHeading___Toc78864400 .anchor}Exhibit 8-11: Considered Option
2 - Estimated Total Cost

+----+-------+---------+------+---------+---------+---------+---------+
| ** | ##### |         | **T  |         |         |         |         |
| Ye | # Ann |         | otal |         |         |         |         |
| ar | ual V |         | An   |         |         |         |         |
| ** | olume |         | nual |         |         |         |         |
|    |       |         | Cost |         |         |         |         |
|    |       |         | (in  |         |         |         |         |
|    |       |         | mi   |         |         |         |         |
|    |       |         | llio |         |         |         |         |
|    |       |         | ns)^ |         |         |         |         |
|    |       |         | 1^** |         |         |         |         |
+====+=======+=========+======+=========+=========+=========+=========+
|    | **    | **Tran  | **P  | **Tran  | **Sum   | **Total | **Total |
|    | Phase | saction | hase | saction | of      | Cost    | Cost    |
|    | I     | Sc      | I    | Sc      | Phase I | Dis     | Disco   |
|    | E     | reens** | ES   | reens** | ESAs    | counted | unted** |
|    | SAs** |         | As** |         | and     | at 3%** |         |
|    |       |         |      |         | Tran    |         | **at    |
|    |       |         |      |         | saction |         | 7%**    |
|    |       |         |      |         | Sc      |         |         |
|    |       |         |      |         | reens** |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 26    | 24,320  | \$5  | \$17.6  | \$594.0 | \$594.0 | \$594.0 |
| 04 | 3,680 |         | 76.4 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 27    | 24,320  | \$5  | \$17.6  | \$611.3 | \$593.5 | \$571.3 |
| 05 | 1,590 |         | 93.7 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 27    | 24,320  | \$6  | \$17.6  | \$629.1 | \$593.0 | \$549.5 |
| 06 | 9,738 |         | 11.5 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 28    | 24,320  | \$6  | \$17.6  | \$647.5 | \$592.5 | \$528.5 |
| 07 | 8,130 |         | 29.8 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 29    | 24,320  | \$6  | \$17.6  | \$666.4 | \$592.1 | \$508.4 |
| 08 | 6,774 |         | 48.7 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 30    | 24,320  | \$6  | \$17.6  | \$685.8 | \$591.6 | \$489.0 |
| 09 | 5,677 |         | 68.2 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 31    | 24,320  | \$6  | \$17.6  | \$705.9 | \$591.2 | \$470.4 |
| 10 | 4,848 |         | 88.2 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 32    | 24,320  | \$7  | \$17.6  | \$726.5 | \$590.7 | \$452.4 |
| 11 | 4,293 |         | 08.9 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 33    | 24,320  | \$7  | \$17.6  | \$747.8 | \$590.3 | \$435.2 |
| 12 | 4,022 |         | 30.1 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 34    | 24,320  | \$7  | \$17.6  | \$769.7 | \$589.9 | \$418.7 |
| 13 | 4,043 |         | 52.0 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| *  |       |         |      |         |         | **\$5,  | **\$5,  |
| *P |       |         |      |         |         | 918.8** | 017.4** |
| re |       |         |      |         |         |         |         |
| se |       |         |      |         |         |         |         |
| nt |       |         |      |         |         |         |         |
| V  |       |         |      |         |         |         |         |
| al |       |         |      |         |         |         |         |
| ue |       |         |      |         |         |         |         |
| of |       |         |      |         |         |         |         |
| T  |       |         |      |         |         |         |         |
| ot |       |         |      |         |         |         |         |
| al |       |         |      |         |         |         |         |
| 1  |       |         |      |         |         |         |         |
| 0- |       |         |      |         |         |         |         |
| ye |       |         |      |         |         |         |         |
| ar |       |         |      |         |         |         |         |
| Co |       |         |      |         |         |         |         |
| st |       |         |      |         |         |         |         |
| ** |       |         |      |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| ** |       |         |      |         |         | **\$    | **\$    |
| An |       |         |      |         |         | 693.9** | 714.4** |
| nu |       |         |      |         |         |         |         |
| al |       |         |      |         |         |         |         |
| Co |       |         |      |         |         |         |         |
| st |       |         |      |         |         |         |         |
| ** |       |         |      |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+

1\) Assuming 15 percent of all commercial properties subject to the AAI
requirements are abandoned.

Source: ICF Analysis.

## 8.5 Estimates under Considered Option 3 -- Limited Sampling

Under this AAI option, limited sampling would be required for properties
with perceived risk of contamination. The average incremental costs were
calculated using the estimated incremental hour burden and the
distribution of affected properties presented in Exhibit 7-7 and the
estimated incremental costs and the distribution of affected properties
presented in Exhibit 7-9.

With the limited sampling requirement, the cost of a Phase I ESA would
increase, on average, by \$1,439. Thus, the average cost of a Phase I
ESA would be \$3,571. The incremental costs by property type and size
are presented in Exhibit 8-12.

[]{#__RefHeading___Toc78864401 .anchor}Exhibit 8-12: Considered Option
3 - Estimated Unit Cost

  -----------------------------------------------------------------------------------------------------
  **Size**      **Type**       **Assumed        **Average     **Average     **Average     **Average
                               Distribution**   Incremental   Incremental   Incremental   Total
                                                Hours^1^**    Labor Cost**  Direct Cost** Incremental
                                                                                          Cost^2^**
  ------------- -------------- ---------------- ------------- ------------- ------------- -------------
  Small         Undeveloped/   12.8%            4.1           \$207.4       \$440.6       \$648.0
                Agricultural                                                              

                Residential    9.2%             4.1           \$207.4       \$440.6       \$648.0

                Commercial     37.6%            7.4           \$368.3       \$1,554.4     \$1,922.7

                Industrial     11.4%            5.4           \$270.9       \$924.1       \$1,195.0

  Medium        Undeveloped/   5%               4.1           \$207.4       \$440.6       \$648.0
                Agricultural                                                              

                Residential    3.6%             4.1           \$207.4       \$440.6       \$648.0

                Commercial     14.8%            7.4           \$368.3       \$1,554.4     \$1,922.7

                Industrial     4.5%             9.2           \$461.1       \$1,233.9     \$1,695.0

  Large         Undeveloped/   0.2%             7.6           \$385.5       \$881.2       \$1,266.7
                Agricultural                                                              

                Residential    0.1%             7.6           \$385.5       \$881.2       \$1,266.7

                Commercial     0.5%             9.7           \$487.0       \$1,848.1     \$2,335.1

                Industrial     0.2%             9.2           \$457.1       \$1,233.9     \$1,691.0

  **Average                                                                               **\$1,439**
  Incremental                                                                             
  Cost**                                                                                  

  **Average                                                                               **\$2,132**
  ASTM                                                                                    
  E1527-2000                                                                              
  Phase I ESA                                                                             
  Cost**                                                                                  

  **Average                                                                               **\$3,571**
  Phase I ESA                                                                             
  Cost for AAI                                                                            
  Option 3**                                                                              
  -----------------------------------------------------------------------------------------------------

1)  Average incremental hours are calculated using the assumed
    distribution of affected properties presented in

Exhibits 7-7 and 7-9.

2\) Assuming 15 percent of all commercial properties subject to the AAI
requirements are abandoned.

Note: Totals do not add due to rounding.

Source: ICF Analysis.

Under this regulatory option, the average incremental cost for the users
transitioning from transaction screens to Phase I ESAs would be \$2,845
(\$3,571 - \$726 = \$2,845, where \$726 is the estimated average cost of
a transaction screen).

Based on our analysis, the present value of the total 10-year cost would
be approximately \$9.6 billion, assuming a three percent annual growth
rate in Phase I ESAs and a three percent discount rate. The total annual
cost, amortized over 10 years at a three percent discount rate, was
estimated at \$1.12 billion. Using a discount rate of seven percent, we
estimated the total 10-year cost at \$8.1 billion and the total annual
cost at \$1.16 billion. The total annual cost estimates are presented in
Exhibit 8-13.

[]{#__RefHeading___Toc78864402 .anchor}Exhibit 8-13: Considered Option
3 - Estimated Total Cost

+----+-------+---------+------+---------+---------+---------+---------+
| ** | ##### |         | **T  |         |         |         |         |
| Ye | # Ann |         | otal |         |         |         |         |
| ar | ual V |         | An   |         |         |         |         |
| ** | olume |         | nual |         |         |         |         |
|    |       |         | Cost |         |         |         |         |
|    |       |         | (in  |         |         |         |         |
|    |       |         | mi   |         |         |         |         |
|    |       |         | llio |         |         |         |         |
|    |       |         | ns)^ |         |         |         |         |
|    |       |         | 1^** |         |         |         |         |
+====+=======+=========+======+=========+=========+=========+=========+
|    | **    | **Tran  | **P  | **Tran  | **Sum   | **Total | **Total |
|    | Phase | saction | hase | saction | of      | Cost    | Cost    |
|    | I     | Scree   | I    | Sc      | Phase I | Dis     | Disco   |
|    | E     | ns^1^** | ES   | reens** | ESAs    | counted | unted** |
|    | SAs** |         | As** |         | and     | at 3%** |         |
|    |       |         |      |         | Tran    |         | **at    |
|    |       |         |      |         | saction |         | 7%**    |
|    |       |         |      |         | Sc      |         |         |
|    |       |         |      |         | reens** |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 26    | 24,320  | \$9  | \$17.6  | \$959.2 | \$959.2 | \$959.2 |
| 04 | 3,680 |         | 41.6 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 27    | 24,320  | \$9  | \$17.6  | \$987.5 | \$958.7 | \$922.9 |
| 05 | 1,590 |         | 69.8 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 27    | 24,320  | \$9  | \$17.6  | \$      | \$958.2 | \$887.9 |
| 06 | 9,738 |         | 98.9 |         | 1,016.6 |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 28    | 24,320  | \    | \$17.6  | \$      | \$957.7 | \$854.3 |
| 07 | 8,130 |         | $1,0 |         | 1,046.5 |         |         |
|    |       |         | 28.9 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 29    | 24,320  | \    | \$17.6  | \$      | \$957.2 | \$821.9 |
| 08 | 6,774 |         | $1,0 |         | 1,077.4 |         |         |
|    |       |         | 59.7 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 30    | 24,320  | \    | \$17.6  | \$      | \$956.8 | \$790.8 |
| 09 | 5,677 |         | $1,0 |         | 1,109.2 |         |         |
|    |       |         | 91.5 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 31    | 24,320  | \    | \$17.6  | \$      | \$956.3 | \$760.9 |
| 10 | 4,848 |         | $1,1 |         | 1,141.9 |         |         |
|    |       |         | 24.3 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 32    | 24,320  | \    | \$17.6  | \$      | \$955.9 | \$732.1 |
| 11 | 4,293 |         | $1,1 |         | 1,175.7 |         |         |
|    |       |         | 58.0 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 33    | 24,320  | \    | \$17.6  | \$      | \$955.5 | \$704.5 |
| 12 | 4,022 |         | $1,1 |         | 1,210.4 |         |         |
|    |       |         | 92.8 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 34    | 24,320  | \    | \$17.6  | \$      | \$955.1 | \$677.8 |
| 13 | 4,043 |         | $1,2 |         | 1,246.2 |         |         |
|    |       |         | 28.5 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| *  |       |         |      |         |         | **\$9,  | **\$8,  |
| *P |       |         |      |         |         | 570.7** | 112.4** |
| re |       |         |      |         |         |         |         |
| se |       |         |      |         |         |         |         |
| nt |       |         |      |         |         |         |         |
| V  |       |         |      |         |         |         |         |
| al |       |         |      |         |         |         |         |
| ue |       |         |      |         |         |         |         |
| of |       |         |      |         |         |         |         |
| T  |       |         |      |         |         |         |         |
| ot |       |         |      |         |         |         |         |
| al |       |         |      |         |         |         |         |
| 1  |       |         |      |         |         |         |         |
| 0- |       |         |      |         |         |         |         |
| ye |       |         |      |         |         |         |         |
| ar |       |         |      |         |         |         |         |
| Co |       |         |      |         |         |         |         |
| st |       |         |      |         |         |         |         |
| ** |       |         |      |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| ** |       |         |      |         |         | **\$1,  | **\$1,  |
| An |       |         |      |         |         | 122.0** | 155.0** |
| nu |       |         |      |         |         |         |         |
| al |       |         |      |         |         |         |         |
| Co |       |         |      |         |         |         |         |
| st |       |         |      |         |         |         |         |
| ** |       |         |      |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+

1\) Assuming 15 percent of all commercial properties subject to the AAI
requirements are abandoned.

