Office of Water

Official Business

Penalty for Private Use

$300

EPA-821-R-02-008

May, 2002
Economic Analysis of Proposed 

Effluent Guidelines and Standards

for the Construction and Development Category

May 2002 

United States Environmental Protection Agency

Office of Water (4303T)

1200 Pennsylvania Avenue, NW

Washington, DC 20460

www.epa.gov/waterscience/guide/

EPA-821-R-02-008 
ACKNOWLEDGMENTS AND DISCLAIMER 

The Construction and Development Effluent Guidelines proposed rule and support documents 

were prepared by the C&D Project Team: Eric Strassler, Project Manager; Jesse Pritts, P.E., 

Engineer; George Denning, Economist; Karen Maher, Environmental Assessor; and Michael G. Lee, 

Attorney. Technical support for this Economic Analysis was provided by Eastern Research Group, 

Inc. (ERG), of Lexington, MA. 

Neither the United States government nor any of its employees, contractors, subcontractors or 

other employees makes any warranty, expressed or implied, or assumes any legal liability or 

responsibility for any third party's use of, or the results of such use of, any information, apparatus, 

product or process discussed in this report, or represents that its use by such a third party would not 

infringe on privately owned rights. Mention of trade names or commercial products does not constitute 

endorsement by EPA or recommendation for use. 
CONTENTS

Page 

EXECUTIVE SUMMARY 

ES.1 INTRODUCTION ......................................................... ES-1

ES.2 INDUSTRY PROFILE ...................................................... ES-2

ES.2.1 Data Sources ....................................................... ES-2

ES.2.2 Industry Description ................................................. ES-3

ES.2.2.1 Number of Establishments .................................... ES-6

ES.2.2.2 Employment ............................................... ES-7

ES.2.2.3 Revenues ................................................. ES-8

ES.2.2.4 Number of Potentially Regulated Businesses ..................... ES-8

ES.2.2.5 Small Entities ............................................. ES-11

ES.2.3 Industry Dynamics .................................................. ES-12

ES.3 REGULATORY OPTIONS ................................................. ES-14

ES.3.1 Current Regulatory Status of the C&D Industry ........................... ES-14

ES.3.2 Summary of Proposed Regulatory Options ............................... ES-15

ES.4 ECONOMIC IMPACT ANALYSIS ........................................... ES-16

ES.4.1 Impacts on Model Construction Projects ................................. ES-17

ES.4.2 Impacts on Model Construction Firms .................................. ES-18

ES.4.2.1 Impacts on Model Firm Financial Ratios ........................ ES-18

ES.4.2.2 Closures and Employment Losses. . . . ......................... ES-20

ES.4.2.3 Barriers to Entry ........................................... ES-22

ES.4.3 Impacts on National Construction Markets and the National Economy ......... ES-24

ES.5 SMALL ENTITY IMPACT ANALYSIS ....................................... ES-26

ES.5.1 Definition of Affected Small Entities ................................... ES-26

ES.5.2 Small Entity Impacts ................................................ ES-27

ES.6 BENEFITS ANALYSIS .................................................... ES-29

ES.6.1 Benefits Methodology ............................................... ES-29

ES.6.2 Environmental Assessment and Benefits Analysis ......................... ES-30

ES.6.2.1 Overview of Environmental Assessment and Benefits Analysis ...... ES-30

ES.6.2.2 Avoided Water Treatment Costs .............................. ES-30

ES.6.2.3 Avoided Loss of Water Storage Capacity ....................... ES-31

ES.6.2.4 Avoided Navigational Dredging .............................. ES-31

ES.6.2.5 Non-quantified Benefits ..................................... ES-32

ES.7 SOCIAL COSTS AND BENEFITS . . . ........................................ ES-32

ES.8 ANALYSIS OF OTHER IMPACTS .......................................... ES-33

ES.8.1 Unfunded Mandates ................................................. ES-33

ES.8.2 Environmental Justice ............................................... ES-33

ES.8.3 Children’s Health .................................................. ES-34

ES.9 REFERENCES ........................................................... ES-35

i 
CONTENTS (cont.) 

