**SA N JOA** **QUIN VA LLEY UNIFIED A** **IR POLLUTION CONTROL DISTRICT**

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D

- 1 **Final Staff Report for Rule 4565** 

# APPENDIX D

**SOCIOECONOMIC IMP ACT**  **AN AL** 

**YSIS FOR RULE 4565 (BIOSOLIDS**  **, ANIM AL M**  **ANURE, AND**  **POUL TR**  **Y LITTER**  **OPERA TIONS)**  

## March 30, 2007**SA N JOA** **QUIN VA LLEY UNIFIED A** **IR POLLUTION CONTROL DISTRICT**

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D

- 2 **Final Staff Report for Rule 4565** This page intentionally blank**SA N JOA** **QUIN VA LLEY UNIFIED A** **IR POLLUTION CONTROL DISTRICT**

Appendix D: Socioeconomic Impact Analysis March 30, 2007

**Final Staff Report for Rule 4565** 

## SOCIOECONOMIC ANAL **YS IS**  **PROPOSED AMENDMENTS TO**  **RULE 4565: BIOSO**  **LIDS , ANIMAL MANURE**  **AND**

**POUL TRY LITTER** 

**30 March 2007**

**Prepared for San Joaquin Valley Unified Air Pollution Control District** 

**1990 E. Gettysburg Avenue Fresno, CA 93726** 

**Prepared by Applied Development Economics**  2029 University Avenue • Berkeley, California 94704 • (510) 548

- 5912 1029 J Street, Suite 310 • Sacramento, California 95814 • (916) 441

- 0323 www.adeusa.com**SA N JOA** **QUIN VA LLEY UNIFIED A** **IR POLLUTION CONTRO L DISTRICT** 

Appendix D: Socioeconomic Impact Analysis March 30, 2007

**Final Staff Report for Rule 4565** 

## CONTENTS

1. Executive Summary

................................ ................................ ........ 1 2. Introduction

................................ ................................ .................... 3 3. Description of Draft New Rule 4565

................................ .......... 4 4. Methodology

................................ ................................ ................... 6 5. Impacted Industries Subject to New Rule 4612

........................ 8 5.1 Regional Demographic and Economic Trends

.................. 8 Regional Demographic Trends

................................ ........ 8 Regional Economic Trends

................................ .............. 9 5.2 Description of Affected Industries

................................ .... 11 6. Socioeconomic Impacts

................................ ............................... 17 6.1 Compliance Cost Estimates

................................ ................. 17 6.2 Business Responses to Compliance Costs

......................... 18 6.3 Impacts on Affected Industries

................................ ........... 18 6.4 Impacts on Small Businesses

................................ ............... 20 Definition Of A Small Business

................................ .... 20



## FIGURE
FIGURE 1 San Joaquin Valley Unified Air Pollution Control

District (SJVUAP CD) Air Basin

................................ ...................... 3


## TABLES
Table 1: Population Growth: San Joaquin Valley Region,

1995

- 2005

................................ ................................ ............................. 9 Table 2: Sectoral Employment Trends: San Joaquin Valley Region 2000

- 2005

................................ ................................ ............. 11 Table 3: List of Industries That Affected Sources Are a Part of

................................ ................................ ................................ ......... 12**SA N JOA** **QUIN VA LLEY UNIFIED A** **IR POLLUTION CONTRO L DISTRICT** 

Appendix D: Socioeconomic Impact Analysis March 30, 2007

**Final Staff Report for Rule 4565** Table 4: Employment Trends of Industries That 29 Directly Affected Sources Are a Part of

................................ ....................... 13 Table 5: Profile of Industries That 29 Directly Affected Sources Are a Part of

................................ ................................ ....... 14 Table 6: Economic Profile of 29 Sources Operating Bio

Solid, Animal Manure and Poultry Litter Facilities

...................... 15 Table 7: Annual Compliance Cost: Draft New Rule 4565

......... 16 Table 8: Socioeconomic Impact Analysis: Annual Cost in Relation to Affected Sources’ Net Profits

................................ ..... 18 Table 9: Potential Cost Recovery Solution for Four Affected Sources

................................ ................................ ............................... 19**SA N JOA** **QUIN VA LLEY UNIFIED A** **IR POLLUTION CONTRO L DISTRICT** 

Appendix D: Socioeconomic Impact Analysis March 30, 2007

**Applied Development Economics 1**  **Final Staff Report for Rule 4565** 

## 1. EXECUTIVE SUMMARY

The San Joaquin Valley Unified Air Pollution Control District (“District”) seeks to adopt Draft New Rule 4565 (Bio

- solids, Animal Manure and Poultry Litter) to control volatile organic compound (VOC) emissions from faciliti es that handle bio

solids, animal manure or poultry litter. There are 29 composting establishments in 16 different industries in the District’s permits database that would be subject to the rule. Of these, eight establishments will be directly affected b y the new draft rule. These establishments handle more than 100,000 wet tons per year of composting materials that include bio

- solids, animal manure and or poultry litter, and, as such, are the largest operators in the San Joaquin Valley Air Basin. These establishments employ an estimated 1,533 workers and generate over $3 billion in revenues, from which $145 million in net profits are accumulated. A few of the bio

