## APPENDIX D

Socioeconomic Analysis For Amendments to Rule 4601

December 17, 2009D – 2 Final Staff Report with Appendices For

Amendments to Rule 4601 This page intentionally blank.D – 3 Final Staff Report with Appendices For Amendments to Rule 4601 

## SOCIO-ECONOMIC IMPACT ANALYSIS PROPOSED AMENDMENTS TO RULE 4601

(ARCHITECTURAL COATINGS)



## DRAFT

SEPTEMBER 1, 2009

Prepared for San Joaquin Valley Unified Air Pollution Control Di strict

Prepared by Applied Development Economics 100 Pringle Avenue, Suite 560  Walnut Creek, California 94596  (925) 934-8712 2151 River Plaza Drive, Suite 150  Sacramento, CA 95833  (916) 923-1562 www.adeusa.comD- 4 Final Staff Report with Appendices For Amendments to Rule 4601 

## CONTENTS

1. Executive Summary ................................................................................5

2. Introduction ........................................................................................7

3. Description of Draft Amendments to Rule 4601......... .......................................9

4. Methodology .......................................................................................11

5. Impacted Industries Subject to Proposed Amendme nts to Rule 4601 ......................13

6. Socio-economic Impacts ........................................................................ .19D- 5 Final Staff Report with Appendices For Amendments to Rule 4601 

## 1. EXECUTIVE SUMMARY

This report describes the socioeconomic impacts of Draft Amendments to Rule 4601 (Architectural Coatings) dated September 15, 2009, which implements an emission control
measure in the District’s 2007 Ozone Plan and requirements in the California Air Resources Board’s (ARB) Suggested Control Measure (SCM) for a rchitectural coatings.

There are five establishments in the industry calle d paints and coatings manufacturing (NAICS 325510). The analysis shows that this indus try will be able to pass costs to households without any significant impact to the in dustry and households. While all of the five establishments are small businesses, the analy sis further concludes that small businesses are not disproportionately impacted by the rule.D – 6 Final Staff Report with Appendices For Amendments to Rule 4601 “This page intentionally left blank”D – 7 Final Staff Report with Appendices For Amendments to Rule 4601 

## 2. INTRODUCTION

This report describes the socioeconomic impacts of Draft Amendments to Rule 4601 (Architectural Coatings), which implements an emiss ion control measure in the District’s 2007 Ozone Plan

and requirements in the California Air Resources B oard’s (ARB) Suggested Control Measure (SCM) for architectural coatings. Following this introduction, the report summarizes the proposed amendments and describes th e methodology for the socioeconomic analysis. In Section 5, the report de scribes the economic characteristics of sources affected by the proposed amendments. The si xth section analyzes the socioeconomic impacts of compliance costs on the af fected sources and the regional

economy.
The report is prepared pursuant to the provisions o f AB2051 (Section 40728.5 of the California Health and Safety Code), which requires an assessment of socioeconomic impacts of proposed air quality rules. The findings in this report can assist District staff in understanding the socioeconomic impacts of the prop osed amendments, and can assist staff in preparing a refined version of the rule. Figure 1 is a map of the eight-county region that comprises the San Joaquin Valley Air Basin. As indi cated in the map, Kern County is not completely in the District.

FIGURE 1

MAP OF SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CON TROL DISTRICTD – 8 Final Staff Report with Appendices For Amendments to Rule 4601 “This page intentionally left blank”D – 9 Final Staff Report with Appendices For Amendments to Rule 4601 

## 3. DESCRIPTION OF DRAFT AMENDMENTS TO RULE 4601 (ARCHITECTURAL COATINGS)

Total emissions from architectural coatings and ass ociated materials represent almost ten percent of the total VOC emissions from stationary and area sources, and almost five percent of all VOC emissions statewide. This rule p roject would amend Rule 4601 (Architectural Coatings) to implement the emission control requirements listed in the 2007 Ozone Plan and requirements in the ARB Suggested Co ntrol Measure (SCM) for architectural coatings, promulgated September 2007. The draft amendments to Rule 4601
will seek to obtain as much VOC emissions reduction s from the source category as expeditiously practicable, technologically feasible , and economically reasonable, as determined by the District’s Governing Board. The changes being considered may be contained in architectural coatings rules or permit conditions in other air districts in California. Thus, including these changes will ens ure that Rule 4601 meets RACT requirements in accordance with CAA 182(b)(2) and 1 82(f) and BACM requirements in accordance with CAA 189 (b)(1)(B).