Source: ICF Analysis.

## 8.6 Estimates associated with the use of the ASTM E1527-2000 standard

Per OMB's Circular A-4 guidance (as discussed in Section 4.2), EPA must,
in this EIA, consider a less stringent option than the Agency's
preferred option. Therefore, EPA is presenting the costs associated with
the alternative of using the current ASTM E1527-2000 standard as a
regulatory option (even though it is the Agency's finding that this
option is not compliant with statutory requirements). Under this option,
the average cost of a Phase I ESA and transaction screen would be the
same as under the base case (\$2,132 and \$726, respectively). The
average cost of a Phase I ESA and transaction screen are presented in
Exhibits 8-1 and 8-2, respectively.

The property owners who, absent the AAI regulation, would opt for the
ASTM E1527-2000 Phase I ESA would incur \$0 incremental cost under this
option. The same is true for users who would opt for a transaction
screen under the base case and under the AAI regulation. It is, however,
expected that a fraction of the property owners who, absent the AAI
regulation, would opt for a transaction screen would find the
incremental cost of the ASTM E1527-2000 Phase I ESA worth the liability
protection. Those users would incur the incremental cost of, on average,
\$1,407 (\$2,132 - \$726 ≈ \$1,407).

Based on our analysis, the present value of the total 10-year cost would
be approximately \$5.8 billion under the option of using the ASTM
E1527-2000 standard, assuming a three percent annual growth rate in
Phase I ESAs and a three percent discount rate. The total annual cost,
amortized over 10 years at a three percent discount rate, was estimated
at \$677 million. Using a discount rate of seven percent, we estimated
the total 10-year cost at \$4.9 billion and the total annual cost at
\$697 million. The total annual cost estimates are presented in Exhibit
8-14.

[]{#__RefHeading___Toc78864403 .anchor}Exhibit 8-14: Option Using ASTM
E1527-2000- Estimated Total Cost

+----+-------+---------+------+---------+---------+---------+---------+
| ** | ##### |         | **T  |         |         |         |         |
| Ye | # Ann |         | otal |         |         |         |         |
| ar | ual V |         | An   |         |         |         |         |
| ** | olume |         | nual |         |         |         |         |
|    |       |         | Cost |         |         |         |         |
|    |       |         | (in  |         |         |         |         |
|    |       |         | mi   |         |         |         |         |
|    |       |         | llio |         |         |         |         |
|    |       |         | ns)^ |         |         |         |         |
|    |       |         | 1^** |         |         |         |         |
+====+=======+=========+======+=========+=========+=========+=========+
|    | **    | **Tran  | **P  | **Tran  | **Sum   | **Total | **Total |
|    | Phase | saction | hase | saction | of      | Cost    | Cost    |
|    | I     | Sc      | I    | Sc      | Phase I | Dis     | Disco   |
|    | E     | reens** | ES   | reens** | ESAs    | counted | unted** |
|    | SAs** |         | As** |         | and     | at 3%** |         |
|    |       |         |      |         | Tran    |         | **at    |
|    |       |         |      |         | saction |         | 7%**    |
|    |       |         |      |         | Sc      |         |         |
|    |       |         |      |         | reens** |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 26    | 24,320  | \$5  | \$17.6  | \$579.9 | \$579.9 | \$579.9 |
| 04 | 3,680 |         | 62.2 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 27    | 24,320  | \$5  | \$17.6  | \$596.8 | \$579.4 | \$557.7 |
| 05 | 1,590 |         | 79.1 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 27    | 24,320  | \$5  | \$17.6  | \$614.1 | \$578.9 | \$536.4 |
| 06 | 9,738 |         | 96.5 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 28    | 24,320  | \$6  | \$17.6  | \$632.0 | \$578.4 | \$515.9 |
| 07 | 8,130 |         | 14.4 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 29    | 24,320  | \$6  | \$17.6  | \$650.5 | \$577.9 | \$496.2 |
| 08 | 6,774 |         | 32.8 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 30    | 24,320  | \$6  | \$17.6  | \$669.4 | \$577.5 | \$477.3 |
| 09 | 5,677 |         | 51.8 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 31    | 24,320  | \$6  | \$17.6  | \$689.0 | \$577.0 | \$459.1 |
| 10 | 4,848 |         | 71.4 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 32    | 24,320  | \$6  | \$17.6  | \$709.1 | \$576.6 | \$441.6 |
| 11 | 4,293 |         | 91.5 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 33    | 24,320  | \$7  | \$17.6  | \$729.9 | \$576.2 | \$424.8 |
| 12 | 4,022 |         | 12.2 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| 20 | 34    | 24,320  | \$7  | \$17.6  | \$751.2 | \$575.8 | \$408.6 |
| 13 | 4,043 |         | 33.6 |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| *  |       |         |      |         |         | **\$5,  | **\$4,  |
| *P |       |         |      |         |         | 777.5** | 897.6** |
| re |       |         |      |         |         |         |         |
| se |       |         |      |         |         |         |         |
| nt |       |         |      |         |         |         |         |
| V  |       |         |      |         |         |         |         |
| al |       |         |      |         |         |         |         |
| ue |       |         |      |         |         |         |         |
| of |       |         |      |         |         |         |         |
| T  |       |         |      |         |         |         |         |
| ot |       |         |      |         |         |         |         |
| al |       |         |      |         |         |         |         |
| 1  |       |         |      |         |         |         |         |
| 0- |       |         |      |         |         |         |         |
| ye |       |         |      |         |         |         |         |
| ar |       |         |      |         |         |         |         |
| Co |       |         |      |         |         |         |         |
| st |       |         |      |         |         |         |         |
| ** |       |         |      |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+
| ** |       |         |      |         |         | **\$    | **\$    |
| An |       |         |      |         |         | 677.3** | 697.3** |
| nu |       |         |      |         |         |         |         |
| al |       |         |      |         |         |         |         |
| Co |       |         |      |         |         |         |         |
| st |       |         |      |         |         |         |         |
| ** |       |         |      |         |         |         |         |
+----+-------+---------+------+---------+---------+---------+---------+

1\) Assuming 15 percent of all commercial properties subject to the AAI
requirements are abandoned.

Source: ICF Analysis.

## 8.7 Summary of Annual Cost Estimates 

Exhibits 8-15 and 8-16 summarize the total annual costs for the base
case, the proposed AAI regulation, and the AAI regulatory options
calculated using a discount rate of three and seven percent,
respectively. The Exhibits also present the total annual incremental
costs relative to the base case.

[]{#__RefHeading___Toc78864404 .anchor}Exhibit 8-15: Summary of Annual
Cost Estimates (in millions), Discounted at Three Percent

  --------------- --------- ------------- --------- --------- ----------- --------------
                  **Base    Proposed AAI  **AAI     **AAI     **AAI       **ASTM
                  Case**                  Option    Option    Option 3**  E1527-2000**
                                          1**       2**                   

  **Total Annual  \$663.8   \$690.1 -     \$844.0   \$693.9   \$1,122.0   \$677.3
  Cost^1^**                 \$691.9                                       

  **Incremental   \$0       \$26.3 - \$28 \$180.2   \$30.0    \$458.1     \$13.5
  Total Annual                                                            
  Cost Relative                                                           
  to the Base                                                             
  Case**                                                                  
  --------------- --------- ------------- --------- --------- ----------- --------------

1\) Total annual cost from Exhibits 8-3, 8-6, 8-7, 8-9, 8-11, 8-13, and
8-14.

[]{#__RefHeading___Toc78864405 .anchor}Exhibit 8-16: Summary of Annual
Cost Estimates (in millions), Discounted at Seven Percent

  --------------- --------- -------------- --------- --------- ----------- --------------
                  **Base    Proposed AAI   **AAI     **AAI     **AAI       **ASTM
                  Case**                   Option    Option    Option 3**  E1527-2000**
                                           1**       2**                   

  **Total Annual  \$683.5   \$710.5 -      \$868.9   \$714.4   \$1,155.0   \$697.3
  Cost^1^**                 \$712.3                                        

  **Incremental   \$0       \$27 - \$28.8  \$185.4   \$30.8    \$471.5     \$13.8
  Total Annual                                                             
  Cost Relative                                                            
  to the Base                                                              
  Case**                                                                   
  --------------- --------- -------------- --------- --------- ----------- --------------

1\) Total annual cost from Exhibits 8-3, 8-6, 8-7, 8-9, 8-11, 8-13, and
8-14.

Based on our analysis, the incremental total annual cost of the proposed
regulation is expected to be below the major rule threshold of \$100
million. The cost estimates presented in Exhibits 8-15 and 8-16 suggest
that the estimated incremental total annual cost is not very sensitive
to the discount rate used.

The assumptions that most affect variability in the estimated total and
incremental costs

are the growth rate in real estate transactions and the fraction of
properties transitioning from transaction screens to Phase I ESAs. To
test the robustness of the cost estimates to these model assumptions, we
conducted three sensitivity analyses. Our results indicate that the
total annual and incremental cost estimates are not very sensitive to
changes in the volume of Phase I ESAs. We estimated that a five percent
increase in the volume of Phase I ESAs in 2004 would cause an
approximately five percent increase in the incremental total annual cost
under the proposed AAI regulation, relative to the base case. A complete
transition from transaction screens to Phase I ESAs, however, would have
a significant impact on the estimated cost of the proposed AAI
regulation by increasing the incremental total annual cost from \$29
million to \$74 million. Additionally, we conducted an analysis of the
sensitivity of our cost estimates to changes in the total number of
property transactions and the annual growth rate in the number of
property transactions to account for uncertainties in our estimates for
these assumptions. The results of accounting for these uncertainties is
that the "true" values of the total annual and incremental costs under
the proposed AAI regulation are within +/- 35 percent of our cost
estimates. The sensitivity analyses are presented in the next chapter.

# CHAPTER 9: Sensitivity Analyses 

The two main parameters used in this EIA for estimating the total costs
of conducting ESAs are the costs per ESA and number of ESAs per year.
The costs per ESA were derived based on the experience of ICF
professionals who have been involved in large numbers of ESAs. The cost
estimates developed by ICF were compared to industry-wide estimates of
the average cost of the ASTM Phase I ESA, including cost estimates
provided by a national trade association whose member firms conduct site
assessments, and found to agree quite well. Because the cost estimates
from two independent sources are relatively the same, we believe our
cost estimates are reliability and the quality of data is high.