Page 

CHAPTER ONE 

INTRODUCTION 

1.1 EXISTING REGULATORY FRAMEWORK ...................................... 1-2

1.1.1 NPDES Permit Regulation of the C&D Industry ............................. 1-2

1.2 PURPOSE OF THE PROPOSED RULE .......................................... 1-4

1.3 INDUSTRIES AFFECTED BY THE PROPOSED C&D EFFLUENT GUIDELINES ...... 1-5

1.4 OVERVIEW OF KEY DATA SOURCES ......................................... 1-6

1.5 REPORT ORGANIZATION ................................................... 1-7

CHAPTER TWO 

ECONOMIC PROFILE OF THE CONSTRUCTION AND DEVELOPMENT INDUSTRY

2.1 INTRODUCTION ........................................................... 2-1

2.1.1 Recent Trends in the C&D Industry ....................................... 2-2

2.1.2 Data Sources Used ..................................................... 2-3

2.1.3 Organization of this Chapter ............................................. 2-4

2.2 INDUSTRY DEFINITION ..................................................... 2-5

2.2.1 Basis for Regulation ................................................... 2-5

2.2.2 Industry Definition ..................................................... 2-6

2.3 INDUSTRY CHARACTERISTICS .............................................. 2-8

2.3.1 Establishment-Level Data ............................................... 2-9

2.3.1.1 Number and Size of Establishments ................................. 2-9

2.3.1.2 Legal Form of Organization ...................................... 2-13

2.3.1.3 Geographic Distribution ......................................... 2-15

2.3.1.4 Employment .................................................. 2-15

2.3.1.5 Payrolls and Benefits ........................................... 2-17

2.3.1.6 Specialization ................................................. 2-18

2.3.2 Firm-Level Data ...................................................... 2-21

2.3.2.1 Number and Size of Firms ....................................... 2-21

2.3.2.2 Firm-Level Revenues ........................................... 2-22

2.3.3 Number of Small Entities .............................................. 2-25

2.3.4 Entities Not Covered by the Proposed Rule ................................ 2-26

2.3.4.1 Establishments Engaged in Remodeling ............................. 2-26

2.3.4.2 Establishments That Are Not NPDES Permttees ...................... 2-27

2.3.5 Number of Potentially Affected Entities ................................... 2-28

2.4 MARKET SUPPLY AND DEMAND ........................................... 2-30

2.4.1 Characteristics of Construction Supply .................................... 2-31

2.4.1.1 Residential Building ............................................ 2-31

2.4.1.2 Nonresidential Building ......................................... 2-37

ii 
CONTENTS (cont.) 

Page 

2.4.1.3 Heavy Construction ............................................ 2-40

2.4.1.4 Characterization of Supply ....................................... 2-45

2.4.1.5 Supply Trends ................................................ 2-47

2.4.2 Characteristics of Construction Demand ................................... 2-51

2.4.2.1 Demand Factors Affecting Construction and Development Activities ..... 2-51

2.4.2.2 Housing Demand and Elasticity ................................... 2-52

2.4.2.3 Impact of Regulation on Housing Demand .......................... 2-53

2.4.2.4 Trends in New Homes Sold ...................................... 2-54

2.4.2.5 Nonresidential Demand Characteristics ............................. 2-55

2.4.2.6 Heavy Construction Demand Characteristics ......................... 2-56

2.5 ECONOMIC AND FINANCIAL CHARACTERISTICS ............................ 2-59

2.5.1 Value of Work Done .................................................. 2-59

2.5.2 Selected Costs ....................................................... 2-64

2.5.2.1 All Costs ..................................................... 2-64

2.5.2.2 Machinery and Equipment Costs .................................. 2-64

2.5.3 Capital Expenditures and Depreciation .................................... 2-68

2.5.4 Value of Inventories ................................................... 2-69

2.6 KEY BUSINESS INDICATORS AND RATIOS ................................... 2-71

2.7 INDUSTRY GROWTH ...................................................... 2-77

2.8 INTERNATIONAL COMPETITIVENESS ....................................... 2-79

2.9 REFERENCES ............................................................. 2-80

Appendix 2A Additional Detailed 5-Digit NAICS Tables

Appendix 2B Specialization Within the C&D Industries, Categorized by Value of Construction Work

Appendix 2C Definitions of Key Business Ratios from Dun & Bradstreet

Appendix 2D Summary Statistics for the C&D Industries, by NAICS Code

CHAPTER THREE

DESCRIPTION OF PROPOSED RULE AND REGULATORY OPTIONS

3.1 EFFLUENT LIMITATIONS GUIDELINES AND STANDARDS ...................... 3-1

3.2 REQUIREMENTS UNDER THE EXISTING CONSTRUCTION GENERAL PERMIT .... 3-2

3.3 SUMMARY OF REGULATORY OPTIONS/TECHNOLOGY ALTERNATIVES ......... 3-3

3.3.1 Option 1 ............................................................. 3-4

3.3.2 Option 2 ............................................................. 3-5

3.3.3 Option 3 ............................................................ 3-11

iii 
CONTENTS (cont.) 