As guidelines for developing the proposed changes t o Rule 4601, District staff evaluated the 2007 Ozone Plan, rules in other districts, ARB SCM, and best available control technology (BACT) determinations. The District’s 2007 Ozone Pl an estimates that this rule project will reduce about 2.0 tons per day (tpd) of VOC emission s upon full implementation in 2012.

Amended Rule 4601 will specify the Best Available R etrofit Control Technology. As used in this project, "Best Available Retrofit Control Tech nology" means an emission limitation that is based on the maximum degree of reduction achieva ble, taking into account environmental, energy, and economic impacts by each class or categ ory of source (CH&SC 40406).

This section of the report begins by reviewing the context within which the District seeks to amend Rule 4601. Then, this section discusses Rule 4601 as currently written, and summarizes proposed changes to this rule. 

### CURRENT RULE 4601 (ARCHITECTURAL COATINGS)
Architectural coatings are products that are applie d to stationary structures and their accessories. They include house paints, stains, ind ustrial maintenance coatings, traffic coatings, and many other products. When these coati ngs are applied, VOCs are emitted from the coatings and from solvents that are used f or thinning and clean-up. For purposes of this rule, architectural coatings are defined as a coating to be applied to stationary structures or their appurtenances at the site of in stallation, to portable buildings at the site of installation, to pavements or to curbs.

On October 26, 2007 the ARB approved amendments to the SCM for Architectural Coatings. The SCM was developed for districts that need additional emission reductions for
the attainment or maintenance of State or federal a mbient air quality standards. ARBD – 10 Final Staff Report with Appendices For Amendments to Rule 4601 promulgated the SCM to lower the VOC limits, improv e definitions for many coatings, and to promote consistency and uniformity among distric t rules. Districts in need of further VOC reductions than the reductions expected to be a chieved by the approved SCM should consider and adopt, if appropriate, the more string ent regulation adopted by the South Coast AQMD as its Rule 1113.

SCM Amendments

The amended SCM established VOC content limits for more than 40 categories of architectural coatings. Compared to the 47 categori es in the 2000 SCM, 15 categories were eliminated, ten were added, and the limits for 19 c ategories were lowered. The following information is a summary of ARB amendments to the 2 007 SCM.

The 2007 SCM includes several requirements besides the VOC content limits. The aforementioned SCM and corresponding staff report c an be found on the ARB website at http://www.arb.ca.gov/coatings/arch/Approved_2007_S CM.pdf . These requirements include the following:

• Definitions were added, deleted or amended;

• A new requirement to submit sales data;

• Container labeling requirements;

• A “painting practices” provision designed to limit VOC emissions from open paint containers;

• A thinning provision specifying allowable thinning practices; and

• A sell through provision allowing three years to se ll products manufactured prior to
the effective date of the VOC limit.

For more detail, see District staff report of Septe mber 15, 2009, particularly pages four through seven.D – 11 Final Staff Report with Appendices For Amendments to Rule 4601 

## 4. METHODOLOGY

The socioeconomic analysis involves the use of info rmation provided directly by affected sources, as well as secondary data used to describe the industries affected by the proposed amendments to the Rule 4601. The approach is briefl y described below.

Applied Development Economics (ADE) began the analy sis by preparing a statistical description of the industry groups of which the aff ected sources are a part, analyzing data on the number of jobs, sales levels, the typical profi t ratios and other economic indicators for each industry.

This report relies heavily on the most current data available from a variety of sources, such as the 2002 Economic Census, US Bureau of Labor Sta tistics, and the State of California’s Employment Development Department (EDD) Labor Marke t Information Division. For purposes of estimating profits, ADE reviewed indust ry-specific financial ratios issued by the
US Internal Revenue Services.

With the above information, ADE was able to estimat e net after tax profit ratios for sources affected by the proposed amendments. ADE calculated ratios of profit per dollar of revenue
for affected industries. The result of the socioeco nomic analysis shows what proportion of profits the compliance costs represent. Based on as sumed thresholds of significance, ADE discusses in the report whether the affected source s are likely to reduce jobs as a means of recouping the cost of rule compliance or as a resul t of reducing business operations. To the extent that such job losses appear likely, the indi rect multiplier effects of the jobs losses are estimated using a regional IMPLAN input-output mode l.