The total number of ESAs performed annually was estimated using data
collected and compiled by EDR for recent years.[^39] As of the writing
of this analysis, EDR was identified as the only firm that compiles and
publishes historical data on the number of ESAs conducted annually in
the U.S. Therefore, we cannot compare the EDR historical estimates of
the number of ESAs to any other source of information to test the
validity of the data or assess the overall quality of the data. Although
we do not have other data sources to help us to assess the quality of
EDR's data on the total number of ESAs performed, we did ask EDR to
provide us with an explanation of how it collects the data. A detailed
explanation of EDR's data collection methodology is provided in Appendix
IV. We believe that EDR's data collection methodology is sound,
particularly given that EDR checks its data with trends data from
outside sources and has found that its data tracks the behavior of the
commercial real estate markets (see Appendix IV). Therefore, we believe
that EDR's data collection methodology is reliable and the quality of
the data is relatively high.

In addition to being the only data available, EDR data cover a
relatively short period of time, from 1997 through 2002. As a result, we
made a simplifying assumption that the recent growth rates in
transactions would continue over the 10-year period covered by the EIA.

Because the total 10-year costs are proportional to the number of ESAs
performed, estimating the total number of ESAs over the modeling period
with a reasonable level of precision is important. We, however,
recognize that using a single data source for estimating the number of
ESAs over time represents a shortcoming of the overall approach taken in
this EIA. We addressed this shortcoming by conducting three sensitivity
analyses.

9.1 Sensitivity Analysis 1 - Volume of Phase I ESAs

To project the annual volume of Phase I ESAs over the modeling period,
we used the EDR data on the volume of Phase I ESA.[^40] The EDR data
cover the period 1997-2002. Assuming that the volume of Phase I ESAs
would continue to grow at an annual rate of three percent, we estimated
that the volume of Phase I ESAs in 2004 would be 256,000. EDR estimates
the volume of Phase I ESAs with a five percent margin of error. It is
thus possible that our analysis underestimated the annual volume of
Phase I ESAs, and consequently the total annual cost under the base case
and the proposed AAI regulation and regulatory options.

With a five percent margin of error, the estimated number of Phase I
ESAs would be in the range of 243,200 to 268,800. We thus re-estimated
the annual costs presented in Chapter 8 assuming 268,800 Phase I ESAs
under the base case in 2004. Changing the volume of Phase I ESAs under
the base case also affected the projected volume of Phase I ESAs under
the AAI regulation and the regulatory options. As explained in Chapter
5, we estimated that three percent of the users who would conduct a
Phase I ESAs under the AAI regulation would have opted for a transaction
screen under the base case. Based on this estimate, we projected that
there would be 276,864 Phase I ESAs conducted under the AAI regulation
in 2004 (268,800 \* 1.03 = 276,864).

The results of the sensitivity analysis are presented in Exhibit 9-1.

[]{#__RefHeading___Toc78864406 .anchor}Exhibit 9-1: Annual Cost
Estimates (in millions) -- Volume of Phase I ESAs in 2004

  ---------------------------------------------------------------------------------------------------
  **Volume of   **Cost          **Base    **Proposed   **AAI     **AAI     **AAI       **ASTM
  Phase I ESAs  Estimates**     Case**    AAI**        Option    Option    Option 3**  E1527-2000**
  in 2004 under                                        1**       2**                   
  the Base                                                                             
  Case**                                                                               
  ------------- --------------- --------- ------------ --------- --------- ----------- --------------
  **256,000**   **Total Annual  \$683.5   \$712.3      \$868.9   \$714.4   \$1,155.0   \$697.3
                Cost^1^**                                                              

                **Incremental   \$0       \$28.8       \$185.4   \$30.8    \$471.5     \$13.8
                Total Annual                                                           
                Cost Relative                                                          
                to the Base                                                            
                Case^1^**                                                              

  **268,800**   **Total Annual  \$716.4   \$746.7      \$911.1   \$748.8   \$1,211.5   \$730.9
                Cost**                                                                 

                **Incremental   \$0       \$30.2       \$194.7   \$32.4    \$495.1     \$14.5
                Total Annual                                                           
                Cost Relative                                                          
                to the Base                                                            
                Case**                                                                 
  ---------------------------------------------------------------------------------------------------

Source: ICF Analysis

1\) The cost estimates are presented in Exhibit 8-16.

Notes: 1. We assumed that Phase I ESAs grow at an annual rate of three
percent.

2\. We assumed that 15 percent of all commercial properties subject to
AAI requirements are abandoned.

3\. Costs are discounted at seven percent.

The results of the sensitivity analysis indicate that a five percent
increase in the annual volume of Phase I ESAs in 2004 would cause a five
percent increase in the incremental total annual cost under the proposed
AAI regulation, relative to the base case. Similarly, a five percent
decrease in the annual volume of Phase I ESAs in 2004 would cause a five
percent decrease in the incremental total annual cost under the proposed
AAI regulation, relative to the base case. Thus, a five percent margin
of error in our estimates of the incremental total annual cost can be
attributed to the data quality.

## 9.2 Sensitivity Analysis 2 - Volume of Transaction Screens Transitioning to Phase I ESAs

Using the EDR data on the ESA industry, we have estimated that one to
three percent of the users who would conduct a Phase I ESA under the AAI
regulation would opt for a transaction screen under the base case. We
have used the upper bound of the range to estimate the total 10-year
costs presented in Chapter 8.

A FACA committee member suggested that the AAI regulation would result
in every transaction screen transitioning to a Phase I ESA to qualify
for the CERCLA liability protections. It was thus suggested that the ICF
estimate of the annual volume of properties transitioning to Phase I
ESAs is too low, and consequently, the ICF estimate of the total annual
incremental cost under the AAI regulation is too low.

The EDR data indicate that 32,000 transaction screens were performed in
2002. For simplicity, we assumed that the number of transaction screens
under the base case would stay constant over the modeling period (i.e.,
the volume of transaction screens in 2004 would be 32,000 under the base
case). Assuming that all 32,000 users would transition to Phase I ESAs
in 2004 to qualify for the CERCLA liability defense, the estimated
volume of Phase I ESAs under the AAI regulation would then increase to
288,000 (256,000 + 32,000 = 288,000).

The results of the sensitivity analysis are presented in Exhibit 9-2.

[]{#__RefHeading___Toc78864407 .anchor}Exhibit 9-2: Annual Cost
Estimates (in millions) -- Volume of Transaction Screens Transitioning
to Phase I ESAs

  ----------------------------------------------------------------------------------------------------
  **Volume of    **Cost          **Base    **Proposed   **AAI     **AAI     **AAI       **ASTM
  Phase I ESAs   Estimates**     Case**    AAI**        Option    Option    Option 3**  E1527-2000**
  in 2004 under                                         1**       2**                   
  the AAI                                                                               
  Regulation**                                                                          
  -------------- --------------- --------- ------------ --------- --------- ----------- --------------
  **263,680**    **Total Annual  \$683.5   \$712.3      \$868.9   \$714.4   \$1,155.0   \$697.3
                 Cost^1^**                                                              

                 **Incremental   \$0       \$28.8       \$185.4   \$30.8    \$471.5     \$13.8
                 Total Annual                                                           
                 Cost Relative                                                          
                 to the Base                                                            
                 Case^1^**                                                              

  **288,000**    **Total Annual  \$683.5   \$757.4      \$928.4   \$759.6   \$1,240.9   \$741.0
                 Cost**                                                                 

                 **Incremental   \$0       \$73.9       \$244.9   \$76.1    \$557.4     \$57.5
                 Total Annual                                                           
                 Cost Relative                                                          
                 to the Base                                                            
                 Case**                                                                 
  ----------------------------------------------------------------------------------------------------

1\) The cost estimates presented in Exhibit 8-16.

Notes: 1. We assumed that Phase I ESAs grow at an annual rate of three
percent.

2\. We assumed that 15 percent of all commercial properties subject to
AAI requirements are abandoned.

3\. Costs are discounted at seven percent.

Source: ICF Analysis.

The sensitivity analysis results indicate that a complete transition
from transaction screens to Phase I ESAs could increase the incremental
total annual cost of the AAI regulation to \$74 million. It should be
noted, however, that this is an unlikely scenario. The CERCLA liability
protections were available to the transaction screen users during the
past two years. The relatively high volume of transaction screens in
2002 indicates that the users did not find the cost of a Phase I ESA
worth the liability protection during the interim period. Further, our
estimates of the incremental total annual cost are overstated as we have
assumed that the volume of transaction screens would stay constant, over
the modeling period, rather than continue its downward trend.

## 9.3 Sensitivity Analysis 3 -- Variability in Property Transactions 

## 

Based on the historical data on Phase I ESAs, we assumed that the volume
of Phase I ESAs would grow annually at an average rate of three percent
over the next 10 years. The annual growth rate in Phase I ESAs is driven
by the growth rate in real estate transactions, which to a large extent
is driven by economic conditions. Due to uncertainty surrounding
economic condition in the near future and their impact on the real
estate market, the annual growth rate of Phase I ESAs could be higher or
lower than the assumed growth rate of three percent over the next
10-years.

Because forecasting the annual growth rates in Phase I ESAs and/or real
estate transactions is beyond the scope of this analysis, we used the
available data on real estate sales to construct a 95 percent confidence
interval for the total cost estimates.

In their 2004 study "An Analysis of the Determinants of Transaction
Frequency of Institutional Commercial Real Estate Investment Property,"
Fisher et al., estimated the percent of properties sold each year from
1982 through 2001.[^41] The annual percentage of properties sold varied
from 4.5 in 1992 to 17.5 in 1997.[^42] We used these annual real estate
sales data as a proxy for real estate transactions. Because the
time-series data cover a relatively long time period, encompassing both
upturns and downturns in the economy, these data are appropriate to use
for constructing a confidence interval.

To construct a confidence interval, we first calculated a 10-year moving
average of real estate sales (in percentage terms). We then calculated
the mean and standard deviation of properties sold over a 10-year
period. Our results show that the average rate of properties sold over a
given 10-year period has a mean of nine percent and a standard deviation
of approximately 1.6 percent. This means that, within the 95 percent
confidence interval, the average rate of properties sold over any given
10-year period would be +/- 35 percent of the estimated mean (or between
5.9 and 12.2 percent).

Applying this margin of error of +/-35 percent to the total 10-year
costs, we then calculated the upper and lower bound of the cost
estimates. The results are presented in Exhibit 9-3.

