APPENDIX D 

Socioeconomic Analysis For 

Amendments to Rule 4601 

December 17, 2009 
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SOCIO-ECONOMIC IMPACT ANALYSIS 

PROPOSED AMENDMENTS TO RULE 4601 

(ARCHITECTURAL COATINGS)

DRAFT 

SEPTEMBER 1, 2009 

Prepared for 

San Joaquin Valley Unified Air Pollution Control District 

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.com
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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 Amendments to Rule 4601 ......................13 

 6. Socio-economic Impacts .........................................................................19 
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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 architectural coatings. 

There are five establishments in the industry called paints and coatings manufacturing 

(NAICS 325510). The analysis shows that this industry will be able to pass costs to 

households without any significant impact to the industry and households. While all of the 

five establishments are small businesses, the analysis further concludes that small businesses 

are not disproportionately impacted by the rule. 
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2. INTRODUCTION 

This report describes the socioeconomic impacts of Draft Amendments to Rule 4601 

(Architectural Coatings), 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 architectural coatings. Following this introduction, the report 

summarizes the proposed amendments and describes the methodology for the 

socioeconomic analysis. In Section 5, the report describes the economic characteristics of 

sources affected by the proposed amendments. The sixth section analyzes the 

socioeconomic impacts of compliance costs on the affected sources and the regional 

economy. 

The report is prepared pursuant to the provisions of 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 proposed 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 indicated in the map, Kern County is not 

completely in the District. 

FIGURE 1 

MAP OF SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICT
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3. DESCRIPTION OF DRAFT AMENDMENTS TO 

RULE 4601 (ARCHITECTURAL COATINGS) 

Total emissions from architectural coatings and associated 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 project would amend Rule 4601 

(Architectural Coatings) to implement the emission control requirements listed in the 2007 

Ozone Plan and requirements in the ARB Suggested Control Measure (SCM) for 

architectural coatings, promulgated September 2007. The draft amendments to Rule 4601 

will seek to obtain as much VOC emissions reductions 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 ensure that Rule 4601 meets RACT 

requirements in accordance with CAA 182(b)(2) and 182(f) and BACM requirements in 

accordance with CAA 189 (b)(1)(B). 

As guidelines for developing the proposed changes to 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 Plan estimates that this rule project will 

reduce about 2.0 tons per day (tpd) of VOC emissions upon full implementation in 2012. 

Amended Rule 4601 will specify the Best Available Retrofit Control Technology. As used in 

this project, "Best Available Retrofit Control Technology" means an emission limitation that 

is based on the maximum degree of reduction achievable, taking into account environmental, 

energy, and economic impacts by each class or category 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 applied to stationary structures and their 

accessories. They include house paints, stains, industrial maintenance coatings, traffic 

coatings, and many other products. When these coatings are applied, VOCs are emitted 

from the coatings and from solvents that are used for 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 installation, 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 ambient air quality standards. ARB 
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promulgated the SCM to lower the VOC limits, improve definitions for many coatings, and 

to promote consistency and uniformity among district rules. Districts in need of further 

VOC reductions than the reductions expected to be achieved by the approved SCM should 

consider and adopt, if appropriate, the more stringent 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 categories in the 2000 SCM, 15 categories were 

eliminated, ten were added, and the limits for 19 categories were lowered. The following 

information is a summary of ARB amendments to the 2007 SCM.

The 2007 SCM includes several requirements besides the VOC content limits. The 

aforementioned SCM and corresponding staff report can be found on the ARB website at 

http://www.arb.ca.gov/coatings/arch/Approved_2007_SCM.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 sell products manufactured prior to 

the effective date of the VOC limit. 

For more detail, see District staff report of September 15, 2009, particularly pages four 

through seven. 

 
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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 

amendments to the Rule 4601. The approach is briefly described below. 

Applied Development 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 

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 Statistics, and the State of California’s 

Employment Development Department (EDD) Labor Market Information Division. For 

purposes of estimating profits, ADE reviewed industry-specific financial ratios issued by the 

US Internal Revenue Services. 

With the above information, ADE was able to estimate 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 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 

extent 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 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 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.” 
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ADE also analyzed San Joaquin Valley region household spending on home improvement 

generally and on paints in particular. ADE estimated 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 account 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 proposed amendments to Rule 4601 to 

consumers, ADE analyze impacts of these costs as percent of home improvement spending 

generally and spending on paints in particular. 
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5. IMPACTED INDUSTRIES SUBJECT TO PROPOSED 

AMENDMENTS TO RULE 4601 

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 2000 and 

2008. Starting with sub-section 5.2, the second part of this section narrows the focus of the 

socioeconomic analysis to industries affected by the 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 

REGIONAL DEMOGRAPHIC TRENDS

The San Joaquin Valley region experienced significant 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 eight-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 regional population grew by 2.1 percent annually 

between 2004 and 2008. In contrast, the State of California’s population increased by 1.5 

percent annually between 2000 and 2008. As the table below shows, all the counties in the 

region experienced faster rates of growth than California over the same period. While, by 

many standards, Madera County continues to be a small county– at 150,887 residents 

according to the Department of Finance–it still experienced an annual growth rate of 2.6 

percent between 2000 and 2008. Between 2004 and 2008, this county continued to grow 

annually but at a slightly lesser rate of 2.5 percent. 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. 