When analyzing the socioeconomic impacts of propose d new rules and amendments, ADE works closely within the parameters of accepted met hodologies discussed in a 1995 California Air Resources Board report called “Devel opment of a Methodology to Assess the Economic Impact Required by SB513/AB969” (by Peter Berck, PhD, UC Berkeley Department of Agricultural and Resources 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 regulation s would have on the ability of California businesses to compete. The California Ai r Resources Board (ARB) has incorporated the methodologies described in this re port in its own assessment of socioeconomic impacts of rules generated by ARB. On e methodology relates to determining
a level above or below which a rule and its associa ted costs is deemed to have significant impacts. When analyzing the degree to which its rul es are significant or insignificant, ARB employs a threshold of significance that ADE follow s. 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.”D – 12 Final Staff Report with Appendices For Amendments to Rule 4601 ADE also analyzed San Joaquin Valley region househo ld spending on home improvement generally and on paints in particular. ADE estimat ed household spending using its retail spending model, which is based on consumer spending data from the United States Bureau
of Labor Statistics. ADE’s model takes into accoun t spending by broad ethnic categories of non-Latino and Latino, income brackets, and age of householders. In the event manufacturers and retail pass costs stemming from p roposed amendments to Rule 4601 to consumers, ADE analyze impacts of these costs as pe rcent of home improvement spending generally and spending on paints in particular.D – 13 Final Staff Report with Appendices For Amendments to Rule 4601 

## 5. IMPACTED INDUSTRIES SUBJECT TO PROPOSED AMENDMENTS TO RULE 4601

This section of the socioeconomic analysis describe s demographic and economic trends in the San Joaquin Valley region. The first part of th is 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 J oaquin Valley region between 2000 and 2008. Starting with sub-section 5.2, the second par t of this section narrows the focus of the socioeconomic analysis to industries affected by th e proposed changes to Rule 4601. The second part of this section describes the economic characteristics of potentially impacted industries that might be subject to these rules.



### 5.1 REGIONAL DEMOGRAPHIC AND ECONOMIC TRENDS

R EGIONAL 

### D EMOGRAPHIC 

### T RENDS The San Joaquin Valley region experienced significa nt population growth during the 1990s and into the new millenium. Many came to this area because of affordable housing. As a result, population increased significantly. The eig ht-county region’s population increased by 2.3 percent annually, from 3.3 million in 2000 to 3 .9 million in 2008. In the four years, population growth rate slightly declined, as region al population grew by 2.1 percent annually between 2004 and 2008. In contrast, the State of Ca lifornia’s population increased by 1.5 percent annually between 2000 and 2008. As the tab le below shows, all the counties in the region experienced faster rates of growth than Cali fornia over the same period. While, by many standards, Madera County continues to be a sma ll county– at 150,887 residents according to the Department of Finance–it still exp erienced an annual growth rate of 2.6 percent between 2000 and 2008. Between 2004 and 200 8, this county continued to grow annually but at a slightly lesser rate of 2.5 perce nt. In the same four-year period, Kern, Merced, and Kings Counties experienced rapid growth , growing annually by 2.8 percent, 2.2 percent, and 2.2 percent respectively, as the table below shows. As demonstrated in the following section on regional economic trends, the demographic changes that occurred in the San Joaquin Valley region during the 1990s and into the new century influenced the economy of this eight-county region.

“This section intentionally left blank”D – 14 Final Staff Report with Appendices For Amendments to Rule 4601 TABLE 1 POPULATION GROWTH: SAN JOAQUIN VALLEY REGION, 1994 – 2004

2000 2004 2008 Distribution 2008 Annual %

Chng 00-04 Annual %

Chng 04-08 Annual %

Chng 00-08

California 33,871,648 36,271,091 38,049,462 1.7% 1.2% 1.5%

SJV Region 3,302,792 3,642,937 3,956,003 2.5% 2.1% 2.3%

Fresno 799,407 866,523 931,098 24% 2.0% 1.8% 1 .9%

Kern 661,645 732,401 817,517 21% 2.6% 2.8% 2.7 %

Kings 129,461 141,510 154,434 4% 2.2% 2.2% 2.2%

Madera 123,109 136,923 150,887 4% 2.7% 2.5% 2.6 %

Merced 210,554 234,169 255,250 6% 2.7% 2.2% 2. 4%

San Joaquin 563,598 636,466 685,660 17% 3.1% 1. 9% 2.5%

Stanislaus 446,997 494,822 525,903 13% 2.6% 1. 5% 2.1%

Tulare 368,021 400,123 435,254 11% 2.1% 2.1% 2 .1% Source: Applied Development Economics, based on Cal ifornia Department of Finance