## 

[]{#__RefHeading___Toc78864408 .anchor}Exhibit 9-3: Annual Cost
Estimates (in millions) -- Lower and Upper Bound Estimates

+---------+----------+------+-------+-------+------+-------+-------+
|         | **Cost   | **   | **Pro | **AAI | *    | **AAI | *     |
|         | Est      | Base | posed | O     | *AAI | O     | *ASTM |
|         | imates** | Ca   | AAI** | ption | Op   | ption | E1    |
|         |          | se** |       | 1**   | tion | 3**   | 527-2 |
|         |          |      |       |       | 2**  |       | 000** |
+=========+==========+======+=======+=======+======+=======+=======+
| **Point | **Total  | \$6  | \$    | \$    | \$7  | \$1,  | \$    |
| Esti    | Annual   | 83.5 | 712.3 | 868.9 | 14.4 | 155.0 | 697.3 |
| mates** | C        |      |       |       |      |       |       |
|         | ost^1^** |      |       |       |      |       |       |
+---------+----------+------+-------+-------+------+-------+-------+
|         | **Inc    | \$0  | \     | \$    | \$   | \$    | \     |
|         | remental |      | $28.8 | 185.4 | 30.8 | 471.5 | $13.8 |
|         | Total    |      |       |       |      |       |       |
|         | Annual   |      |       |       |      |       |       |
|         | Cost     |      |       |       |      |       |       |
|         | Relative |      |       |       |      |       |       |
|         | to the   |      |       |       |      |       |       |
|         | Base     |      |       |       |      |       |       |
|         | C        |      |       |       |      |       |       |
|         | ase^1^** |      |       |       |      |       |       |
+---------+----------+------+-------+-------+------+-------+-------+
| **Lower | **Total  | \$4  | \$    | \$    | \$4  | \$    | \$    |
| and     | Annual   | 44.3 | 463.0 | 564.8 | 64.4 | 750.8 | 453.2 |
| Upper   | Cost**   |      |       |       |      |       |       |
| Bound** |          | to   | to    | to    | to   | to    | to    |
|         |          |      |       |       |      |       |       |
| **Esti  |          | \$9  | \$    | \$1,  | \$9  | \$1,  | \$    |
| mates** |          | 22.7 | 961.6 | 173.0 | 64.4 | 559.3 | 941.4 |
+---------+----------+------+-------+-------+------+-------+-------+
|         | **Inc    | \$0  | \     | \$    | \$   | \$    | \$9.0 |
|         | remental |      | $18.7 | 120.5 | 20.0 | 306.5 |       |
|         | Total    |      |       |       |      |       | to    |
|         | Annual   |      | to    | to    | to   | to    |       |
|         | Cost     |      |       |       |      |       | \     |
|         | Relative |      | \     | \$    | \$   | \$    | $18.6 |
|         | to the   |      | $38.9 | 250.3 | 41.6 | 636.5 |       |
|         | Base     |      |       |       |      |       |       |
|         | Case**   |      |       |       |      |       |       |
+---------+----------+------+-------+-------+------+-------+-------+

## 

Our results show that, although there is possibly a relatively wide
margin of error, the incremental total annual costs of the proposed AAI
rule would not exceed \$100 million.

# CHAPTER 10: Small Entity Analysis

The Regulatory Flexibility Act of 1980, as amended by the Small Business
Regulatory Enforcement Fairness Act (SBREFA), (5 U.S.C. 601-612)
requires Federal agencies to determine whether proposed regulations will
have a significant economic impact on a substantial number of small
entities, and if so, to examine effective alternatives that could reduce
the impacts. This chapter discusses the number of small entities
potentially affected by the AAI regulation and the potential impacts.
Our analysis concludes that, although substantial numbers of small
entities are likely to be affected, the cost impacts on them are very
unlikely to be significant.

We started the analysis by defining the universe of entities that could
be affected by the AAI regulation. Using the employee-size definition of
a small firm, we then estimated the number of small entities potentially
affected by the regulation. Finally, we estimated the potential cost
impacts on small entities in terms of their total annual revenues.

## 10.1 Affected Industries

As stated previously in this EIA, the AAI regulation does not apply only
to brownfields properties. The AAI regulation requirements are
applicable to any public or private party, who purchase property and
intend to claim protection from CERCLA liability, as an innocent
landowner, bona fide prospective purchaser, or contiguous property
owner, in conjunction with the property purchase. Therefore, any firm,
regardless of the nature of its operations, involved in a real estate
transaction and wanting to avail itself of protection from CERCLA
liability will be affected by the regulation. As a result, we assumed
that firms across all industries, as defined by NAICS, could potentially
be affected.

## 10.2 Definition of Small Firms

The Small Business Administration (SBA) defines a small business in
terms of annual revenues or employment size. The threshold tends to be
at least at the level of 100 employees or, where the threshold is not
defined in terms of employment, in the range of \$6 to \$30 million in
annual revenues. SBA size thresholds by industry are presented in
Exhibit 10-1.

[]{#__RefHeading___Toc78864409 .anchor}Exhibit 10-1: Small Business
Administration's Size Standard for Small Businesses by NAICS

+----------------------------+------------+-------------+-------------+
| **Industry**               | NAICS      | > **Size    | > **Size    |
|                            |            | > Standard  | > Standard  |
|                            |            | > in        | > in Number |
|                            |            | > millions  | > of        |
|                            |            | > of        | >           |
|                            |            | > dollars** | Employees** |
+============================+============+=============+=============+
| Forestry, fishing,         | 11         | \$ 0.75 -   |             |
| hunting, and agriculture   |            | \$ 6        |             |
| support                    |            |             |             |
+----------------------------+------------+-------------+-------------+
| Mining                     | 21         | \$ 6        | 500         |
+----------------------------+------------+-------------+-------------+
| Utilities                  | 22         | \$ 6 - \$   | 500         |
|                            |            | 10.5        |             |
+----------------------------+------------+-------------+-------------+
| Construction               | 23         | \$ 6 - \$   |             |
|                            |            | 28.5        |             |
+----------------------------+------------+-------------+-------------+
| Manufacturing              | 31         |             | 500-1,000   |
+----------------------------+------------+-------------+-------------+
| Wholesale trade            | 42         |             | 100         |
+----------------------------+------------+-------------+-------------+
| Retail trade               | 44         | \$ 6 - \$   |             |
|                            |            | 24.5        |             |
+----------------------------+------------+-------------+-------------+
| Transportation and         | 48         | \$ 6 - \$   | 500-1,500   |
| warehousing                |            | 23.5        |             |
+----------------------------+------------+-------------+-------------+
| Information                | 51         | \$ 6 - \$   | 500-750     |
|                            |            | 25          |             |
+----------------------------+------------+-------------+-------------+
| Finance and insurance      | 52         | \$ 6        | 1,500       |
|                            |            |             |             |
|                            |            | (\$ 150 in  |             |
|                            |            | assets)     |             |
+----------------------------+------------+-------------+-------------+
| Real estate, rental, and   | 53         | \$ 1.5 -    |             |
| leasing                    |            | \$21.5      |             |
+----------------------------+------------+-------------+-------------+
| Professional, scientific   | 54         | \$ 6 - \$   | 500-1,500   |
| and technical services     |            | 23          |             |
+----------------------------+------------+-------------+-------------+
| Management of companies    | 55         | \$ 6        |             |
| and enterprises            |            |             |             |
+----------------------------+------------+-------------+-------------+
| Administrative and         | 56         | \$ 3 - \$   | 500         |
| support, waste management  |            | 23          |             |
| and remediation services   |            |             |             |
+----------------------------+------------+-------------+-------------+
| Educational services       | 61         | \$ 6 - \$   |             |
|                            |            | 30          |             |
+----------------------------+------------+-------------+-------------+
| Health care and social     | 62         | \$ 6 - \$   |             |
| assistance                 |            | 29          |             |
+----------------------------+------------+-------------+-------------+
| Arts, entertainment, and   | 71         | \$ 6        |             |
| recreation                 |            |             |             |
+----------------------------+------------+-------------+-------------+
| Accommodation and food     | 72         | \$ 6 - \$   |             |
| services                   |            | 17.5        |             |
+----------------------------+------------+-------------+-------------+
| Other services             | 81         | \$ 6 - \$   |             |
|                            |            | 21          |             |
+----------------------------+------------+-------------+-------------+

1\) SBA does not define the threshold for auxiliaries (NAICS 95) and
unclassified establishments (NAICS 99).

Source: SBA.

When a proposed regulation has a potential of affecting all industries,
a common practice is to refer to those industries with less than 500
employees as "small".[^43] As stated in the previous section, the AAI
regulation could affect all non-residential property transactions to
some degree. It would thus be reasonable to apply the 500-employee
threshold when estimating the number of small firms potentially affected
by the AAI regulation. Our methodology is presented in the next section.

## 10.3 Size Distribution and Number of Small Firms 

As of the writing of this EIA, we were not able to identify a dataset
that indicates the number of Phase I ESAs currently conducted on an
annual basis by small businesses. Given this data deficiency, we
employed the following methodology to estimate the number of potentially
affected small entities. We first estimated the distribution of
establishments owned by small firms and showed how the distribution
varies depending on the definition of a small firm. Using the derived
distribution and the estimated annual volume of Phase I ESAs, we then
derived the number of potentially affected small firms.

The RFA and SBREFA require Federal agencies to measure the regulatory
impacts of the rule to determine whether there will be a significant
impact on a substantial number of small firms. Firms, however, may
operate at multiple physical locations. For example, most family-owned
restaurants operate at a single location, while chain restaurants have
multiple locations. Thus, the annual number of transactions per firm,
and therefore the demand for Phase I ESAs, is a function of the number
of establishments a firm owns.[^44]

Using the US Census Bureau data on employment size of firms, we first
examined the distribution of firms by employee size.[^45] The
distribution of firms is presented in Exhibit 10-2, second column. The
exhibit shows that over 99 percent of firms have less than 500
employees. The last column of the exhibit shows the average number of
establishments per firm. Firms with less than 100 employees,
approximately 98 percent of all firms, have, on average, one
establishment.

[]{#__RefHeading___Toc78864410 .anchor}Exhibit 10-2: Distribution of
Firms by Size, in Year 2001

+--------------------------+------------+-------------+----------------+
| **Employment Size**      | **Number   | > **Number  | > **Average    |
|                          | of Firms** | > of        | > Number of    |
|                          |            | > Estab     | >              |
|                          |            | lishments** | Establishments |
|                          |            |             | > per Firm**   |
+--------------------------+------------+-------------+----------------+
| Less than 100 employees  | 5,555,103  | 5,764,137   | 1              |
+--------------------------+------------+-------------+----------------+
| 100 to 499 employees     | 85,304     | 315,856     | 4              |
+--------------------------+------------+-------------+----------------+
| 500 to 1,499 employees   | 11,426     | 161,680     | 14             |
+--------------------------+------------+-------------+----------------+
| 1,500 employees or more  | 5,941      | 853,629     | 144            |
+--------------------------+------------+-------------+----------------+
| Total                    | 5,657,774  | 7,095,302   |                |
+--------------------------+------------+-------------+----------------+

Source: US Census Bureau.

Using the Census data, we then derived the distribution of
establishments by firm size where size is defined in terms of the number
of employees. The distribution of establishments by parent company
employee size is presented in Exhibit 10-3.

[]{#__RefHeading___Toc78864411 .anchor}Exhibit 10-3: Disribution of
Establishments by Firm Size, in Year 2001

+---------------------------+---------------------+--------------------+
| **Employment Size**       | > **Number of       | > **Percent of     |
|                           | > Establishments    | > Establishments   |
|                           | > Owned**           | > Owned**          |
+---------------------------+---------------------+--------------------+
| Less than 100 employees   | 5,764,137           | 81%                |
+---------------------------+---------------------+--------------------+
| 100 to 499 employees      | 315,856             | 5%                 |
+---------------------------+---------------------+--------------------+
| 500 to 1,499 employees    | 161,680             | 2%                 |
+---------------------------+---------------------+--------------------+
| 1,500 employees or more   | 853,629             | 12%                |
+---------------------------+---------------------+--------------------+
| Total                     |   ----------------  | 100%               |
|                           |   7,095,302         |                    |
|                           |                     |                    |
|                           |   ----------------  |                    |
+---------------------------+---------------------+--------------------+

Source: US Census Bureau.