- solid establishments are part of larger corporations whose respective revenues comes from food manufacturing and crops

- livestock production. Generally speaking, the 16 industries that the 29 affected establishments are a part of have been declining in terms of employment, and have declined at rates faster than declines experienced by similar in dustries in the state as whole. However, there is strong indication that the 29 affected establishment are growing. For example, the departmental budget of a public sector facility has increased by 14 percent per year for the past two years, largely on the strength of fees paid by growing number of users. The agency is looking for another site because of strong demand. There are two cost scenarios in this socioeconomic analysis. In the “low end” scenario, the eight impacted establishments will bear $5.8 million in annual costs. In the “high end” scenario, affected sources will bear slightly over $3 million in annual costs. While the report notes the “high end impacts”, the report concludes that most affected sources won’t implement measures associated with this scenario given the high construction costs involved. The analysis also determines that, at $5.8 million per year, the cost of “low**SA N JOA** **QUIN VA LLEY UNIFIED A** **IR POLLUTION CONTRO L DISTRICT** 

Appendix D: Socioeconomic Impact Analysis March 30, 2007

**Applied Development Economics 2**  **Final Staff Report for Rule 4565** end” scenario is less than significant. In addition, small businesses are not disproportionately impacted by Draf t New Rule 4565.**SA N JOA** **QUIN VA LLEY UNIFIED A** **IR POLLUTION CONTRO L DISTRICT** 

Appendix D: Socioeconomic Impact Analysis March 30, 2007

**Applied Development Economics 3**  **Final Staff Report for Rule 4565** 

## 2. INTRODUCTION

This report describes the socioeconomic impacts of Draft New Rule 4565 (Bio

- solids, Animal Manure, and Poultry Litter). Following this introduction, the report summarizes the proposed amendments and describes the method ology for the socioeconomic analysis. In Section 5, the report describes the economic characteristics of sources affected by Draft New Rule 4565. The sixth section analyzes the socioeconomic impacts of compliance costs on the affected sources and the regio nal economy. This report is based on the version of Draft New Rule 4565 that was published in January 2007. The report is prepared pursuant to the provisions of AB2051 (Section 40728.5 of the California Health and Safety Code), which requires an assessme nt of socioeconomic impacts of proposed air quality rules. The findings in this report can assist District staff in understanding the socioeconomic impacts of Draft New Rule 4565, and can assist staff in preparing a refined version of the rule. A draft rep ort will be presented at a meeting conducted by District staff in on February 26, 2007. Figure 1 is a map of the eight

- county region that comprises the San Joaquin Valley Air Basin. As indicated in the map, Kern County is not completely in the District.

**FI GURE 1**  **San Joaquin Valley Unified Air Pollution Control District (SJVUAPCD) Air Basin SA**  **N JOA QUIN VA**  **LLEY UNIFIED A IR POLLUTION CONTRO**  **L DISTRICT**

Appendix D: Socioeconomic Impact Analysis March 30, 2007

**Applied Development Economics 4**  **Final Staff Report for Rule 4565** 

## 3. DESCRIPTION OF DR **AFT NEW RULE 4565**

Through Draft New Rule 4565, the San Joaquin Valley Unified Air Pollution Control District (“District”) seeks to control volatile o rganic compound (VOC) emissions from facilities that handle bio

- solids, animal manure or poultry litter. Bio

- solids, animal manure, and poultry litter are managed in one of three ways: buried in landfill, applied to land to enrich the soil, or composted either alone or with other materials to make a soil amendment, which is then land

- applied. When these are composted with other materials like green waste or bedding, this process is called co

composting. Draft New Rule 4565 would address VOC emissions from landfill, land application, composting, and co

composting facilities. For specific policies, see pages 5 through 8 of the document called “Draft Staff Report: Draft New Rule 4565 (Bio

- solids, Animal Manure, and Poultry Litter).” Below is a summary of th e draft new rule. Draft New Rule 4565 would require operators who land fill or land apply bio

- solids, animal manure, or poultry litter to adopt management practices to reduce VOC emissions. For landfill operations, District staff expects that no compliance costs will be associated with rule provisions, since bio

- solids are not currently used as alternative daily cover, the only landfill operation affected by rule requirements. Operators who land apply bio

- solids, animal manure, or poultry litter would also have no costs, since implementation of the control measures would only require that the operator schedule the material to arrive at the facility at an appropriate time. Composting/co

- composting facilities would be required to implement a certain number of what are called “Class One” mitigation measures, with operators at larger facilities required to adopt more measures than operators at smaller facilities. Large operators with at least 100,000 wet tons per year (tpy) throughput would also be required to co ntrol emissions from active composting, utilizing either an aerated static pile or in

- vessel composting, in addition to the Class One mitigation measures. District staff estimates that the**SA N JOA** **QUIN VA LLEY UNIFIED A** **IR POLLUTION CONTRO L DISTRICT** 

Appendix D: Socioeconomic Impact Analysis March 30, 2007

**Applied Development Economics 5**  **Final Staff Report for Rule 4565** total annualized costs to these eight large facilities range from $ 5.8 million per year to $25 million per year. Based on 595 tons per year of VOC emission reductions, the cost effectiveness for these largest compost facilities ranges from about $10,000 to $41,000 per ton VOC reduced.**SA N JOA** **QUIN VA LLEY UNIFIED A** **IR POLLUTION CONTRO L DISTRICT** 