### R EGIONAL 

### E CONOMIC 

### T RENDS Economic development practitioners and planners hav e traditionally divided economies into two broad industrial categories—the economic base a nd local support industries. Economic base industries are the drivers of local and region al economies in that these industries draw income into a local economy by selling products out side of the local economy, much like the export industries of a national economy. Accrued ea rnings then circulate throughout the local area in the form of wages and salaries; inves tments; purchases of fixed assets, goods, and services; and generation of more jobs and wealt h.

The economic base is typically comprised of industr ies within the manufacturing, mineralsresource extraction, and agricultural sectors. Ther e 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 tha n the former. As population increases in a given area, demand for services–such as realto rs, teachers, and healthcare–increases, as does demand for basic retail items like groceries, gas for commuting, or clothing at the local apparel shops.

Agriculture is the economic base of the San Joaquin Valley region by virtue of the amount of goods this sector produces and exports throughout t he nation and the globe. Slightly less than 14 percent of all workers in the region are em ployed by industries within agriculture, as the table below shows. In 2000, approximately 18 pe rcent of all workers worked in agriculture. By 2004, this ratio stood at 17 percen t. In fact, over the four-year period between 2004 and 2008, employment in agriculture de creased by 2.7 percent per year. In California as a whole, agriculture represents almos t three percent of total employment.D – 15 Final Staff Report with Appendices For Amendments to Rule 4601 Between 2004 and 2008, local support industries gai ned in prominence within the San Joaquin Valley region. Service-rendering industries employed the most workers as a proportion of total employment in the region. Servi ce-rendering industries comprise 71 percent of all jobs, including public sector positi ons. In other words, 935,248 jobs out of a total of 1,317,365 jobs are in service-rendering in dustries. Excluding the public sector, service-rendering jobs account for 52 percent of al l jobs in 2008. In 2004, service-rendering industries (excluding the public sector) represente d 48 percent of all jobs, indicating that the transition toward a services economy probably began in earnest in mid- to late 1990s with the increase in population in the region.

Employment increases in service-rendering industrie s are consistent with regional population growth. In the region, local support industries of private education and health, and financial activities increased annually by 6.9 percent and 3. 5 percent respectively between 2004 and
2008.

Construction and financial services are two other l ocal support industries that grew in accordance with the region’s population surge; howe ver, with the downturn in the national economy, these industries’ rates of growth have low ered dramatically. Employment in construction grew by almost 13 percent per year bet ween 2000 and 2004; between 2004 and 2008, construction continued to grow but by a slowe r rate of nine percent per year.

Close examination of Table 2 shows that the region experienced modest growth in manufacturing, as employment in this sector grew an nually by 0.1 percent between 2004 and 2008. Between 2000 and 2004, manufacturing employme nt increased annually by 0.7 percent. What was a regional bright spot in the la te 1990s, transportation and warehousing experienced negative 1.9 percent declines between 2 004 and 2008, as compared to the 2.7 percent annual growth between 1998 and 2003.

“This section intentionally left blank”D – 16Final Staff Report with Appendices ForAmendments to Rule 4601TABLE 2EMPLOYMENT TRENDS: SAN JOAQUIN VALLEY REGION: 2000-2004SJV RegionEmployment2000SJV RegionEmployment2004SJV RegionEmployment2008SJV RegionEmployment2008:DistributionCaliforniaEmployment2008:DistributionAnnual %Chng00-04: SJVAnnual %Chng04-08: SJVAgriculture190,500 199,400 178,522 13.6% 2.5% 1.1% -2.7%Resources, Mining and Construction 38,700 62,400 88,442 6.7% 6.1% 12.7% 9.1%Manufacturing111,600 114,600 115,153 8.7% 9.3% 0.7% 0.1%Wholesale35,200 35,300 45,299 3.4% 4.6% 0.1% 6.4%Retail123,200 123,300 143,910 10.9% 10.8% 0.0% 3.9%Transportation/Warehousing/Utilities 39,800 39,50036,514 2.8% 2.7% -0.2% -1.9%Information15,300 15,300 15,328 1.2% 3.0% 0.0% 0.0%Financial Activities38,600 41,700 47,924 3.6% 5.8% 1.9% 3.5%Professional and Business Services 95,000 92,800 105,723 8.0% 14.5% -0.6% 3.3%Educational and Health Services 103,800 105,300 137,379 10.4% 10.5% 0.4% 6.9%Leisure, Hospitality and Other Srvs 81,500 115,400156,615 11.9% 14.8% 9.1% 7.9%Government195,500 228,300 246,556 18.7% 15.6% 4.0% 1.9%Total Employment 1,068,700 1,173,300 1,317,365 100.0% 100.2% 2.4% 2.9%Source: ADE, Inc., based on US BLS/CA EDD LMIDD-17 Final Staff Report with Appendices For Amendments to Rule 4601 