To estimate the number of potentially affected small firms, we first had
to calculate the percent of establishments owned by small firms. It is
clear, however, that the distribution of establishments between small
and large firms depends on the definition of a small firm. As stated
previously, it is a common practice, when a proposed regulation has a
potential of affecting all industries, to consider all firms with less
than 500 employees as small. We have shown, however, in Exhibit 10-1
that the SBA defined employee-size definition of a small firm is not
unique across industries. It ranges from 100 employees for Wholesale
industry to 1,500 employees for Transportation and Warehousing industry.
We therefore estimated the distribution of establishments by firm size
for different definitions of a small firm using the data presented in
Exhibit 10-3. When small firms are defined as firms with less than 100
employees, small firms own 81 percent of all establishments. Similarly,
when small firms are defined to include firms with less than 500 or
1,500 employees, small firms own 86 or 88 percent of all establishments,
respectively. We have thus shown that, depending on the definition of a
small firm, the distribution of establishments owned by small firms
ranges from 81 to 88 percent.

For the purpose of this analysis, we have assumed that small entities
are equally likely to engage in commercial property transactions as
large ones.[^46] Based on this assumption and the distribution of
establishments by firm size presented in Exhibit 10-3, we estimated that
between 81 and 88 percent of all commercial property transactions
completed annually involve small firms. To estimate the number of
potentially affected small entities, we then applied the percentage of
the estimated transactions that involve small entities to the estimated
number of Phase I ESAs performed annually. For the purpose of this
analysis, we adopted a conservative approach and assumed that 88 percent
of all commercial property transactions involve small firms. As a
result, the estimated number of affected small firms is likely an
overestimate.

Using this methodology, we estimated that the AAI regulation would have
an impact on approximately 232,000 small establishments in 2004 (263,680
Phase I ESAs \* 0.88 ≈ 232,038).[^47] Based on the projected annual
growth rate of the number of Phase I ESAs, the number of potentially
affected small firms is expected to grow annually, on average, by three
percent. Therefore, the AAI regulation could potentially impact, on
average, 266,000 small firms annually over the modeling period. The
number of affected small firms, however, is an overestimate. In addition
to the argument stated in the preceding section, the estimated number of
affected small firms is not adjusted downward to account for small firms
operating at more than one physical location and therefore likely to be
involved in more than one commercial property transaction. As presented
in Exhibit 10-2, small firms with over 100 employees have, on average,
more than one establishment. In addition, not all transactions are
conducted by firms -- governments and other organizations also purchase
properties (as discussed in sections 10.5 and 10.6, below). It is thus
clear that we have overstated the impacts.

## 10.4 Cost Impact on Small Firms 

Number range CHAPTERSince all non-residential property transactions
could be affected by the AAI regulation, large numbers of small entities
could be affected to some degree. We estimated, however, that the
effects, on the whole, would be insignificant for small entities. Based
on our analysis, for the majority of small businesses, the cost of
conducting a Phase I ESA would increase, on average, between \$41 and
\$47. Number range CHAPTERFor the small percentage of cases for which a
transaction screen would have been preferred to the ASTM E1527-2000 in
the baseline, but which now would require an assessment in compliance
with the proposed regulation, the cost of conducting an ESA would
increase, on average, between \$1,448 and \$1,454. Annualizing the
incremental cost per ESA over 10 years - the average life of a firm - at
a seven percent discount rate, we estimated that for the majority of
small entities the average annual cost increase per establishment per
property transaction would be approximately \$7.[^48] Number range
CHAPTERFor the small percentage of entities transitioning from
transaction screens to Phase I ESAs, the average annual cost increase
per establishment per property transaction would be \$207. Total cost
impacts per firm are likely to be roughly proportional to the number of
establishments per firm.

The increase in annual costs per firm is likely overestimated given that
a substantial number of firms lease business space. This is especially
the case in urban areas where real estate prices tend to be higher.
Depending on the market conditions, some of the Phase I ESA costs could
be transferred by the firm that owns the property onto the firms that
are leasing the property. The more lessees per property, all other
things equal, the lower would be the average cost per lessee passed
through by the property owner.

[]{.mark}

We also estimated the cost impacts in terms of annual revenues. Based on
the Census Bureau data, the smallest annual revenue per employee for a
firm is approximately \$24,000.[^49] Therefore, even for a firm with
annual revenues of \$24,000, the average annual cost impact of \$7 would
represent less than a tenth of one percent of annual revenues.[^50] The
maximum average annual impact of \$207 would be on a small fraction of
entities transitioning from a transaction screen to a Phase I ESA. Even
an impact of that magnitude on firms with annual revenues of \$24,000
would be less than one percent of annual revenues.[^51] Thus, the cost
impact on small entities would be insignificant.[^52]

As a sensitivity analysis, we compared the estimated incremental cost to
annual revenues without annualizing the costs. Using this method for
presenting cost impacts, we estimated that an annual cost of \$47 for a
firm with annual revenues of \$24,000 would represent one-fifth of one
percent of annual revenues. For a small firm with the same annual
revenues, an annual cost of \$1,454 would represent approximately six
percent of annual revenues. The impact of such magnitude is clearly
significant. Because these costs would be very unlikely to recur in
succeeding years, however, most very small firms would be able to recoup
these costs later.

## 10.5 Cost Impact on Small Governmental Jurisdictions

### 10.5.1 Number of Small Governmental Jurisdictions

The RFA, as amended by SBREFA, requires agencies to consider the impact
of their regulatory proposals on small governmental jurisdictions. Small
governmental jurisdictions are defined as governments of cities,
counties, towns, school districts, or special districts with populations
of less than 50,000.[^53]

To estimate the number of potentially affected small governmental
jurisdictions, we used the distribution of municipal and township
governments by population size from the US Census Bureau *1997* *Census
of Government, Finance of Municipal and Township Governments.* Census
Bureau defines eight population-size groups where the smallest group
includes municipal and township governments with less than 10,000
inhabitants. Approximately 18,800 municipalities (i.e., 97 percent) have
less than 50,000 inhabitants.

[]{#__RefHeading___Toc78864412 .anchor}Exhibit 10-4: Distribution of
Governmental Jurisdictions, by Population-Size Group (1996)

+--------------------+---------------+---------------+---------------+
| **Population-Size  | **Number of   | *             | **Population  |
| Group**            | Governmental  | *Population** | D             |
|                    | Ju            |               | istribution** |
| (Number of         | risdictions** | **In 1996**   |               |
| Inhabitants)       |               |               | **(percent)** |
+--------------------+---------------+---------------+---------------+
| 300,000 or more    | 56            | 44,264,096    | 27.2          |
+--------------------+---------------+---------------+---------------+
| 200,000 to 299,999 | 24            | 5,844,541     | 3.6           |
+--------------------+---------------+---------------+---------------+
| 100,000 to 199,999 | 140           | 19,298,114    | 11.8          |
+--------------------+---------------+---------------+---------------+
| 75,000 to 99,999   | 103           | 8,804,252     | 5.4           |
+--------------------+---------------+---------------+---------------+
| 50,000 to 74,999   | 246           | 14,743,531    | 9             |
+--------------------+---------------+---------------+---------------+
| 25,000 to 49,999   | 597           | 20,696,708    | 12.7          |
+--------------------+---------------+---------------+---------------+
| 10,000 to 24,999   | 1,368         | 21,437,244    | 13.1          |
+--------------------+---------------+---------------+---------------+
| Less than 10,000   | 16,838        | 28,518,430    | 17.4          |
+--------------------+---------------+---------------+---------------+
| All Municipalities | 19,372        | 163,606,916   | 100           |
+--------------------+---------------+---------------+---------------+

Notes: Totals do not add do to rounding.

Source: US Census Bureau.

The distribution of small governmental jurisdictions by population size
is not available for jurisdictions with less than 10,000 inhabitants.
The data, however, indicate that governmental jurisdictions in this
population-size group have, on average, 1,700 inhabitants.

### 10.5.2 Number of Potentially Affected Small Governmental Jurisdictions

The AAI requirements will be applicable to any small governmental
jurisdiction that may potentially claim protection from CERCLA liability
or that receives a Federal brownfields grant. The number of potentially
affected small governmental jurisdictions will be a function of the
annual volume of real estate transactions conducted by small
governments. Information related to small governments real estate
transactions, however, are not easily available.[^54] As a result, the
total number of small governments real estate transactions was
approximated using the available data on the transactions of brownfields
properties.

The *Environmental Land Use Report*, published annually by XL Insurance,
contains data on brownfields redevelopment activities across the
US.[^55] The data are obtained through a review of newspaper and journal
articles. The report indicates that eight percent of brownfields sites
redeveloped in 2000 and 2001 were designated for public use. In 2002,
however, only three percent of redeveloped brownfields properties were
designated for public use.

Based on our estimate of the volume of Phase I ESAs under the AAI
regulation,[^56] we estimated that the annual number of real estate
transactions involving municipal and township governments could range
from 8,000 to 21,000 in 2004 (263,680 \* 3% ≈ 8,000 and 263,680 \* 8% ≈
21,000). It is reasonable to assume, however, that the annual volume of
real estate transactions is a function of the population size and
economic activity in a jurisdiction. Therefore, using the Census Bureau
data, we derived total annual revenues distribution for municipal and
township governments by population-size groups. The derived revenues
distribution is presented in Exhibit 10-5, fourth column.

[]{#__RefHeading___Toc78864413 .anchor}Exhibit 10-5: Distribution of
Municipal and Township Annual Revenues

by Population-Size Group (1996)

+--------------------+---------------+---------------+---------------+
| **Population-Size  | **Number of   | **Total       | **Total       |
| Group**            | Governmental  | Annual        | Revenues      |
|                    | Ju            | Revenues**    | Distribution  |
| **(Number of       | risdictions** |               | (             |
| Inhabitants)**     |               | **(in         | Percentage)** |
|                    |               | Millions)**   |               |
+--------------------+---------------+---------------+---------------+
| 300,000 or more    | 56            | \$137,608.7   | 48.0          |
+--------------------+---------------+---------------+---------------+
| 200,000 to 299,999 | 24            | \$9,353.7     | 3.3           |
+--------------------+---------------+---------------+---------------+
| 100,000 to 199,999 | 140           | \$29,283.5    | 10.2          |
+--------------------+---------------+---------------+---------------+
| 75,000 to 99,999   | 103           | \$12,227.2    | 4.3           |
+--------------------+---------------+---------------+---------------+
| 50,000 to 74,999   | 246           | \$18,703.7    | 6.5           |
+--------------------+---------------+---------------+---------------+
| 25,000 to 49,999   | 597           | \$25,139.4    | 8.8           |
+--------------------+---------------+---------------+---------------+
| 10,000 to 24,999   | 1,368         | \$24,994.6    | 8.7           |
+--------------------+---------------+---------------+---------------+
| Less than 10,000   | 16,838        | \$29,332.0    | 10.2          |
+--------------------+---------------+---------------+---------------+
| All Municipalities | 19,372        | \$186,642.7   | 100           |
+--------------------+---------------+---------------+---------------+

Notes: Totals do not add do to rounding.

Source: US Census Bureau.