Appendix D: Socioeconomic Impact Analysis March 30, 2007

**Applied Development Economics 6**  **Final Staff Report for Rule 4565** 

## 4. METHODOLOGY

The socioeconomic analysis involves the use of information provided directly by affected sources, as well as secondary data used to describe the industries affected by the proposed provisions of Draft New Rule 4565 . The approach is briefly described below. Applied Developme nt Economics (ADE) began the analysis by preparing a statistical description of the industry groups of which the affected sources are a part , analyzing data on the number of jobs, sales levels, the typical profit ratios and other economic indicators for ea ch industry. This report relies heavily on the most current data available from a variety of sources, such as the 2002 Economic Census, 1997 Economic Census, US Bureau of Labor Statistics County Business Patterns, Minnesota IMPLAN Group, and the State of California’s Employment Development Department (EDD) Labor Market Information Division. For purposes of estimating profits, ADE relied on Dun and Bradstreet, United States Internal Revenues Service, and CCH, Incorporated. With the above information, ADE was able to estimate net after tax profit ratios for sources affected by the draft rule. ADE calculated ratios of profit per dollar of revenue for affected industries. The result of the socioeconomic analysis shows what proportion of profits the compliance costs represent. Based on assumed thresholds of significance, ADE discusses in the report whether the affected sources are likely to reduce jobs as a means of recouping the cost of rule compliance or as a result of reducing business operations. To the exte nt that such job losses appear likely, the indirect multiplier effects of the jobs losses are estimated using a regional IMPLAN input

- output model. When analyzing the socioeconomic impacts of proposed new rules and amendments, ADE works closely within the parameters of accepted methodologies discussed in a 1995 California Air Resources Board report called “Development of a Methodology to Assess the Economic Impact Required**SA N JOA** **QUIN VA LLEY UNIFIED A** **IR POLLUTION CONTRO L DISTRICT** 

Appendix D: Socioeconomic Impact Analysis March 30, 2007

**Applied Development Economics 7**  **Final Staff Report for Rule 4565** by SB513/AB969” (by Peter Berck, PhD, UC Berkeley Department of Agricultural and Reso urces Economics, Contract No. 93

- 314, August, 1995). The author of this report reviewed a methodology to assess the impact that California Environmental Protection Agency proposed regulations would have on the ability of California businesses to compete. The California Air Resources Board (ARB) has incorporated the methodologies described in this report in its own assessment of socioeconomic impacts of rules generated by ARB. One methodology relates to determining a level above or below which a rule and its associated costs is deemed to have significant impacts. When analyzing the degree to which its rules are significant or insignificant, ARB employs a threshold of significance that ADE follows. Berck reviewed the threshold in his analysis and wrote, “The Air Resources Board’s (ARB) use of a 10 percent change in [Return on Equity] ROE (i.e. a change in ROE from 10 percent to a ROE of 9 percent) as a threshold for a finding of no significant, adverse impact on either competitiveness or jobs seems reasonable or even conservative.”**SA N JOA** **QUIN VA LLEY UNIFIED A** **IR POLLUTION CONTRO L DISTRICT** 

Appendix D: Socioeconomic Impact Analysis March 30, 2007

**Applied Development Economics 8**  **Final Staff Report for Rule 4565** 

## 5. IMPACTED INDUSTRI **ES SUBJECT TO NEW RULE 4612** 

This section of the socioeconomic analysis describes demographic and economic trends in the San Joaquin Valley region. The first part of this section compares the San Joaquin Valley region against California as a whole, and provides a context for understanding demographic and economic changes that occurred within the San Joaquin Valley region between 1995 and 2005. Starting with sub

section 5.2, the second part of this section narrows the focus of the socioeconomic analysis to industries affected by Draft New Rule 4565. The second part of this section describes the economic characteristics of potentially impacted industries that might be subject to Rule 4565

. 

### 5.1 REGION **AL DEMOGRAPHIC AND ECONOMIC TRENDS**  **R EGIONAL**  

### D **EMOGRAPHIC** 

### T **RENDS** The San Joaquin Valley region experienced tremendous population growth during the 1990s. Many came to this area because of affordable housing. As a result, population increased significantly. The eight

- county region’s population increased by 22 percent (or approximately 2.0 percent annually), from 3.0 million in 1995 to 3.7 million in 2005. Population growth continued on its healthy pace, as regional population grew by 2.5 percent annually betwe en 2000 and 2005. While the State of California’s population increased by 15 percent (or approximately 1.5 percent annually) between 1995 and 2005, all the counties in the region experienced faster rates of growth than California, as Table 1 shows. While, by many standards, Madera County continues to be a small county

– at 140,747 residents according to the Department of Finance

–

it still experienced an annual growth rate of 2.6 percent between 1995 and 2005. Kings County also grew rapidly at 2.4 percent per year. As demonstrated in the following section on regional economic trends, the demographic changes that occurred in the San Joaquin Valley**SA N JOA** **QUIN VA LLEY UNIFIED A** **IR POLLUTION CONTRO L DISTRICT** 

Appendix D: Socioeconomic Impact Analysis March 30, 2007

**Applied Development Economics 9**  **Final Staff Report for Rule 4565** region during the 1990s and into the new century significantly influenced the economy of this eight

- county region.