### 5.2 DESCRIPTION OF AFFECTED INDUSTRIES
Whereas the previous section described the larger e conomic context within which the District is contemplating proposed amendments to Ru le 4601, this section analyzes trends of industries directly affected by the proposed amendm ents. This rule affects paint and coating manufacturers (NAICS 325510). This industry empl oys 89 workers, an amount of workers that has decreased by almost four percent a year si nce 2004.

TABLE 3 EMPLOYMENT TRENDS: COATINGS INDUSTRIES: SJV REGION: 2004-2008

2004 2005 2006 2007 2008 Change CAGR

Paint & Coating Manufacturing (32551) 104 99 132 102 89 15 -3.75% Source: ADE, Inc., based on US BLS (note: CAGR: com pound annual growth rate)

In Table 4 below we profile economic characteristic s of NAICS 325510 in greater depth. In the region, there are five paint and coating establ ishments employing an estimated 89 workers, and these establishments generate an estim ated $63.2 million in combined revenues per year. Estimates are based on 2002 US Economic Census data for industries in the region, which were updated to 2008 based on inflati on and changes in number of workers.
The five manufacturers are:

• Ponderosa Paint

• Michelman

• Wilshire Paint Co

• Pioneer Paint Co

• Ennis Paint Inc

“This section intentionally left blank”D- 18 Final Staff Report with Appendices For Amendments to Rule 4601 TABLE 4 ECONOMIC PROFILE: COATINGS INDUSTRIES: SJV REGION: 2008

Paint & Coating Manufacturing (32551)

Establishments 5

Employment 89

Wages $4,538,941

Avg. Wages $50,999

Revenues (est.) $63,173,047

Net Profits (est.) $3,019,671

Revenue per Establishment $12,634,609D- 19 Final Staff Report with Appendices For Amendments to Rule 4601 

## 6. SOCIO-ECONOMIC IMPACTS

This section of the report compares the economic ch aracteristics of affected industries against the annual compliance costs. The first part of this section discusses annual compliance costs. Section 6.2 discusses general bus iness responses to compliance costs. Section 6.3 analyzes the socioeconomic impacts of t he proposed amendments to Rules 4601.



### 6.1 COMPLIANCE COST ESTIMATES

Table 5 summarizes the estimated annualized costs a ssociated with proposed amendments to
Rule 4601. The table includes cost estimates issue d by the District. These estimates are based on figures issued by the California Air Resou rces Board. As indicated in the table below, costs stemming from proposed amendments to R ule 4601 amount to an increases of $1.21 per gallon in coating materials.

TABLE 5

SCM COST EFFECTIVENESS AND MAXIMUM PER GALLON COST INCREASES

Individual CostEffectiveness for Each Limit Calculated Cost per Gallon to Consumers Cost Increase Per Gallon to Consumers
Aluminum Roof $0.41 $14.63 $1.16
Bituminous Roof $1.02 $11.81 $6.43
Concrete Masonry Sealer -$0.36 $14.09 -$0.88
Dry Fog -$0.52 $34.86 -$3.96

Flat -$0.69 $17.81 -$0.33

Floor $13.90 $16.96 $27.30
Mastic Texture $2.38 $17.72 $8.61

Non Flat $7.03 $19.44 $4.40
Non Flat High Gloss -$1.38 $23.96 -$3.39

PSU $2.73 $16.90 $2.51

Roof $1.38 $29.94 $1.95
Rust Preventative -$0.46 $30.30 -$2.51
Specialty PSU -$0.71 $25.19 -$6.32
Traffic Marking $4.73 $14.18 $4.00
Waterproofimg Membrane $6.55 $33.38 $17.00
Wood Coatings -$1.13 $38.70 -$6.34