Page 

CHAPTER FOUR

ECONOMIC IMPACT METHODOLOGY

4.1 OVERVIEW OF ECONOMIC IMPACT ANALYSIS METHODOLOGY ............... 4-1

4.1.1 Compliance and Baseline Assumptions ..................................... 4-2

4.1.2 Cost Pass Through Assumptions .......................................... 4-3

4.1.3 Operation and Maintenance Costs ......................................... 4-6

4.1.4 Impacts Associated With NSPS ........................................... 4-6

4.2 IMPACTS ON MODEL PROJECTS ............................................. 4-7

4.2.1 Description of Model Project Approach .................................... 4-8

4.2.2 Treatment of Nonbuilding Construction Projects ............................. 4-9

4.2.3 Description of Model Projects ............................................ 4-9

4.2.3.1 Residential Single-family Development ............................. 4-10

4.2.3.2 Residential Multifamily Development .............................. 4-13

4.2.3.3 Commercial Development ....................................... 4-13

4.2.3.4 Industrial Development .......................................... 4-14

4.2.4 Cost Pass Through Assumptions ......................................... 4-14

4.2.5 Inputs to the Model Project Analysis ...................................... 4-14

4.2.6 Model Project Analysis Approach ........................................ 4-17

4.2.6.1 Baseline Model Project Performance ............................... 4-17

4.2.6.2 Results of Model Project Analysis ................................. 4-18

4.2.7 Model Nonbuilding Project Analysis ..................................... 4-22

4.3 IMPACTS ON MODEL ESTABLISHMENTS .................................... 4-25

4.3.1 Model Establishment Analysis .......................................... 4-25

4.3.1.1 Inputs to the Model Establishment Analysis ......................... 4-25

4.3.1.2 Balance Sheet and Income Statement for Model Establishment .......... 4-26

4.3.1.3 Methodology for Analysis of Regulatory Impacts on 

Model Establishment ........................................... 4-28

4.3.1.4 Analysis of Financial Ratios for Model Establishment ................. 4-30

4.3.1.5 Compliance Cost Inputs into Financial Ratio Analysis ................. 4-33

4.3.2 Extension of Model Facility Analysis to Project Industry Closures .............. 4-35

4.3.2.1 Estimation of Affected Establishments and Employment ............... 4-35

4.3.2.2 Closure and Employment Impacts Based on Financial Ratio Analysis ..... 4-38

4.3.2.3 Closure and Employment Impacts Based on Cashflow Analysis .......... 4-41

4.3.3 Analysis of Barriers to Entry ............................................ 4-44

4.4 NATIONAL COMPLIANCE COSTS ........................................... 4-45

4.4.1 National Estimates of Disturbed Acreage .................................. 4-45

4.4.2 Distribution of Acreage by Project Type ................................... 4-46

4.4.3 Distribution of Acreage by Project Size ................................... 4-54

4.4.4 Estimates of Acreage Covered by Option 2 ................................. 4-55

4.4.5 Operation and Maintenance Costs ........................................ 4-58

iv 
CONTENTS (cont.) 