**TABLE 1 Population Growth: San Joaquin Valley Region, 1995**  **- 2005** 

**1995 2000**  **2005 Distribution**  **2005 Annual** 

**% Chng 95**  **- 00**  **Annual**

**% Chng 00**  **- 05**  **Annual**

**% Chng 95**  **- 05**  California 31,617,000 33,871,648 36,728,196 1.4% 1.6% 1.5% SJV Region 3,064,700 3,302,792 3,741,225 1.5% 2.5% 2.0% Fresno 748,400 799,407 883,650 24% 1.3% 2.0% 1.7% Kern 615,600 661,645 757,882 20% 1.5% 2.8% 2.1% Kings 114,800 129,461 145,110 4% 2.4% 2.3% 2.4% Madera 108,800 123,109 140,747 4% 2.5% 2 .7% 2.6% Merced 198,700 210,554 241,464 6% 1.2% 2.8% 2.0% San Joaquin 517,900 563,598 655,319 18% 1.7% 3.1% 2.4% Stanislaus 413,000 446,997 505,352 14% 1.6% 2.5% 2.0% Tulare 347,500 368,021 411,701 11% 1.2% 2.3% 1.7% Source: Applie d Development Economics, based on California Department of Finance



### R **EGIONAL** 

### E **CONOMIC** 

### T **RENDS** Economic development practitioners and planners have traditionally divided economies into two broad industrial categories

—the economic base and local support indu stries. Economic base industries are the drivers of local and regional economies in that these industries draw income into a local economy by selling products outside of the local economy, much like the export industries of a national economy. Accrued earnings then circulate throughout the local area in the form of wages and salaries; investments; purchases of fixed assets, goods, and services; and generation of more jobs and wealth. The economic base is typically comprised of industries within the manufac turing, minerals

- resource extraction, and agricultural sectors. There are also the “local support industries” such as retail or service sectors, the progress of which is a function of the economic base and demographic changes, and more so the latter than the former. As population increases in a given area, demand for services

– such as realtors, teachers, and healthcare

– increases, as does**SA N JOA** **QUIN VA LLEY UNIFIED A** **IR POLLUTION CONTRO L DISTRICT** 

Appendix D: Socioeconomic Impact Analysis March 30, 2007

**Applied Development Economics 10**  **Final Staff Report for Rule 4565** demand for basic retail items like groceries, gas for commuting, or clothing at the local apparel shops. Agriculture is th e economic base of the San Joaquin Valley region by virtue of the amount of goods this sector produces and exports throughout the nation and the globe. Fourteen percent of all workers in the region are employed by industries within agriculture, as Table 2 shows. However, in 2000 almost 18 percent of all workers worked in agriculture. In fact, over the five

- year period between 2000 and 2005, employment in agriculture declined by 3.4 percent per year, or by almost 16 percent over five years. Between 2000 and 2005, local support industries gained in prominence within the San Joaquin Valley region. Service

rendering industries employed the most workers as a proportion of total employment in the region. As Table 2 shows, excluding wholesale, retail, and transport ation, service

- rendering industries comprise the largest employment sector in the region, at 582,400 or 52 percent of all jobs. With retail, transportation and wholesale, services accounting for almost 72 percent of all jobs. In 2000, service

- rendering industries represented 49 percent of all jobs, and when including retail, wholesale, and transportation in the mix, 68 percent. Increases in employment in service

- rendering industries are consistent with regional population growth. In the region, local supp ort industries of construction, education and health, and financial activities increased annually by 5.6 percent, 3.4 percent, and 2.5 percent respectively between 2000 and 2005.**SA N JOA** **QUIN VA LLEY UNIFIED A** **IR POLLUTION CONTRO L DISTRICT** 

Appendix D: Socioeconomic Impact Analysis March 30, 2007

**Applied Development Economics 11**  **Final Staff Report for Rule 4565 TABLE 2**  **Employment Profile Of The San Joaquin Valley Region 2000 –**  **2005**

**MAJOR SECTORS San Joaquin**  **Valley Region**  **Employment 2000**  **San Joaquin**

**Valley Region Employment**  **2005 San Joaquin** 

**Valley Region**  **Employment Distribution,**  **2005 Annual** 

**Percent Change**  **2000 to 2005 California** 

**Employment Distribution,**  **2005 Annual** 

**Percent Change**  **Cal ifornia**  **2000 to 2005** Agriculture 190,500 160,357 14%

- 3.4% 3%

- 1.7% Resources, Mining and Construction 38,700 50,700 5% 5.6% 6% 4.1% Manufacturing 111,600 108,800 10%

- 0.5% 10%

- 4.1% Wholesale 35,200 40,500 4% 2.8% 5% 0.9% Retail 123,200 137,300 12% 2 .2% 11% 1.2% Transportation/Warehousing/Utilities 39,800 44,500 4% 2.3% 3%

- 1.2% Information 15,300 14,800 1%

- 0.7% 3%

- 3.8% Financial Activities 38,600 43,600 4% 2.5% 6% 3.1% Professional and Business Services 95,000 98,800 9% 0.8% 15%