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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 California Department of Finance 

REGIONAL ECONOMIC TRENDS

Economic development practitioners and planners have traditionally divided economies into 

two broad industrial categories—the economic base and local support industries. 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 manufacturing, mineralsresource 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 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 the nation and the globe. Slightly less 

than 14 percent of all workers in the region are employed by industries within agriculture, as 

the table below shows. In 2000, approximately 18 percent of all workers worked in 

agriculture. By 2004, this ratio stood at 17 percent. In fact, over the four-year period 

between 2004 and 2008, employment in agriculture decreased by 2.7 percent per year. In 

California as a whole, agriculture represents almost three percent of total employment. 
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Between 2004 and 2008, 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. Service-rendering industries comprise 71 

percent of all jobs, including public sector positions. In other words, 935,248 jobs out of a 

total of 1,317,365 jobs are in service-rendering industries. Excluding the public sector, 

service-rendering jobs account for 52 percent of all jobs in 2008. In 2004, service-rendering 

industries (excluding the public sector) represented 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 industries 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 local support industries that grew in 

accordance with the region’s population surge; however, with the downturn in the national 

economy, these industries’ rates of growth have lowered dramatically. Employment in 

construction grew by almost 13 percent per year between 2000 and 2004; between 2004 and 

2008, construction continued to grow but by a slower 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 annually by 0.1 percent between 2004 and 

2008. Between 2000 and 2004, manufacturing employment increased annually by 0.7 

percent. What was a regional bright spot in the late 1990s, transportation and warehousing 

experienced negative 1.9 percent declines between 2004 and 2008, as compared to the 2.7 

percent annual growth between 1998 and 2003. 

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TABLE 2 

EMPLOYMENT TRENDS: SAN JOAQUIN VALLEY REGION: 2000-2004 

SJV Region 

Employment 

2000 

SJV Region 

Employment 

2004 

SJV Region 

Employment 

2008 

SJV Region 

Employment 

2008: 

Distribution 

California 

Employment 

2008: 

Distribution 

Annual % 

Chng 

00-04: SJV 

Annual % 

Chng 

04-08: SJV 

Agriculture 190,500 199,400 178,522 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% Manufacturing 111,600 114,600 115,153 8.7% 9.3% 0.7% 0.1% Wholesale 35,200 35,300 45,299 3.4% 4.6% 0.1% 6.4% Retail 123,200 123,300 143,910 10.9% 10.8% 0.0% 3.9% 

Transportation/Warehousing/Utilities 39,800 39,500 36,514 2.8% 2.7% -0.2% -1.9% 

Information 15,300 15,300 15,328 1.2% 3.0% 0.0% 0.0% Financial Activities 38,600 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 81,500 115,400 156,615 11.9% 14.8% 9.1% 7.9% Government 195,500 228,300 246,556 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 LMID 
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5.2 DESCRIPTION OF AFFECTED INDUSTRIES 

Whereas the previous section described the larger economic context within which the 

District is contemplating proposed amendments to Rule 4601, this section analyzes trends of 

industries directly affected by the proposed amendments. This rule affects paint and coating 

manufacturers (NAICS 325510). This industry employs 89 workers, an amount of workers 

that has decreased by almost four percent a year since 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: compound annual growth rate) 

In Table 4 below we profile economic characteristics of NAICS 325510 in greater depth. In 

the region, there are five paint and coating establishments employing an estimated 89 

workers, and these establishments generate an estimated $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 inflation and changes in number of workers. 

The five manufacturers are: 

• Ponderosa Paint 

• Michelman 

• Wilshire Paint Co 

• Pioneer Paint Co 

• Ennis Paint Inc 

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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 $12,634,609 
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6. SOCIO-ECONOMIC IMPACTS 

This section of the report compares the economic characteristics of affected industries 

against the annual compliance costs. The first part of this section discusses annual 

compliance costs. Section 6.2 discusses general business responses to compliance costs. 

Section 6.3 analyzes the socioeconomic impacts of the proposed amendments to Rules 4601. 