Page 

4.5 IMPACTS ON THE NATIONAL HOUSING MARKET ............................ 4-58

4.5.1 Description of National Housing Market Model ............................. 4-58

4.5.1.1 Complete Cost Pass Through and Housing Affordability ............... 4-58

4.5.1.2 National Partial Equilibrium Modeling ............................. 4-63

4.5.1.3 Regional Partial Equilibrium Modeling and the Housing 

Opportunity Index .............................................. 4-66

4.5.2 Inputs to the National Housing Market Model .............................. 4-69

4.5.3 Multifamily and Non-Residential Construction Market Models ................. 4-69

4.6 NET ECONOMIC IMPACTS ................................................. 4-72

4.6.1 Welfare Effects ...................................................... 4-72

4.6.2 Regional Impacts ..................................................... 4-73

4.6.3 International Trade .................................................... 4-74

4.7 GOVERNMENT IMPACTS .................................................. 4-75

4.7.1 Administrative Costs .................................................. 4-75

4.7.2 Compliance Costs .................................................... 4-75

4.8 REFERENCES ............................................................. 4-76

Appendix 4A Data and Modeling Assumptions for Model Project Analysis 

Appendix 4B Detailed Description of Model Parameters and Assumptions 

Appendix 4C Characteristics of Model Establishments 

CHAPTER FIVE

ECONOMIC IMPACT ANALYSIS RESULTS

5.1 OVERVIEW OF ECONOMIC IMPACT ANALYSIS METHODOLOGY ............... 5-1

5.2 ANALYSIS OF IMPACTS ON MODEL PROJECTS ............................... 5-2

5.2.1 Cost Pass Through Considerations ........................................ 5-3

5.2.2 Model Project Baseline Performance ...................................... 5-3

5.2.3 Results of Model Project Analyses ........................................ 5-5

5.2.4 Nonbuilding Project Analysis Results ...................................... 5-6

5.3 ANALYSIS OF NATIONAL COMPLIANCE COSTS ............................... 5-7

5.4 ANALYSIS OF IMPACTS ON MODEL ESTABLISHMENTS ....................... 5-10

5.4.1 Building Construction ................................................. 5-10

5.4.2 Nonbuilding Construction .............................................. 5-14

5.5 ANALYSIS OF IMPACTS ON CLOSURES AND EMPLOYMENT LOSSES ........... 5-16

5.5.1 Facility Closures ..................................................... 5-17

5.5.2 Employment Losses ................................................... 5-18

5.6 ANALYSIS OF BARRIER TO ENTRY ......................................... 5-20

5.6.1 Building Construction ................................................. 5-20

5.6.2 Nonbuilding Construction .............................................. 5-22

v 
CONTENTS (cont.) 

Page 

5.7 ANALYSIS OF IMPACTS ON NATIONAL CONSTRUCTION MARKETS ........... 5-23

5.7.1 Residential Construction Markets ........................................ 5-24

5.7.1.1 Housing Affordability ........................................... 5-24

5.7.1.2 Housing Opportunity Index ...................................... 5-24

5.7.1.3 Single-Family Housing Prices and Quantities ........................ 5-26

5.7.1.4 Multifamily Housing Prices and Quantities .......................... 5-26

5.7.2 Non-Residential Construction Markets .................................... 5-27

5.7.2.1 Commercial Space ............................................. 5-27

5.7.2.2 Industrial Space ............................................... 5-28

5.7.3 Output and Employment ............................................... 5-29

5.7.4 Changes in Welfare Measures ........................................... 5-30

5.7.5 Regional Effects ...................................................... 5-31

5.8 IMPACTS ON GOVERNMENTAL UNITS ...................................... 5-35

5.8.1 Construction Program Administration ..................................... 5-35

5.8.2 Government Construction Costs ......................................... 5-36

5.9 OTHER IMPACTS .......................................................... 5-37

5.9.1 Requirements of Executive Order 12866 ................................... 5-37

5.9.2 Environmental Justice ................................................. 5-39

5.9.3 Children’s Health ..................................................... 5-39

5.10 REFERENCES ............................................................. 5-41

Appendix 5A Closure and Employment Loss Analysis Results – Cash Flow Analysis 

Appendix 5B Sensitivity Analysis for the National Partial Equilibrium Model 

Appendix 5C Baseline Analysis 

CHAPTER SIX

INITIAL REGULATORY FLEXIBILITY ANALYSIS

6.1 INTRODUCTION TO THE INITIAL REGULATORY FLEXIBILITY ANALYSIS ....... 6-1

6.2 INITIAL ASSESSMENT ...................................................... 6-2

6.2.1 Definition of Affected Small Entities ...................................... 6-2

6.2.2 Number of Small Businesses Affected ..................................... 6-4

6.2.2.1 Number of Establishments Affected ................................. 6-5

6.2.2.2 Number of Businesses Affected .................................... 6-6

6.2.2.3 Number of Small Businesses Affected ............................... 6-9

6.3 EPA COMPLIANCE WITH RFA REQUIREMENTS .............................. 6-10

6.3.1 Outreach and Small Business Advocacy Review ............................ 6-10

6.3.2 EPA’s Initial Regulatory Flexibility Analysis ............................... 6-11

6.3.2.1 Reasons EPA is Considering the Proposed Rule ...................... 6-12

6.3.2.2 Objectives and Legal Basis for the Proposed Rule ..................... 6-12

6.3.2.3 Description and Estimate of Number of Small Entities Affected ......... 6-14

vi 
CONTENTS (cont.) 