- 0.8% Educatio nal and Health Services 103,800 122,400 11% 3.4% 11% 2.5% Leisure, Hospitality and Other Srvs 81,500 92,900 8% 2.7% 10% 2.0% Government 195,500 209,900 19% 1.4% 16% 0.8% Total Employment 1,068,700 1,124,557 100% 1.0% 100% 0.3% Source: Applied Developm ent Economics, based on data from California Employment Development Department LMID

The emergence of local support industries in the San Joaquin Valley region mirrors and leads statewide trends, as Table 2 shows. In the region, construction and health

- education increased annually by 5.6 percent and 3.4 percent, whereas, statewide, these industries grew by 4.0 percent and 2.5 percent between 2000 and 2005. In short, while agriculture remains the leading edge of the economy, the San Joaquin Valley region’s economy has become more diverse, with the growth occurring within population

- driven local support industries rather than the export

- focused economic base industries of manufacturing and agriculture. 

### 5.2 **DESCRIPTION OF AFFEC TED INDUSTRIES**  Draft New Rule 46 56 controls volatile organic compound (VOC) emissions from facilities that handle bio

- solids, animal manure or poultry litter. Bio

- solids are sewage sludge that has been treated to meet standards for land application under Part 503 of the Clean Water Act. Sewage sludge is treated in the wastewater process, generally through aerobic or anaerobic microbial activity for a specified time at a specified temperature. Sewage sludge requires treatment to ensure that its release into the environment is protective o f human health and the environment as required by the Clean Water Act.**SA N JOA** **QUIN VA LLEY UNIFIED A** **IR POLLUTION CONTRO L DISTRICT** 

Appendix D: Socioeconomic Impact Analysis March 30, 2007

**Applied Development Economics 12**  **Final Staff Report for Rule 4565** There are approximately 29 establishments in various industries in the San Joaquin Valley Air Basin that are potentially subject to the rule, as these businesses operate bio

solid, anim al manure or poultry litter composting facilities. Table 3 lists the names of industries that the 29 establishments are a part of. The twenty

- nine are spread across 16 industries, of which, 12 are agriculture

- related. Some are actual providers of compos ting or co

- composting services, while others do this as side activities for businesses whose main line of work is something else, such as growing crops or producing livestock. Given the breadth of industries, the socioeconomic analysis aggregates economic trends and findings.

**TABLE 3 List of Industries That Affected Sources** 

**Are a Part of**

**SIC Code Industry Description**  0119 Cash grains, nec 0161 Vegetables and melons 0173 Tree nuts 0175 Deciduous trees 0191 General Crops 0211 Beef cattle feedlots 0 251 Broilers, fryers, roaster chickens 0254 Poultry hatcheries 0711 Soil preparation services 2084 Wineries 2875 Fertilizers, mixing only 4952 Sewerage systems 4953 Refuse systems 5191 Farm supplies 8999 Servcies, nec 9532 Administration, community development planning

Below, Table 4 tracks employment trends of industries that the 29 composting businesses are a part of. Tables 4 and 5 are presented to establish the broader economic context in which the draft new rule is being promulgated. As Table 4 indicates, employment in the region decreased by 8,212 workers between 2000 and 2005, or by almost two percent per year. Over the ten

- year period stretching from 1995 to**SA N JOA** **QUIN VA LLEY UNIFIED A** **IR POLLUTION CONTRO L DISTRICT** 

Appendix D: Socioeconomic Impact Analysis March 30, 2007

**Applied Development Economics 13**  **Final Staff Report for Rule 4565** 2005, regional employment in industries that the 29 composting businesses are a part of also decreased by almost two percent annually. Employment also declined at the state level, although not as precipitously as in the region.

**TABLE 4 Employment Trends of Industries That 29 Affected Sources Are a Part** 

**Of: San Joaquin Valley Re gion, 1995**  **- 2005** 

**1995 2000**  **2005 Change**  **00 -**  **05 Annual** 

**% Chng 95**  **- 00**  **Annual**

**% Chng 00**  **- 05**  **Annual**

**% Chng 95**  **- 05**  California 157,717 159,472 150,113

- 7,604 0.2%

- 1.2%

- 0.5% SJV Region 48,462 44,265 40,249

- 8,212

- 1.8%

- 1.9%

- 1.8% Sourc e: Applied Development Economics, based on California EDD LMID

Table 5 compares regional and statewide trends in greater detail. The 29 establishments are part of a set of industries that, in the eight

- county region, consists of 2,746 establishments in 16 different industries. The 2,746 establishments employ 40,249 workers, for an average of 14 workers per site. In the state as a whole, there are 10,144 establishments in comparable industries. In other words, 27 percent of all establishments in the industries of interest are located in the eight

- county region. Overall, there are 89,594 establishments in all industries in the eight county region, or seven percent of all establishments in all industries in the state. Thus, relative to the state as a who le, the eight

- county region has a greater concentration of industries that the 29 establishments are a part of.