Overall Results $1.12 $19.20 $1.21 Source: San Joaquin Valley Unified Air Pollution Co ntrol DistrictD- 20 Final Staff Report with Appendices For Amendments to Rule 4601 

### 6.2 BUSINESS RESPONSES TO COMPLIANCE COSTS
Industries impacted by the proposed amendments may respond in a variety of ways when faced with new regulatory costs. These responses ma y range from simply absorbing the costs and accepting a lower rate of return, to shutting d own the affected business operation altogether and, where practical, shift from lower-v alue to higher-value product and or service. Impacted industries might also seek to pas s costs to users of services or purchasers of goods. Affected sources may also seek to renew e fforts to increase productivity and reduce costs elsewhere in their operation in order to recoup the regulatory costs and maintain profit levels.



### 6.3 IMPACTS ON AFFECTED INDUSTRIES
This section of the report analyzes impacts stemmin g from the proposed amendments on ultimate end-users of coatings products, namely hou seholds. First, we examine national trends with respect to changes in price of coatings materials, to place any costs stemming from the proposed amendments in the context of typi cal changes in price of coatings. As the table below shows, between 2002 and 2008, the p er gallon price of coatings materials increased annually by three percent, with a standar d deviation of 1.3 percentage points, meaning that annual percent change ranged from 1.7 percent to 4.3 percent, all the while average three percent per year.

TABLE 6

TRENDS IN ARCHITECTURAL/SPECIAL PURPOSE/ PRODUCT CO ATINGS: UNITED STATES ($2008)

Quantity (gallons) Value US Price Per Gallon Yr-to-Yr Chg.

02-08 CAGR -1.0% 2.0% 3.0%

02-08 Change -74,607 $2,137,006 $2.57

2008 1,216,093 $19,155,736 $15.75 $0.46

2007 1,320,256 $20,188,807 $15.29 -$0.34

2006 1,359,763 $21,259,784 $15.63 $1.73

2005 1,380,557 $19,197,680 $13.91 $0.18

2004 1,362,379 $18,693,622 $13.72 $0.43

2003 1,325,600 $17,624,523 $13.30 $0.11

2002 1,290,700 $17,018,730 $13.19 Source: US Census. Current Industrial Reports. MA32 5F - Paints and Allied Products. (http://www.census.gov/manufacturing/cir/historical _data/ma325f/index.htm) and US BLS

The table below adjusts $1.21 per gallon increase i n costs (see Table 5) stemming from proposed amendments to take into account historic t rends. Based on historic trends alone,D- 21 Final Staff Report with Appendices For Amendments to Rule 4601 the original per gallon cost of $19.20 would have i ncreased by three percent, or by $0.58 per gallon to $19.78 per gallon. In other words, of th e $1.21 per gallon increase stemming from the proposed amendments, $0.58 could be attributed to historic trends with the remaining $0.63 attributable to the rule changes itself.

TABLE 7 COST ASSOCIATED WITH PROPOSED AMENDMENTS TO RULE 4601 TAKING INTO ACCOUNT HISTORIC

CHANGES IN COST

Coatings ($/gallon)
[a] Average cost to consumers: ARB $19.20
[b] Cost to consumers: based on 3% historic trends $19.78
[c] Change based on historic trends $0.58
[d] Impact of Proposed Amendments to Rule 4601 $1.2 1

[e] Impact above historic change (d-c) $0.63
Source: ADE, Inc., based on SJVUAPCD and US Census



### S OCIO 

### -E CONOMIC 

### A NALYSIS AND 

### S MALL 

### B USINESS 

### D ISPROPORTIONATE 

### I MPACT 

### A NALYSIS 

### : I NDUSTRIES 

### A FFECTED BY 

### P ROPOSED 

### A MENDMENTS TO 

### R ULE 

### 4601

Table 8 below shows that NAICS 325510 manufactures and retailers could pass costs to consumers without significantly altering consumer s pending on paint and coating products. Households in the region spend approximately $818 m illion a year on home improvement products, and, of this amount, almost $101 million a year on paints. In other words, twelve percent of households’ annual home improvement budg et is spent on paint. In the event paint and coatings manufacturers (NAICS 325510) pas s all costs directly stemming from the amendments to consumers, at $617,425, the pass-thro ugh amount represents 0.08 percent of households’ annual home improvement spending, as we ll as 0.61 percent of households annual spending on paint. Including the three perc ent point change in price that happens anyways, households in the region would spend 3.61 percent more on paints than they would have spent if the proposed amendments were no t implemented. The 3.61 percent impact is within the average change in price exhibi ted by this industry, plus/minus the 1.3 percentage point standard deviation