Page 

6.3.2.4 Description of Proposed Recordkeeping, Reporting, and 

Other Requirements ............................................ 6-15

6.3.2.5 Identification of Relevant Federal Rules That May Duplicate, Overlap, or

Conflict with the Proposed Regulations ............................. 6-16

6.3.2.6 Significant Regulatory Alternatives ................................ 6-17

6.4 EPA’S ANALYSIS OF SMALL BUSINESS IMPACTS ............................ 6-18

6.4.1 Classification of Model Facilities for Impact Analysis ........................ 6-18

6.4.2 Revenue Test Methodology ............................................. 6-21

6.4.2.1 Development of Revenue Distributions ............................. 6-22

6.4.2.2 Application of Revenue Distributions to Estimating Small 

Business Impacts ............................................... 6-24

6.4.3 Small Business Impact Analysis Results ................................... 6-26

6.5 REFERENCES ............................................................. 6-31

CHAPTER SEVEN 

BENEFITS METHODOLOGY 

7.1 PREVIOUS APPROACHES TO BENEFITS ASSESSMENT ......................... 7-1

7.2 BENEFITS CATEGORIES CONSIDERED ....................................... 7-2

7.2.1 Decreased Erosion and Sediment Generation ................................ 7-4

7.2.1.1 Water Storage Capacity .......................................... 7-4

7.2.1.2 Navigational Dredging ........................................... 7-6

7.2.2 Reduced In-Stream TSS and Sediment Concentration ......................... 7-7

7.2.3 Non-Quantified Benefits ................................................ 7-9

7.2.3.1 Water Contact Recreation ......................................... 7-9

7.2.3.2 Biodiversity Effects ............................................ 7-10

7.2.3.3 Other Sources of Benefits ........................................ 7-10

7.3 CONCLUSION ............................................................. 7-11

7.4 REFERENCES ............................................................. 7-12

CHAPTER EIGHT

BENEFITS ASSESSMENT RESULTS

8.1 ENVIRONMENTAL ASSESSMENT RESULTS ................................... 8-1

8.2 BENEFITS ASSESSMENT RESULTS ........................................... 8-1

8.3 REFERENCES .............................................................. 8-3

vii 
CONTENTS (cont.) 

Page 

CHAPTER NINE

COSTS AND BENEFITS OF THE PROPOSED RULE

9.1 INTRODUCTION ........................................................... 9-1

9.2 SOCIAL COSTS OF THE RULE ............................................... 9-1

9.2.1 Direct Social Costs .................................................... 9-1

9.2.1.1 Compliance Costs ............................................... 9-2

9.2.1.2 Government Regulatory Costs ..................................... 9-2

9.2.2 Social Welfare Losses .................................................. 9-3

9.2.3 Transitional Effects .................................................... 9-4

9.3 INDIRECT EFFECTS ........................................................ 9-4

9.4 COMPARISON OF ESTIMATED COSTS AND BENEFITS ......................... 9-5

CHAPTER TEN

UNFUNDED MANDATES REFORM ACT

10.1 INTRODUCTION .......................................................... 10-1

10.2 ANALYSIS AND RESULTS .................................................. 10-2

10.3 REFERENCES ............................................................. 10-5

DOCUMENT INDEX ............................................................. 11-1

viii 
LIST OF TABLES

Table Page 

ES-1 Industry Definition for Construction and Development Industry Profile ................ ES-5

ES-2 Number of Establishments in Construction and Development Industries, 1997 vs. 1992 ... ES-6

ES-3 Number of Employees in the Construction and Development Industries, 

Establishments with Payroll .................................................. ES-7

ES-4 Value of Construction Work .................................................. ES-8

ES-5 Number of Establishments Potentially Affected by the Proposed Rule ................ ES-10

ES-6 Estimated Number of Small Businesses Potentially Affected by the Proposed Rule ..... ES-12

ES-7 Housing Supply and Demand – Historical Data and Projections for 2001-2010 ......... ES-14

ES-8 Summary of Regulatory Options Proposed by EPA ............................... ES-15

ES-9a Weighted Average Change in Sales Price to Buyer ............................... ES-18

ES-9b Weighted Average Change in Builder-Developer Profit ........................... ES-18