[This section is blank on purpose]**SA N JOA** **QUIN VA LLEY UNIFIED A** **IR POLLUTION CONTRO L DISTRICT** 

Appendix D: Socioeconomic Impact Analysis March 30, 2007

**Applied Development Economics 14**  **Final Staff Report for Rule 4565 TABLE 5**  **Profile of Industries That 29 Affected Sources Are a Part of:**

**Regional and State Trends, 2005**

------- Affected Industries Only, 2005

------- ----- All Private and Public Industries, 2005

----- **Establishments Employment**  **Avg. Ann Wage Establishments**  **Employment Avg. Ann Wage**  Region 2,746 40,249 $27,796 89,594 1,124,557 $31,497 California 10,144 150,113 $40,920 1,221,897 14,650,300 $46,211 Region as percent of California 27% 27% 68% 7% 8% 68% Source: Applied Develop ment Economics, based on California EDD LMID
Table 5 also shows that the annual average wage in the region in the industries of interest is 68 percent of the average wage paid in the state as a whole for similar industries, or $27,796 versus $40,920. Both wages lag significantly behind average wage for all industries for the state as a whole, or $46,211. The discussion above described the economic context under which Draft New Rule 4565 is being promulgated. Below, this report profiles the 29 entit ies that would potentially be affected by the rule provisions. Table 6 below includes information on gross sales and net profits of sources impacted by proposed Draft New Rule 4565. In calculating revenues, the analysis considered the fact that some of the composting facilities are side activities of corporations whose primary activities and sources of revenue was related to wine, beef and or poultry. Other impacted sources are commercial composting sites whose respective revenues are based on tipping fees for handling bio

- solids or animal manure and sale of the composted product. For a number of these sources, data was available from sources such as Dun and Bradstreet, which was checked for accuracy against a conservative tipping fee factor of approxi mately $45.00 per ton per year. A comparison of revenue information available via Dun and Bradstreet and other sources for several businesses directly affected by the proposed draft rule yields a tipping fee of approximately $41 per ton per year. In all likelihood, this amount blends revenues from several related activities, not simply bio

- solid composting. Two businesses indicated via phone interviews that they generate approximately $24 per ton in tipping fee for bio

- solids only.**SA N JOA** **QUIN VA LLEY UNIFIED A** **IR POLLUTION CONTRO L DISTRICT** 

Appendix D: Socioeconomic Impact Analysis March 30, 2007

**Applied Development Economics 15**  **Final Staff Report for Rule 4565** It is also important to note that, of the 29 impacted sources, six are public entities, such as disposal sites for bio

- solids and other materials operated by cities and counties. The analysis examined departmental budgets of these six entities in determining their respective revenues, looking specifically at budget allocations and, if available, fund balance

- reserves. The analysis does not calculate an “after

- tax net profit” for the public entities but, for the purposes of conducting the socioeconomic analysis, compares annu al costs attributable to Draft New Rule 4565 against typical budget allocations. Table 6 shows that, on average, the seven impacted private establishments whose respective annual throughput exceeds 100,000 TPY generate approximately $204.9 million in sales , for an overall gross sales of $1.4 billion. Controlling for one very large business, the average falls to approximately $25.7 million, meaning these businesses are middle

- size companies. The one public entity whose throughput exceeds 100,000 TPY is Mer ced County’s “Highway 59 Research and Composting Operation” facility, which is an enterprise fund administered by Merced County’s Public Works Department. This enterprise’s annual budget allocation is approximately $10.2 million, on top of which is an annual reserve fund balance of $550,000. Table 6 also compiles data for five other public entities whose respective composting facilities generate less than 100,000 in TPY throughput. The revenues for these entities are based on annual departmental budget
allocations.

**TABLE 6 Econo**  **mic Profile of 29 Sources Operating Bio -**  **Solid, Animal Manure or**

**Poultry Litter Composting Facilities**

**Sector Throughput** 

**Category Establishments**  **Employment Avg. Annual**  **Wage Gross** 

**Revenues Net Profits**  Total 29 1,533 $32,239 $3,013,335,487 $145,566,759 P rivate Sector > 100,000 TPY 7 1,143 $31,130 $1,434,759,509 $95,203,838

< 100,000 TPY 16 243 $31,883 $1,463,711,512 $50,362,921 Public Sector > 100,000 TPY 1 108 $42,786 $10,165,000

< 100,000 TPY 5 40 $37,629 $104,699,467 Source: Applied Developme nt Economics, based on California EDD LMID, US Economic Census 2002 and US IRS, CCH, Inc. and Dun and Bradstreet**SA N JOA** **QUIN VA LLEY UNIFIED A** **IR POLLUTION CONTRO L DISTRICT** 

Appendix D: Socioeconomic Impact Analysis March 30, 2007

**Applied Development Economics 16**  **Final Staff Report for Rule 4565** As Table 6 shows, the seven private sector facilities generating more than 100,000 TPY typically generate approximately $95.2 billion in ne t profits off of $1.4 billion in gross revenues. The 16 private facilities generating less than 100,000 TPY generate approximately $50.3 million in net profits. No profit amount is estimated for public sector agencies, although it is worth noting that th e five entities generating less than 100,000 TPY maintain unrestricted fund balance reserves in the aggregate amount of $11.5 million, or 10.9 percent of their combined budget allocations. The one public sector entity generating more than 100,000 in TPY throughput has a fund balance reserve of $550,000.**SA N JOA** **QUIN VA LLEY UNIFIED A** **IR POLLUTION CONTRO L DISTRICT** 

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**Applied Development Economics 17**  **Final Staff Report for Rule 4565** 

## 6. SOCIOECONOMIC IMP**ACTS**

This section of the report compares the economic characteristics of affected industries against the compliance costs. The first part of this section discusses annual compliance cos ts. Section 6.2 discusses general business responses to compliance costs. Section 6.3 analyzes the socioeconomic impacts of Draft New Rule 4565. 