“This section intentionally left blank”D-22 Final Staff Report with Appendices For Amendments to Rule 4601 TABLE 8 Socioeconomic Impact Analysis: Proposed Amendments to Rule 4601 (Architectural

Coatings): Cost As Percent of SJV Consumer Spending

Paint & Coating Manufacturing (32551)

Establishments 5

Estimated non-compliant gallons: scenarios 980,040

Impact above historic change (cost per gallon) $0.63

Aggregate adjusted cost scenarios taking into account hi storic trends $617,425

SJV consumer household spending: how much SJV consumers spend on home improvement $817,689,928

Aggregate adjusted cost households as percent of h ome improvement spending 0.08%

Aggregate adjusted cost households as percent of h ome improvement spending, including 3% change 3.08%

Significant no

SJV consumer household spending: how much SJV consumers spend on paint only $100,559,205

Aggregate adjusted cost households as percent of pa int spending 0.61%

Aggregate adjusted cost households as percent of pa int spending, including 3% historic change 3.61%

Significant no



### D EFINITION 

### O F 

### A S MALL 

### B USINESS For purposes of qualifying small businesses for bid preferences on state contracts and other benefits, the State of California defines small bus inesses in the following manner 1 . To be eligible for small business certification, a busine ss:

 Must be independently owned and operated;

 Cannot be dominant in its field of operation;

 Must have its principal office located in Californi a

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

 Together with its affiliates, be either:

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

1 State of California. Department of General Service s. “California Small Business Certification” (http: www.pd.dgs.ca.gov/smbus/sbcert.htm)D-23 Final Staff Report with Appendices For Amendments to Rule 4601 • A manufacturer with 100 or fewer employees

In the table below, we organize NAICS 325510 by num ber of workers, to determine if small businesses are disproportionately impacted by the p roposed amendments. Of the five establishments that will be affected by the rule, a ll employ less than 100 workers. In other words, all establishments are small business as the y meet the “manufacturers with 100 or fewer employees.” Thus, proposed amendments to Rule 4601 could disproportionately impact small businesses. However, for reasons stat ed above, impacted business will be able to pass costs to consumers, leading us to conclude that small businesses are not significantly impacted by the proposed amendments.D-24Final Staff Report with Appendices ForAmendments to Rule 4601TABLE 9DISTRIBUTION OF BUSINESS BY SIZE: SMALL BUSINESS DISPROPORTIONATE IMPACT ANALYSIS: SJV REGION, 2008Establishments By Number ofWorkersIndustryEstab. 1 to 4 5 to 910 to1920 to4950to99100to249250to499500to9991000to14991500to24992500to4999 5000Paint & Coating Manufacturing (32551)5 0 1 3 1 0 0 0 0 0 0 0 0Source: ADE, Inc. based on US BLS and US Census County Business PatternsD-25 Final Staff Report with Appendices For Amendments to Rule 4601 

## APPENDIX A: HOUSEHOLDS IN SAN JOAQUIN VALLEY REGION AND HOUSEHOLD SPENDING

Applied Development Economics recently updated its household retail demand\spending methodology. ADE continues to base its methodology on data from the United States Bureau of Labor Statistics (BLS), which annually su rveys over 100,000 consumers. These consumers track their spending habits via a diary t hat they submit to the US BLS.

ADE updated its retail demand methodology to incorp orate the latest data available from the US BLS, for 2006. We also controlled for ways i n which unique spending patterns that occurred in 2006 might skew findings, by including spending data from 2004 and 2005. Thus, our new retail model is based on a three-year average (2004, 2005 and 2006) with respect to retail spending by households.