The revenues distribution data presented in Exhibit 10-5 indicate that
approximately 28 percent of total annual revenues collected by municipal
and township governments are collected by governmental jurisdictions
with less than 50,000 inhabitants. Assuming that the volume of real
estate transactions involving small governmental jurisdictions is a
function of their annual revenues, the annual number of potentially
affected small governmental jurisdictions would not exceed 6,000 (21,000
\* 28% ≈ 6,000).

### 10.5.3 Cost Impact on Small Governmental Jurisdictions

As presented in section 8.2, we estimated that the cost of conducting a
Phase I ESA would increase, on average, between \$41 and \$47 per
transaction for cases in which a Phase I ESA would have been selected in
the base case, and between \$1,448 and \$1,454 where a transaction
screen would have been used. Annualizing the estimated incremental cost
of \$47 over 10 years at a seven percent discount rate, we estimated
that the annual cost increase per Phase I ESA, on average, would be
approximately \$7. Since \$47 represents an upper bound of the estimated
average annual cost range, some governmental jurisdictions would have
lower annual cost increase per Phase I ESA than \$7. Annualizing the
average incremental cost of \$1,454 over 10 years at a seven percent
discount rate, we estimated that the maximum annual cost increase per
ESA would be approximately \$207.

Based on the Census Bureau data on small governmental jurisdictions
finances, the average annual revenue per inhabitant for small
governmental jurisdictions is \$1,250.[^57] As stated previously, we
estimated that the governmental jurisdictions classified by Census
Bureau as having less than 10,000 people have, on average, 1,700
inhabitants. Thus, even such small governmental jurisdictions are likely
to have annual revenues of over \$2 million. Therefore, the maximum cost
impact of \$207 on small governmental jurisdictions would be
insignificant.[^58]

## 

## 10.6 Cost Impact on Small Not-for-Profit Organizations

The RFA, as amended by SBREFA, requires agencies to consider the impact
of their regulatory proposals on small not-for-profit organizations.
Small not-for-profit organizations are non-profit enterprises
independently owned and operated that are "not dominant" in their
fields.[^59]

The National Center for Charitable Statistics (NCCS) estimates that
there are approximately 370,000 not-for-profit organizations that
include: (1) public charities; (2) private foundations; and (3) other
exempt organizations.[^60] The NCCS data are not readily available at
the level that would enable us to estimate the number of small
not-for-profit organizations. It is likely, however, that a substantial
number of such entities exists and could be affected to some degree by
the AAI regulation. The impact, however, is not expected to be
significant. NCCS estimates that approximately two-thirds of
not-for-profit organizations do not file a Form 990 with the Internal
Revenue Service (IRS) in any given year. With the exception of
congregations and other religious institutions, not-for-profit
organizations with annual gross receipts of less than \$25,000 are
exempt from filing with the IRS.

Small not-for-profit organizations with annual revenues of \$25,000 or
less are likely to rent office space rather than purchase it. As
explained in Section 10.4, impact on entities that lease their office
space, although hard to estimate, is expected to be minimal. The impact
on small not-for-profit organizations with annual revenues of \$25,000
or more would be insignificant as well. The maximum annual impact of
\$207 would be on a small fraction of not-for-profit organizations
transitioning from a transaction screen to a Phase I ESA. Even an impact
of that magnitude on small not-for-profit organizations with annual
revenues of \$25,000 would be less than one percent of their annual
revenues.

# BIBLIOGRAPHY

American Society for Testing and Materials. *Standard Practice for
Environmental Site Assessments: Phase 1 Environmental Site Assessment
Process.* 2000.

Deason, Jonathon P., George William Sherk, and Gary A. Caroll, The
George Washington University. *Public Policies and Private Decisions
Affecting the Redevelopment of Brownfields: An Analysis of Critical
Factors, Relative Weights and Areal Differentials*. Submitted to US EPA
Office of Solid Waste and Emergency Response, Washington, DC. September
2001.

Environmental Data Resources, Inc. *Benchmarking Survey of Environmental
Professionals: Nuts and Bolts of the Phase I Process. 2002.*

Environmental Data Resources, Inc. *Environmental Site Assessment
Report*, various issues.

Schroeer, William. *The Transportation and Environmental Impacts of
Infill vs. Greenfield Development: A Comparative Case Study Analysis*.
Prepared for US EPA Urban and Economic Development Division. October 1,
1999.

Schroeer, William. The Water Quality Impacts of Density,\" paper at the
Congress for the New Urbanism X, Miami, FL, June 14, 2002. 

The Brookings Institution, Center on Urban and Metropolitan Policy.
*Vacant Land in Cities: An Urban Resource*. 2000.

The Office of Advocacy, US Small Business Administration. *The
Regulatory Flexibility Act: An Implementation Guide for Federal
Agencies*. November 2002.

The Office of Advocacy, US Small Business Administration. *A Guide for
Government Agencies -- How to Comply with the Regulatory Flexibility
Act.* May 2003.

US Conference of Mayors. *Recycling America's Land: A National Report on
Brownfields Redevelopment, Volume IV.* 2003.

US Department of Labor, Bureau of Labor Statistics. 2002 *National
Industry-Specific Occupational Employment and Wage Estimates*. 2003.

US Department of Labor, Bureau of Labor Statistics. *Employer Costs for
Employee Compensation.* 2003.

US Environmental Protection Agency. *All Appropriate Inquiries
Regulation (Draft)*. 2003*.*

US Environmental Protection Agency. *Reusing Land Restoring Hope: A
Report to Stakeholders from the US EPA Brownfields Program.* September
2003.

XL Insurance. *The XL Environmental Land Use Report*. 2002.

# 

# 

# 

# 

# 

# Appendix I: Proposed AAI Regulation

# 

# 

**Appendix II: Summary of the Main Differences between the All
Appropriate Inquiries Standard and the ASTM E1527-2000**

# Appendix II: Summary of Main Differences between the AAI Standard and ASTM E1527-2000

+-------------------+-------------------------+------------------------+
| **Major           | **Proposed AAI          | **ASTM E1527-2000**    |
| Activities^1^**   | Standard**              |                        |
+===================+=========================+========================+
| **Definition of   | -   Specific            | -   Broad description; |
| Environmental     |                         |     no specific        |
| Professional      |  certification/license, |     education and      |
| (§312.21)**       |     education, and      |     experience         |
|                   |     experience          |     requirements; self |
|                   |     requirements        |     "qualify"          |
|                   |                         |                        |
|                   | -   Applies only to     | -   Applies to all     |
|                   |     individuals         |     individuals        |
|                   |     overseeing and      |     involved in        |
|                   |     signing AAI         |     conducting AAI     |
+-------------------+-------------------------+------------------------+
| **Interview with  | Mandatory               | The environmental      |
| the Subject       |                         | professional           |
| Property Current  |                         |                        |
| Owner and         |                         | (EP) must make a       |
| Occupants         |                         | reasonable             |
| (§312.23)**       |                         |                        |
|                   |                         | attempt to conduct     |
|                   |                         | interview(s)           |
+-------------------+-------------------------+------------------------+
| **Interview with  | Includes provisions for | -   The EP must        |
| Past Owner and    |                         |     inquire about past |
| Occupants         | interviewing past       |     uses of the        |
| (§312.23)**       |                         |     subject property   |
|                   | owners/occupants, but   |     when interviewing  |
|                   | at the                  |     current property   |
|                   |                         |     owner;             |
|                   | discretion of the EP    |                        |
|                   |                         | -   Interviews w/past  |
|                   |                         |     owners a source of |
|                   |                         |     information for    |
|                   |                         |     historical uses    |
+-------------------+-------------------------+------------------------+
| **Interview with  | Mandatory at abandoned  | At the discretion of   |
| Neighboring or    | properties              | the EP                 |
| Nearby Property   |                         |                        |
| Owners or         |                         |                        |
| Occupants         |                         |                        |
| (§312.23)**       |                         |                        |
+-------------------+-------------------------+------------------------+
| **Review of       | From the property's     | From the property's    |
| Historical        | obvious first           | obvious                |
| Sources: period   |                         |                        |
| to be covered     | developed use           | first developed use,   |
| (§312.24)**       |                         | or 1940,               |
|                   |                         |                        |
|                   |                         | whichever is earlier   |
+-------------------+-------------------------+------------------------+
| **Records of      | -   The search results  | -   The search results |
| Activity and Use  |     must be             |     must be            |
| Limitations       |                         |                        |
| (e.g.,            | documented in the       | reported to the EP     |
| Engineering and   | written                 |                        |
| Institutional     |                         | -   User's             |
| Controls) and**   | report                  |     responsibility     |
|                   |                         |                        |
| **Environmental   | -   No requirement as   |                        |
| Cleanup Liens     |     to who is           |                        |
| (§312.25 and      |     responsible for the |                        |
| §312.26)**        |     search              |                        |
+-------------------+-------------------------+------------------------+
| **Government      | Federal, state, tribal, | -   Federal and state  |
| Records Review**  | and local               |     records            |
|                   |                         |                        |
| **(§312.26)**     | records                 | -   Local              |
|                   |                         |     records/sources at |
|                   |                         |     the discretion of  |
|                   |                         |     the EP             |
+-------------------+-------------------------+------------------------+
| **Site Visit      | -   Required.           | -   Required.          |
| (§312.27)**       |                         |                        |
|                   | -   Limited exemption   | -   No specific        |
|                   |     if the subject      |     requirements       |
|                   |     property cannot be  |                        |
|                   |     visually inspected  | if the subject         |
|                   |     -- inspect from     | property cannot        |
|                   |     nearest vantage     |                        |
|                   |     point               | be visually inspected. |
+-------------------+-------------------------+------------------------+
| **Contaminants of | -   Parties seeking     | CERCLA hazardous       |
| Concern           |     CERCLA defense      | substance              |
| (§312.20)**       |                         |                        |
|                   | \- CERCLA hazardous     | and petroleum products |
|                   | substance               |                        |
|                   |                         |                        |
|                   | -   EPA Brownfields     |                        |
|                   |     Grant recipients    |                        |
|                   |                         |                        |
|                   | \- CERCLA hazardous     |                        |
|                   | substance               |                        |
|                   |                         |                        |
|                   | \- petroleum/petroleum  |                        |
|                   | products                |                        |
|                   |                         |                        |
|                   | \- controlled           |                        |
|                   | substances              |                        |
+-------------------+-------------------------+------------------------+
| **Data Gaps       | Must identify and       | Must identify data     |
| (§312.20)**       | document                | "failures" and         |
|                   |                         |                        |
|                   |                         | document               |
+-------------------+-------------------------+------------------------+
| **Shelf Life of   | One year, with some     | Not specified, some    |
| the Written       | updates                 | updates                |
| Report            |                         |                        |
| (§312.20)**       | required after 180 days | required after 180     |
|                   | for certain             | days                   |
|                   |                         |                        |
|                   | information             |                        |
+-------------------+-------------------------+------------------------+

1\) Relevant sections of the proposed AAI rule identified in
parenthesis.

# 

**Appendix III: Unit Cost Estimates for the AAI Regulatory Option 3**

# Appendix III: Unit Cost Estimates for the AAI Regulatory Option 3

This section presents unit costs associated with sampling under the AAI
regulatory option 3.

![](media/image4.wmf){width="6.25in"
height="3.6354166666666665in"}Exhibit III-1: Groundwater Monitoring Well
Installation Cost Estimate

Notes: The following cost assumptions are made:

1.  Well depth of 20 ft at \$13/ft

2.  Installation of two wells/day and development of three wells/day

3.  One drum/well solids and one drum/well water.

Source: ICF Analysis.