### 6.1 COMPLIANCE COST **ESTIMA TES**  Table 7 summarizes the estimated annualized costs for large composting faciliti es. Data comes from the San Joaquin Valley Unified Air Pollution Control District. As noted in Section III of the District’s staff report (Appendix C), the costs were taken from published sources. District staff assumed a 250 dry tons per day composting f acility as the model facility. The annualized cost for construction and maintenance of an un

- aerated windrow composting facility was subtracted from the ASP or in

- vessel costs, since operators would have to build such a facility in the absence of the draft rule provisions and the District’s Rule 2201 (New and Modified Source Review Rule). Given high construction costs and possible impacts to net profits, District staff does not believe any of the affected sources will pursue the High Cost Scenario. Annual cost per facility ranges are below, with Low End at $728,852 and the High End at $3,072,873.

**TABLE 7. Annual Compliance Cost: Draft New Rule 4565**

**Lowest Cost Scenario: ASP & Biofilter Low End**  **Highest Cost Scenario: In -**  **Vessel and RTO High End**  Total Ca pital Cost $7,775,000 Total Capital Cost $21,185,000 Total annualized capital cost (10%

- 10 years) $1,265,345 Total annualized capital cost (10%

- 10 years) $3,447,761 Total Annual O & M Cost $124,305 Total Annual O & M Cost $285,910 Total Annualize d Cost ASP & Biofilter $1,389,650 Total Annualized Cost

- In

- Vessel & RTO $3,733,671 Windrow Annualized Cost

- $660,798 Windrow Annualized Cost

- $660,798 **Net Low -**  **End Annual Costs ($/yr/facility) $728,852**  **Net High -**  **End Annual Costs ($/yr/facility) $3,072**  **,873** Source: San Joaquin Valley Unified Air Pollution Control District**SA N JOA** **QUIN VA LLEY UNIFIED A** **IR POLLUTION CONTRO L DISTRICT** 

Appendix D: Socioeconomic Impact Analysis March 30, 2007

**Applied Development Economics 18**  **Final Staff Report for Rule 4565** 

### 6.2 BUSINESS RESPONS **ES TO COMPLIANCE COSTS**  Industries impacted by the draft rule may respond in a variety of ways when faced with new regulatory costs. These responses may range from simply absorbing the costs and accepting a lower rate of return, to shutting down the affected business operation altogether and, where practical, shift from lower

- value to higher

- value product and or service. Impacted industries might also seek to pass co sts to users of services or purchasers of goods. Affected sources may also seek to renew efforts to increase productivity and reduce costs elsewhere in their operation in order to recoup the regulatory costs and maintain profit levels. 

### 6.3 **IMP AC**  **TS ON**  **AFF ECTED**  **INDUSTRIES** This section of the report analyzes estimated after tax net profits of affected industries against anticipated costs associated with implementation of the draft new rule. While there are 29 potentially affected composting facilities in th e District, Draft New Rule 4565 would affect eight establishments whose respective throughput exceeds over 100,000 TPY. Of the eight, seven are private sector facilities. For these seven, the annual cost of the new rule amounts to 5.4 percent of net prof

its and 22.6 percent of net profits in the Low End and High End scenarios respectively. At 5.4 percent, Draft New Rule 4565 does not significantly impact affected sources in a negative manner, as the impact is below the 10 percent significance threshold that is employed for the purposes of evaluating impacts. Of the eight impacted establishments, one is a public sector agency. Table 8 also shows that this entity is not significantly impacted with respect to its budget allocation. On average, this publi c entity is allocated annually $10.2 million, and the Low End annual cost as a share of this allocation amounts to 7.2 percent. It is important to note that the analysis does not evaluate the 7.2 percent against the 10 percent cost

- to

- net profit threshold . Rather, the analysis evaluates the impact against budget allocation trends and future demand. Over the past two years, the budget allocation of this agency has grown by 12 to 14 percent per year, largely on the strength of fees paid by growing number o f users of two sites maintained**SA N JOA** **QUIN VA LLEY UNIFIED A** **IR POLLUTION CONTRO L DISTRICT** 

Appendix D: Socioeconomic Impact Analysis March 30, 2007

**Applied Development Economics 19**  **Final Staff Report for Rule 4565** by this agency. In fact, the agency is looking for another site as a result of strong demand.
**TABLE 8. Socioeconomic Impact Analysis: Annual Cost In Relation to Affected**  **Industry Net Profits**

**Sector Throughput** 

**Category Est**  **ablishments Net Profits**  **Annual Costs (Low)**  **Annual Costs**

**(High) Annual Costs** 

**as a Percentage of**  **Net Profits*** **(Low) Annual Costs** 

**as a Percentage of**  **Net Profits*** **(High)** Total 29 $145,566,759 $5,830,818 $24,582,988 Private Sector > 100,000 TPY 7 $95,203,8 38 $5,101,966 $21,510,114 5.4% 22.6%