ADE continues and builds on a key feature of the pr evious model, i.e. spending based on income. We refined our methodology by accounting fo r other demographic variables that also influence spending habits. Our updated methodo logy adjusts for age of householder, on the grounds that households in one age bracket will tend to buy different things relative to households in another age bracket. Households in th e less than 25 age bracket will exhibit different spending patterns than households in the 35 to 64 age bracket. Households in the 65-plus age bracket will tend to spend differently than households in the 25 and 34 age bracket. Our updated model also distinguishes spend ing by two broad ethnic categories, i.e.
“Not- Latino” and “Latino”. Failure to account for spending by income, age, and by broad ethnic categories results in aggregate retail spend ing below the amount of spending that is actually present in a given area.

The table below organizes households in the eight-c ounty region by income, age of householder, and broad ethnicity characteristics (s ee Appendix A Table 1). Data is for 2007 and comes from the US Census American Community Sur vey. We introduce the data below into our retail model, to estimate household spendi ng by merchandise and by retail store types. Appendix A Table 2 identifies amount of spe nding by households at a variety of home improvement store types. The last column in cludes our estimates on amount spent by these households in paint at a variety of home i mprovement store types.D-26 Final Staff Report with Appendices For Amendments to Rule 4601 APPENDIX A TABLE 1 HOUSEHOLDS IN SAN JOAQUIN VALLEY REGION: 2008: BY I NCOME, AGE, AND BROAD ETHNICITY CATEGORIES

Not-Latino Households Latino Households

<25 25-34 35-65 >65 <25 25-34 35-65 >65 All

Less than $10,000 4,764 6,893 22,004 12,178 3,710 8 ,679 15,362 4,318 77,908

$10,000 to $14,999 2,536 5,181 19,813 19,844 2,904 8,205 13,715 6,049 78,247

$15,000 to $19,999 2,930 4,767 15,677 15,731 4,104 9,647 14,289 5,327 72,471

$20,000 to $24,999 3,261 5,190 15,067 15,831 2,924 9,702 15,877 4,398 72,248

$25,000 to $29,999 2,576 5,323 16,656 13,195 2,546 10,186 15,939 2,731 69,151

$30,000 to $34,999 2,895 5,333 16,125 12,104 2,073 9,051 14,158 2,358 64,098

$35,000 to $39,999 2,031 5,973 16,335 9,699 1,904 8 ,009 11,438 2,023 57,413

$40,000 to $44,999 1,854 6,253 16,950 8,150 1,907 8 ,469 13,757 1,898 59,239

$45,000 to $49,999 2,018 5,303 14,814 7,834 1,967 7 ,167 12,765 1,266 53,133

$50,000 to $59,999 3,012 11,774 32,409 11,815 2,244 11,747 18,962 1,874 93,837

$60,000 to $74,999 2,585 14,664 44,327 13,526 1,580 12,226 22,469 2,048 113,425

$75,000 to $99,999 1,816 19,550 63,796 12,428 1,307 12,539 24,321 1,843 137,600

$100,000 to $124,999 656 11,778 43,010 6,365 406 6, 045 13,724 721 82,705

$125,000 to $149,999 257 6,434 29,885 3,336 243 2,0 30 6,351 242 48,778

$150,000 to $199,999 237 4,992 27,847 2,237 106 1,4 11 4,242 239 41,311

$200,000 or more 131 3,467 22,381 2,834 60 745 2,71 5 214 32,547

33,559 122,876 417,095 167,107 29,985 125,858 220,0 83 37,549 1,154,112
Source: ADE, Inc., based on US Census American Comm unity Survey

APPENDIX A TABLE 2 SJV CONSUMER HOUSEHOLD SPENDING BY AGE GROUP: HOME IMPROVEMENT SPENDING BY RETAIL STORE TYPES

<25 25-34 35-64 >65 Total Home Improvement Spending Per Year By Store Types: SJV Households Sub-Total: Paint

Spending Per Year By Store Types: SJV Households

Lumber Building Materials $10,968,981 $70,562,247 $341 ,654,638 $77,065,624 $500,251,491 $47,453,856

Home Centers $5,175,473 $44,453,031 $191,597,967 $3 9,496,426 $280,722,897 $31,076,025

Paint Stores $727,414 $7,299,109 $24,965,604 $3,723 ,412 $36,715,540 $22,029,324

Home Improvement Budget $16,871,868 $122,314,388 $558, 218,210 $120,285,462 $817,689,928 $100,559,205
Source: ADE, Inc. based on US BLS