![](media/image5.wmf){width="7.25in" height="2.5in"}Exhibit III-2:
Groundwater Monitoring Well Sampling Cost Estimate

Notes: The following cost assumptions are made:

(1) Two environmental technicians, three hrs/well

(2) Supervision (environmental engineer) is ten percent of environmental
    technicians\' labor hours

(3) Assumes no quality control (QC) samples

(4) One environmental scientist, ten hrs/well.

Source: ICF Analysis.

###### ![](media/image6.wmf){width="7.125in" height="2.5305555555555554in"}Exhibit III-3: Surface Soil Sampling Cost Estimate

Notes: The following cost assumptions are made:

(1) Two environmental technicians, one hr/sample

(2) Supervision (environmental engineer) is ten percent of environmental
    technicians\' labor hours

(3) Assumes no quality control (QC) samples

(4) One environmental scientist, five hrs/soil sample.

Source: ICF Analysis.

**Appendix IV: EDR's Methodology for Estimating the Volume of ESAs**

# Appendix IV: EDR's Methodology for Estimating the Volume of ESAs

EDR's methodology for estimating the number of Phase I environmental
site assessments (ESAs) conducted annually and distribution of Phase I
ESAs by property type is documented below.[^61]

1.  **Distribution of Phase I ESAs by Property Type**

EDR has been tracking the distribution of Phase I ESAs by the following
property types since March 2002:

-   Commercial/Office

-   Undeveloped

-   Retail

-   Industrial

-   Multi-family

-   Telecommunications

-   Hotel (added December 2002)

-   Other.

The data are reflective of all orders for EDR's Government Record Check
reports placed using the company's online system. In general, EDR's
property type data correlate with trends data from outside sources that
track the behavior of commercial real estate markets (see below).

2.  **Annual Phase I Production Estimates**

    -   **Data Inputs**

EDR's data on the number of Phase I ESAs conducted annually is based on
a series of data inputs, including the number of Government Record Check
reports sold by EDR for use in Phase I ESAs.

Quarterly sales data are extrapolated to the industry level using market
intelligence from internal and external sources, including:

-   Annual EDR surveys of environmental professionals conducting Phase I
    ESAs

> \- Production and forecast data from Phase I providers

-   Annual EDR surveys of banks that loan on commercial real estate

> \- Demand and forecast data from major user sector

-   Property & Portfolio Research (PPR) -- Boston, MA

\- PPR, a highly respected provider of independent real estate research
and portfolio strategy services, tracks commercial real estate trends in
54 US areas and five property types (office, retail, warehouse,
apartment, and hotel)

-   Trepp, LLC - New York, NY

> \- A leading provider of CMBS information and analytics to the
> investment management community

-   Feedback from market to EDR's national sales force

\- EDR's clients include: national, regional, and local environmental
consulting firms; commercial banks; pension funds; Wall Street firms;
insurance companies; law firms; and government agencies

-   EDR's affiliation with the following industry associations also
    provides information on market trends that feeds into the company's
    predictions about the Phase I marketplace:

A&WMA Air and Waste Management Association

ABA American Banker's Association

AUDITING ROUNDTABLE (formerly Environmental Auditing Roundtable)

CORENET Corporate Real Estate Network

EBA Environmental Bankers Association

ICBA Independent Community Bankers Association

MBA Mortgage Bankers Association

RMA Risk Management Association

NAGGL National Association of Government Guaranteed Lenders

NAEP National Association of Environmental Professionals

-   **2003 Phase I Production Estimates**

At the beginning of each calendar year, EDR releases its forecast of
annual Phase I activity. EDR's early 2003 forecast predicted that
245,000-250,000 Phase Is would be conducted in 2003, and by year end,
actual production data was in line with these projections: approximately
249,000 Phase I ESAs were conducted. EDR's forecast was based on a
series of assumptions about continued low interest rates and tight
lending standards coupled with a gradual easing of investors' caution in
2003, all of which held true. In fact, as predicted, economic recovery
began to take hold in earnest by the second half of the year when
capital from the sidelines began moving back into play.

-   **2004 Forecast, Model Assumptions**

EDR's forecast for 2004 activity is based on a combination of the
company's in-house data, market feedback from our clients, and a series
of other broad-based outside data sources documented above. The current
forecast for the number of Phase I ESAs conducted in 2004 is
253,000-255,000, with a 4 to 5% percent margin of error, based on the
accuracy of last year's forecast and confidence in the assumptions built
into the model. EDR's latest market projection is sensitive to the
series of assumptions identified below:

-   Growing stream of funding flowing into commercial real estate,
    particularly from new sources of equity capital (e.g., pension
    funds, endowments and foundations) that have earmarked record-high
    allocations for CRE investment in 2004

-   Growing confidence on the part of businesses, which will drive more
    demand for new office space and apartments, and an increase in
    dollars spent assessing candidate properties for acquisition

-   Moderate to strong commercial loan demand

-   Recovery in three-year downturn in merger/acquisition activity due
    to improved economic forecasts, higher business confidence,
    increased availability of financing, a healthy stock market and a
    renewed focus on growth

-   Gradual increase in interest rates that could affect developers' and
    property owners' ready access to capital

-   Beginning of recovery in commercial real estate markets, boosting
    investment in the four core property types (i.e., office, retail,
    apartment and industrial)

-   Transition to Phase Is over Transaction Screens that no longer
    provide property owner with CERCLA liability protection under the
    2002 Small Business Liability Relief and Revitalization Act (Public
    Law 107-118)

-   Increased activity in telecom sector as recovering tower companies
    seek to expand networks

-   Passage of federal transportation law that will release funding for
    new highway and railway projects

-   Continued strong capital flows into real estate investment trusts
    (REITs) from broadening array of institutions and individuals,
    despite recovering stock market

-   Increase in commercial mortgage backed securities (CMBS) after
    record year in 2003 due largely to continued healthy volume coupled
    with the trend toward now-maturing early 1990 bonds being repackaged
    and reinvested through the CMBS market

-   Greater interest in brownfields redevelopment given new EPA funding,
    new state programs and additional CERCLA defenses

-   Much stronger optimism on part of Phase I providers based on EDR
    survey data (early 2004), which showed that 25% of consultants
    predict a "significant increase" in Phase I work in 2004 compared to
    only 16% at the start of 2003

-   Trend in banking sector toward greater environmental scrutiny of low
    cap loans.

# 

# 

**Appendix V: Volatility in Property Transactions**

# Appendix V: Volatility in Property Transactions

# 

# 

# 

We used the data presented in Exhibits V-1 and V-2 as a proxy for
volatility in real estate transactions.

**Exhibit V-1: Percent of Properties Sold, by Year**

  ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
  1984   1985   1986   1987   1988   1989   1990   1991   1992   1993   1994   1995   1996   1997   1998   1999   2000   2001

  7.5    8.5    8.0    7.0    8.0    10.0   6.0    6.0    4.5    6.5    8.5    8.5    15.0   17.5   16.5   13.0   11.5   10.5
  ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------

**Exhibit V-2: Percent of Properties Sold, 10-Year Moving Average**

  --------------------------------------- -------------------------------
  10-Year Period                          Percent Properties Sold

  1984-1993                               7.2

  1985-1994                               7.3

  1986-1995                               7.3

  1987-1996                               8

  1988-1997                               9.05

  1989-1998                               9.9

  1990-1999                               10.2

  1991-2000                               10.75

  1992-2001                               11.2

  **Mean**                                **8.99**

  **Standard Deviation (SD)**             **1.59**
  --------------------------------------- -------------------------------

[^1]: Throughout this document the costs for the proposed AAI rule are
    shown as a range. This is because we modeled the distribution of
    abandoned and non-abandoned properties as a range. As explained in
    Chapter 5, the percentage of property transactions involving
    abandoned properties is an important variable to our cost estimates.
    Given that data on abandoned properties are scarce, we modeled the
    distribution of abandoned and non-abandoned properties as a range,
    using two independent sources of information.

[^2]: EPA notes that after all members of the Negotiated Rulemaking
    Committee reached consensus on November 14, 2003 and such consensus
    was confirmed by all Committee members through approval of the final
    meeting summary, US PIRG submitted a letter, dated December 19,
    2003, notifying EPA that it wished to withdraw from the Committee.

[^3]: "The Regulatory Flexibility Act: An Implementation Guide for
    Federal Agencies," The Office of Advocacy, US Small Business
    Administration, p. 1, November 2002.

[^4]: Number range CHAPTER"Brownfields Redevelopment: Performance
    Evaluation," Council for Urban Economic Development, 1999, P. 10.

[^5]: If the cost estimate is made by multiplying the change in
    per-transaction cost by current transactions, the estimate will be
    slightly greater in magnitude than the dotted parallelogram shown in
    the second exhibit, because the latter is based on a smaller number
    of transactions. See Exhibit 3 below.

[^6]: Again, the benefits shown in the diagram exclude the net social
    benefits that are external to the transactions; those benefits do
    not affect the demand curve for properties because they accrue to
    society at large rather than to the purchasers. In theory -- and in
    practice, to the extent allowed by data limitations -- they too
    should be included in the measurement of net social benefits.

[^7]: Randy Anderson, Richard McLemore, Philip Conner, and Youguo Liang,
    "Portfolio Implications of Apartment Investing," Journal of Real
    Estate Research, vol. 25 (2), 2003, pp.113 -131, available at

    <http://cbeweb-1.fullerton.edu/finance/journal/papers/pdf/past/vol25n02/02.113_132.pdf>.

[^8]: Colliers International Market Report, available at
    http://www.colliers.com/Content/Repositories/Base/Markets
    /Honolulu/English/Market_Report/PdFs/InvestmentReport2002to2003WEB1.pdf

[^9]: David J. Hartzell, Robert H. Pittman, David H. Downs, "An Updated
    Look at the Size of the U.S. Real Estate Market Porfolio," Journal
    of Real Estate Research, vol. 9 (2), Spring 1994, pp. 197 -- 212.

[^10]: Jeffrey Fisher, Dean Gatzlaff, David Geltner, and Donald Haurin,
    "An Analysis of the Determinants of Transaction Frequency of
    Institutional Commercial Real Estate Investment Property," Real
    Estate Economics, vol. 32 (2), Summer 2004, pp. 239-264.

[^11]: Consultations with Dianne Crocker of EDR, November 2003.

[^12]: Consultations with Dianne Crocker of EDR, November 2003.

[^13]: Source: EDR *ESA Report*, Vol. 8 (3).

[^14]: Ibid.

[^15]: EDR *ESA Report*, October, 1999.

[^16]: Personal communications with FACA Committee members including
    Julie Kilgore, Wasatch Environmental Inc., David Lourie, ASFE, Eric
    Block, National Ground Water Association, Tom Crause, Illinois EPA,
    Karl Kalbacher, Maryland DEP.

[^17]: For references, see Chapter 10.

[^18]: Specifically, going beyond the 10-year timeframe, it becomes
    uncertain whether there would be any structural change in the ESA
    industry, for example imposed by the lending industry, which would
    change ESA practices beyond the requirements of the proposed rule.
    Such a change could have a significant impact on the annual volume
    of Phase I ESAs as well as the unit cost per ESA.

[^19]: See Appendix IV for a discussion of EDR's methodology for
    estimating the annual volume of Phase I ESAs conducted.