< 100,000 TPY 16 $50,362,921 Public Sector > 100,000 TPY 1 $728,852 $3,072,873 7.2% 30.2%

< 100,000 TPY 5 Source: Applied Development Economics, based on SJVAUPCD and Dun and Bradstreet (*note: for public sector entity, the annual cost is measured against typical departmental budget allocations)

It is also important to note that some of the impacted sources could seek to offset in part or whole annual costs associated with the new draft rule by inc reasing their respective tipping fees. Of the eight impacted facilities, four are compost service providers who take in raw materials and bio

- solids and, for this service, are paid a tipping fee. Three are in the private sector and one is a public agency

. 1 Typically, bio

- solid fees are approximately $24. Given other related activities, it is not unusual to see revenues of all activities in the range $45 and $50 per ton per year, and sometimes as high as $70. Table 10 summarizes the throughput capacity of and aggregate costs attributed to these four service providers, to arrive at a $1.96 annual cost per ton per year figure. Thus, these affected sources could conceivably recover in part or in

1 Major clients for two of the three private sector bio

- solid services are local government entities, such as the City of Visalia and the Sanitation Districts of Los Angeles respectively. For the affected source serving the Visalia, the $728,850 annual cost translates into a monthly solid waste rate increase of $1.70. As it is, Visalia has one of the lowest residential refuse monthly rates in the region, at approximately $16.25 per month. Rates for Porterville, Fresno, Woodlake, Lindsey, Farmersville, Bakersfield, and Tulare County are approximately $17.25, $17.50, $17.75, $17.75, $18.00, $18.75, $20.00, and $22.00 respectively. For the affected source serving the Sanitation District of Los Angeles County, the $728,850 annual cost translates into a rate increase of $0. 35, which could be added on top of the average annual bill of $105, for a net change of 0.3 percent. In short, these bio

- solid facilities could pass costs onto their respective clients, who, in turn, could pass costs to rate payers with little significant impacts.**SA N JOA** **QUIN VA LLEY UNIFIED A** **IR POLLUTION CONTRO L DISTRICT** 

Appendix D: Socioeconomic Impact Analysis March 30, 2007

**Applied Development Economics 20**  **Final Staff Report for Rule 4565** full the annual cost associated with this rule by raising all fees by $1.96, or by 4.1 percent. A 4.1 percent price increase is reasonable as it falls within the typical change in prices for bio

- solids. According to the Bureau of Labor Statistics, the price of “fertilizer materials of organic origin” increases typi cally by 4.5 percent per year. 2

**TABLE 9. Socioeconomic Impact Analysis: Potential Cost Recovery Solution for**  **Four Affected Stakeholders**

**Facilities Throughput**  **Ag Cost Cost/Ton**  **Typical Fee Fee Change**  4 1,483,750 $2,915,409 $1.96 $45

- $50 4.1% Source: Applied Development Economics, based on SJVUPACD



### 6.4 **IMP AC**  **T ON**  **SMALL BUSINESSES**  In addition to analyzing the employment impacts of Draft New Rule 4565, state legislation requires that the socioeconomic analysis assess whether small businesses are disprop ortionately affected by air quality rules. While the District has organized data by size categories that distinguish small facilities from large ones based on the throughput capacity factor of 100,000 tons per year, this section of the report analyzes imp acts to small businesses from the vantage point of how the State of California defines small businesses. This section begins by briefly summarizing how the state government defines small businesses for the purposes of qualifying certain businesses for var ious programs. This section concludes with a discussion as to whether the affected industries include small businesses and assesses whether those small businesses are disproportionately impacted by the new rules. 

### D **EFINITION** 

### O **F** 

### A **S MALL**  

### B **USINESS** For purpose s of qualifying small businesses for bid preferences on state contracts and other benefits, the State of

2 United States. Department of Labor. Bureau of Labor Statistics. “Producer Price Index

- Commodities. Group: chemicals and allied products \ item: fertilizer materials of organic origin” (www.bls.gov)**SA N JOA** **QUIN VA LLEY UNIFIED A** **IR POLLUTION CONTRO L DISTRICT** 

Appendix D: Socioeconomic Impact Analysis March 30, 2007

**Applied Development Economics 21**  **Final Staff Report for Rule 4565** California defines small businesses in the following manner 3

. To be eligible for small business certification, a business:

 Must be independently owned and operated;

 Cannot be dominant in its field of operation;

 Must have its principal office located in California

 Must have its owners (or officers in the case of a corporation) domiciled in California; and

 Together with its affiliates, be either:

 A busine ss with 100 or fewer employees, and an average gross receipts of $10 million or less over the previous tax years, or

 A manufacturer with 100 or fewer employees Due to limitations of the data set, it is difficult to ascertain how many of the establishments are small businesses per the features identified directly above. It is possible to estimate how many affected establishments employ more than 100 workers, as well as to estimate the average revenues generated by affected establishments of a given size. Based on the information provided by the District and compiled in Tables 6 and 8, we conclude that the eight affected sources are not small businesses, and we base this decision largely on the amount of revenue generated by each business.

3 State of California. Department of General S ervices. “California Small Business Certification” (http: www.pd.dgs.ca.gov/smbus/sbcert.htm)