6.1 COMPLIANCE COST ESTIMATES 

Table 5 summarizes the estimated annualized costs associated with proposed amendments to 

Rule 4601. The table includes cost estimates issued by the District. These estimates are 

based on figures issued by the California Air Resources Board. As indicated in the table 

below, costs stemming from proposed amendments to Rule 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 Control District 
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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 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 costs 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 IMPACTS ON AFFECTED INDUSTRIES 

This section of the report analyzes impacts stemming from the proposed amendments on 

ultimate end-users of coatings products, namely households. 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 typical changes in price of coatings. As 

the table below shows, between 2002 and 2008, the per gallon price of coatings materials 

increased annually by three percent, with a standard 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 COATINGS: 

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. MA325F - 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 in costs (see Table 5) stemming from 

proposed amendments to take into account historic trends. Based on historic trends alone, 
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the original per gallon cost of $19.20 would have increased by three percent, or by $0.58 per 

gallon to $19.78 per gallon. In other words, of the $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 $1.21 

[e] Impact above historic change (d-c) $0.63 

Source: ADE, Inc., based on SJVUAPCD and US Census 

SOCIO-ECONOMIC ANALYSIS AND SMALL BUSINESS DISPROPORTIONATE 

IMPACT ANALYSIS: INDUSTRIES AFFECTED BY PROPOSED AMENDMENTS TO 

RULE 4601 

Table 8 below shows that NAICS 325510 manufactures and retailers could pass costs to 

consumers without significantly altering consumer spending on paint and coating products. 

Households in the region spend approximately $818 million 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 budget is spent on paint. In the event 

paint and coatings manufacturers (NAICS 325510) pass all costs directly stemming from the 

amendments to consumers, at $617,425, the pass-through amount represents 0.08 percent of 

households’ annual home improvement spending, as well as 0.61 percent of households 

annual spending on paint. Including the three percent 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 not implemented. The 3.61 percent 

impact is within the average change in price exhibited by this industry, plus/minus the 1.3 

percentage point standard deviation 

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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 historic 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 home improvement spending 0.08% 

 Aggregate adjusted cost households as percent of home 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 paint spending 0.61% 

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

 Significant no 

DEFINITION OF A SMALL BUSINESS

For purposes of qualifying small businesses for bid preferences on state contracts and other 

benefits, the State of California defines small businesses in the following manner1. 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 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 Services. “California Small Business Certification” (http:

www.pd.dgs.ca.gov/smbus/sbcert.htm) 
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• A manufacturer with 100 or fewer employees 

In the table below, we organize NAICS 325510 by number of workers, to determine if small 

businesses are disproportionately impacted by the proposed amendments. Of the five 

establishments that will be affected by the rule, all employ less than 100 workers. In other 

words, all establishments are small business as they meet the “manufacturers with 100 or 

fewer employees.” Thus, proposed amendments to Rule 4601 could disproportionately 

impact small businesses. However, for reasons stated 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-24 Final Staff Report with Appendices For 

Amendments to Rule 4601

TABLE 9 

DISTRIBUTION OF BUSINESS BY SIZE: SMALL BUSINESS DISPROPORTIONATE IMPACT ANALYSIS: SJV REGION, 2008 

Establishments By Number of Workers 

Industry Estab. 1 to 4 5 to 9 

10 to 

19 

20 to 

49 

50 

to 

99 

100 

to 

249 

250 

to 

499 

500 

to 

999 

1000 

to 

1499 

1500 

to 

2499 

2500 

to 

4999 5000 

Paint & Coating Manufacturing (32551) 5 0 1 3 1 0 0 0 0 0 0 0 0 Source: ADE, Inc. based on US BLS and US Census County Business Patterns 
D-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 surveys over 100,000 consumers. These 

consumers track their spending habits via a diary that they submit to the US BLS. 

ADE updated its retail demand methodology to incorporate the latest data available from 

the US BLS, for 2006. We also controlled for ways in 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 previous model, i.e. spending based on 

income. We refined our methodology by accounting for other demographic variables that 

also influence spending habits. Our updated methodology 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 the 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 spending 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 spending below the amount of spending that is 

actually present in a given area. 

The table below organizes households in the eight-county region by income, age of 

householder, and broad ethnicity characteristics (see Appendix A Table 1). Data is for 2007 

and comes from the US Census American Community Survey. We introduce the data below 

into our retail model, to estimate household spending by merchandise and by retail store 

types. Appendix A Table 2 identifies amount of spending by households at a variety of 

home improvement store types. The last column includes our estimates on amount spent 

by these households in paint at a variety of home improvement 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 INCOME, 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 2,030 6,351 242 48,778 

$150,000 to $199,999 237 4,992 27,847 2,237 106 1,411 4,242 239 41,311 

$200,000 or more 131 3,467 22,381 2,834 60 745 2,715 214 32,547 

 33,559 122,876 417,095 167,107 29,985 125,858 220,083 37,549 1,154,112 

Source: ADE, Inc., based on US Census American Community 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 $39,496,426 $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