[^20]: The annual volume of Phase I ESAs in the period 1997-2002 is
    presented graphically in Exhibit 3-1.

[^21]: The proposed AAI rule does not explicitly require interviews with
    past owners and occupants. The proposed rule states that such
    interviews should be conducted to the extent necessary to learn the
    full history of the subject property. Thus, some fraction of
    property transactions would include interviews with past
    owners/occupants. Such interviews, however, would not necessarily
    represent an incremental burden. The environmental professional
    would inquire about the past uses from the past owners/occupants,
    rather than the current ones, which should make the interviews with
    the current owners/occupants less time consuming.

[^22]: *CERCLIS SCAP-14 Report*, EPA, 2004.

[^23]: U.S. Environmental Protection Agency. 2000. *Guidelines for
    Preparing Economic Analyses*. Office of the Administrator, EPA
    240-R-00-003.

[^24]: Insurance premiums are a cost associated with the property that
    will be capitalized into the price of the property.

[^25]:
    #  See for example, "The Resurrection of Environmental Coverages" Andrew S. Boris and Jamie C. Kandalepas, Insurance Journal, September 22, 2003, and "Superfund Awakes in State Supreme Courts," RiskWorld, Donald Sutherland, December 5, 1997.

[^26]: Costs of administering clean-ups would be transferred from the
    private to the public sector, but these costs should be included in
    the clean-up costs rather than in the insurance-related expenses
    that cause premiums to exceed expected pay-outs.

[^27]: Due to data limitations, however, we cannot estimate the exact
    rate of substitution.

[^28]: This list is not meant to be exhaustive.

[^29]: Schroeer, William, "The Water Quality Impacts of Density," paper
    at the Congress for the New Urbanism X, Miami, FL, June 14, 2002. 

[^30]: Deason, Jonathon P., George William Sherk, and Gary A. Caroll,
    The George Washington University. *Public Policies and Private
    Decisions Affecting the Redevelopment of Brownfields: An Analysis of
    Critical Factors, Relative Weights and Areal Differentials*.
    Submitted to US EPA Office of Solid Waste and Emergency Response,
    Washington, DC. September 2001.

[^31]: Schroeer, William. *The Transportation and Environmental Impacts
    of Infill vs. Greenfield Development: A Comparative Case Study
    Analysis*. Prepared for US EPA Urban and Economic Development
    Division. October 1, 1999.

[^32]: Ibid.

[^33]: Brownfields redevelopment also leads to increases in property
    values and tax revenues for localities. Cities and towns benefit
    from the redevelopment of brownfields as they collect taxes from new
    businesses and homes located on formerly vacant properties. A 2003
    survey of almost 150 municipalities indicated that if brownfields
    were redeveloped, the cities could realize \$790 million to \$1.9
    billion annually in additional tax revenues. Actual local tax
    revenues collected from redeveloped brownfields sites totaled \$90
    million in 45 cities (US Conference of Mayors, 2003). Additionally,
    as brownfields are redeveloped in a neighborhood, that area becomes
    a more desirable place to live and work. As a result, property
    values tend to increase and businesses locate in the renewed areas.
    Municipalities may then collect more property taxes on these
    higher-valued homes and sales taxes from businesses. At one site in
    Emeryville, CA, redevelopment of brownfields properties that were
    formerly used for heavy industrial purposes into office buildings
    and retail has resulted in \$3 million in property tax revenue and
    \$1.5 million in sales tax annually (Source: US EPA. *Reusing Land
    Restoring Hope: A Report to Stakeholders from the US EPA Brownfields
    Program.* 2003). These tax base benefits cannot all be counted as
    net gains to society. Though some businesses that are established on
    a brownfield site are entirely new and generate new revenues, others
    have relocated from other sites or jurisdictions. Businesses that
    relocate to a brownfield site presumably reduce their tax payments
    to some other government, canceling out at least part of the social
    benefit. The tax benefits, to this degree at least, may be a
    transfer rather than a net benefit.

[^34]: The US Conference of Mayors. *Recycling America's Land: A
    National Report on Brownfields Redevelopment*, Vol. IV, 2003.

[^35]: The Bureau of Labor Statistics (BLS) 2002 national employment and
    wage data from the *Occupational Employment Statistics Survey by
    Occupation* are available at
    http://www.bls.gov/news.release/ocwage.t01.htm.

[^36]: The calculation of the weighted average wage rate for the
    considered regulatory option 3 is more complex as it is driven by
    the type of sampling performed (e.g., surface soil sampling versus
    groundwater sampling). Therefore, the procedure used to derive the
    weighted average labor cost is not explicitly presented in this EIA
    (the unit labor costs and labor distribution associate with sampling
    activities are presented in Appendix II).

[^37]: The EDR data show that the price of a Phase I ESA exhibits
    regional variability. The results of the EDR poll, conducted in the
    fall of 2002 and the spring of 2003, of Phase I ESA providers in 20
    metropolitan areas show that the average price of a Phase I ESA
    ranged from approximately \$1,800 in Houston, TX and Cincinnati, OH
    to \$2,300 in Seattle, WA. ICF estimates are not adjusted for
    location because data on the distribution of properties by location
    were not available.

[^38]: EDR estimates that the average price for a transaction screen was
    \$700 in 2002.

[^39]: The EDR's methodology for estimating the annual number of ESAs is
    presented in Appendix IV.

[^40]: See Appendix IV for a discussion of EDR's methodology for
    estimating the annual volume of Phase I ESAs performed.

[^41]: Jeffrey Fisher, Dean Gatzlaff, David Geltner, and Donald Haurin,
    "An Analysis of the Determinants of Transaction Frequency of
    Institutional Commercial Real Estate Investment Property," Real
    Estate Economics, vol. 32 (2), Summer 2004, pp. 239-264.

[^42]: The real estate sales data are presented in Appendix V.

[^43]: Communications with the Office of Policy, Economics, and
    Innovations (OPEI) and the National Center for Environmental
    Economics (NCEE), March 4, 2004.

[^44]: The US Census Bureau defines establishment as a single physical
    location at which business is conducted or services or industrial
    operations are performed. Establishment is not necessarily identical
    with a company or enterprise, which may consist of one or more
    establishments. Source: County Business Patterns, 2001; US Census
    Bureau, available at
    http://www.census.gov/epcd/cbp/view/cbpview.html.

[^45]: The US Census Bureau, available at
    http://www.census.gov/epcd/www/smallbus.html.

[^46]: This is a simplifying assumption. Large firms probably engage in
    relatively more property transactions than small firms. Commercial
    real estate data, however, are not readily available to support this
    claim. In addition, small firms may have a higher likelihood of
    failing, as they are more vulnerable to unfavorable economic
    conditions. As a result, the turnover rate among small firms, and
    consequently the number of transactions involving small firms, may
    be larger than the turnover rate among large firms. Given data
    limitations, we were not able to refine the assumption. It should be
    noted, however, that our approach may have resulted in an
    overestimation of the number of potentially affected small firms.

[^47]: We estimated the volume of Phase I ESAs in 2004 to be 263,680.
    Refer to Section 4.4 for the methodology on estimating the annual
    volume of Phase I ESAs. Refer to Exhibit 8-6 for the estimated
    number of Phase I ESAs by year.

[^48]: SBA estimates that in 2001 and 2002, of all the businesses with
    employees, about 10 percent were new and 10 percent closed (See *The
    Regulatory Flexibility Act, An Implementation Guide for Federal
    Agencies*, SBA, 2002 and *A Guide for Government Agencies -- How to
    Comply with the Regulatory Flexibility Act*, SBA, 2003). Our
    estimates of firm birth and death rates in 2000, derived using the
    1999 and 2000 SBA data, are very close to SBA's 2001 estimates.
    Thus, using the birth/death rate of firms, it can be calculated that
    the average turnover rate for firms across all industries is 10
    years.

[^49]: The estimated average annual revenue per employee of \$24,000 was
    derived using the Census Bureau's 1997 Economic Census and the SBA's
    2000 data on private employer firms, establishments, employment, and
    annual payroll by firm size. The annual revenue per employee is in
    2003 dollars. The SBA data are available at
    <http://www.sba.gov/advo/stats/us_tot_mi.pdf>.

[^50]: The estimated annual revenue per employee represents an average.
    Thus, some small firms may have annual revenues lower than the
    estimated average. Firms with such low revenues, however, are likely
    to lease office space rather than purchase it. This does not mean
    that such firms could not be affected to some extent. Depending on
    the market conditions, some of the Phase I ESA costs could be
    transferred by the firm that owns the property onto the firms that
    are leasing the property. Considering data deficiency, it would be
    hard to estimate the impacts on small firms that have very low
    annual revenues and are leasing office space.

[^51]: Small firms with annual revenues of \$24,000 are very unlikely to
    own office space and thus incur an annual cost of \$207. Owning
    office space would tie up their capital and require some resources
    to be allocated to managing the property. It is also not certain if
    they would be considered too risky by the lending community to
    qualify for a loan to buy a property. Nevertheless, our analysis
    shows that even for a small firm that has very low annual revenues
    and owns its office space the estimated maximum annual impact of
    \$207 would be insignificant.

[^52]: It should be noted that for some small firms the transfer of
    properties would be more frequent than every ten years, and for some
    small entities there might even be more than one property transfer
    in a year. In the usual case (a Phase I ESA being changed so as to
    comply with the AAI rule) even multiple transactions would be an
    insignificant percentage of revenues. For example, a \$47 cost
    amortized over five years would be less than one tenth of one
    percent of annual revenues for a small firm with annual revenues of
    \$24,000. For a firm with the same annual revenues, the cost of two
    Phase I ESAs amortized over a ten-year period would still be less
    than one tenth of one percent of annual revenues. Furthermore,
    because the more costly shifts from transaction screens to Phase I
    ESAs are rare, the chances that any single small firm would need two
    in a single year are extremely small.

[^53]: RFA Section 601.

[^54]: The US Census Bureau compiles the data on small governmental
    jurisdictions expenditures by various public service and activity
    categories. The categories, however, are too general to reasonably
    approximate real estate expenditures.

[^55]: XL Insurance, *The XL Environmental Land Use Report*, 2002.

[^56]: The estimated volume of Phase I ESAs in 2004 under the AAI
    regulation is presented in Exhibit 8-6. We assumed that the annual
    number of applicable property transactions approximates the annual
    number of ESAs performed.

[^57]: Revenues per inhabitant are calculated in 2003 dollars.

[^58]: Some governmental jurisdictions may have annual revenues lower
    than the estimated average annual revenues. For example, in
    Pennsylvania, the average annual revenues for townships with a
    population of less than 2,500 is about \$250,000 (See *Finances of
    Municipal and Township Governments*, US Census Bureau, 1997).
    Nevertheless, even for a township with annual revenues of \$250,000,
    the maximum annual cost impact of \$207 would represent less than
    one tenth of one percent of annual revenues. There is a possibility,
    however, that a township of that size conducts more than one Phase I
    ESA per year. Although the possibility of that happening is likely
    very small, townships that want to conduct brownfields cleanup and
    redevelopment have the option of applying for the EPA Brownfields
    Grant.

[^59]: RFA Section 601.

[^60]: The National Center for Charitable Statistics, available at
    <http://nccsdataweb.urban.org/FAQ/index.php?category=90>.

[^61]: Communications with Dianne Crocker, editor of EDR *ESA Report*,
    July 2, 2004.