ES-10 Impact of Compliance Costs on Model Firm Financials – Zero Percent Cost 

Pass Through ............................................................. ES-20

ES-11 Estimated Facility Closures – Zero Percent Cost Pass Through ..................... ES-21

ES-12 Estimated Facility Closures –Estimated Cost Pass Through ........................ ES-22

ES-13 Barrier to Entry Analysis – Zero Percent Cost Pass Through ....................... ES-23

ES-14 Estimated National Costs of ESC Controls ..................................... ES-24

ES-15a Estimated Number of Small Business-Owned Establishments with Compliance Costs 

Exceeding 1 Percent of Revenues ............................................. ES-28

ES-15b Estimated Number of Small Business-Owned Establishments with Compliance Costs 

Exceeding 3 Percent of Revenues ............................................. ES-29

ES-16 Environmental Measures ................................................... ES-30

ES-17 Point Estimates of Benefits by Category ....................................... ES-31

ES-18 Social Costs and Benefits of Options .......................................... ES-33

1-1 Industries Potentially Affected by Proposed Rulemaking ............................. 1-5

2-1 Number of Establishments in Construction and Development Industries, 1997 vs. 1992 ..... 2-3

2-2 Comparison of Major Data Sources .............................................. 2-4

2-3 Industry Definitions for Construction and Development Industry Profile ................. 2-7

2-4 Number of Establishments in the Construction and Development Industry, 

Based on the 1997 Census of Construction ....................................... 2-10

2-5 Number of Small Entities with Payrolls in the Construction and Development Industry, 

Based on Employment ....................................................... 2-12

2-6 Number of Small Establishments in the Construction and Development Industry, 

Based on Value of Business Done .............................................. 2-12

2-7 Number of Establishments in the Construction and Development Industry with Payroll, 

by Legal Form of Organization ................................................. 2-14

2-8 Number of Employees in the Construction and Development Industries, 

Establishments with Payrolls 1997 .............................................. 2-16

2-9 Payroll and Benefits for Employees in the Construction Industry ...................... 2-19

2-10 Specialization within NAICS 23321, Categorized by Value of Construction Work ........ 2-20

2-11 Employer Firms and Establishments by Employment Size of Firm by NAICS Codes ...... 2-22

2-12 Employer Firms and Establishments by Revenue Size Class (1997) .................... 2-24

ix 
LIST OF TABLES (cont.) 

Table Page 

2-13 Number of Firms and Establishments Above and Below SBA Thresholds for 

Small Business Definition Based on Data from SBA ................................ 2-25 

2-14 Number of Affected Establishments in the Construction and Development Industry ....... 2-30 

2-15 New Privately Owned Housing Units Authorized by Building Permits in 

Permit-Issuing Places ........................................................ 2-35 

2-16 New Privately Owned Housing Units Authorized – Valuation for Regions .............. 2-37 

2-17 Estimated Number of Nonresidential Building Permits for 1997, by Region ............. 2-39 

2-18 Highway Statistics .......................................................... 2-41 

2-19 Highway Capital Outlay by Improvement Type .................................... 2-44 

2-20 Selected Statistics for Establishments by Single-Family Housing Starts Size Class ........ 2-46 

2-21 Construction Cost Comparison for Low Impact Development ........................ 2-50 

2-22 Impact of Regulatory-Driven Delays on Housing Affordability ....................... 2-53 

2-23 New One-Family Houses Sold and For Sale ...................................... 2-54 

2-24 Value of Construction Work by Project Ownership ................................. 2-58 

2-25 Value and Net Value of Construction Work ....................................... 2-62 

2-26 Value of Construction Work by Type of Construction .............................. 2-63 

2-27 Selected Costs in the Construction Industry ....................................... 2-66 

2-28 Additional Selected Costs in the Construction Industry .............................. 2-67 

2-29 Capital Expenditures in the Construction Industry .................................. 2-69 

2-30 Total Value of Inventories for Construction Industry Establishments ................... 2-70 

2-31 Key Business Statistics and Ratios of the Construction Industry ....................... 2-73 

2-32 New Privately Owned Housing Units Authorized by Building Permit, 1981-1999 ......... 2-78 

2-33 Value of New Privately Owned Housing Units Authorized by Building 

Permits, 1991-1999 .......................................................... 2-79 

2A-1 Detailed Number of Establishments in the C&D Industry with Payroll ................. 2A-1 

2A-2 Detailed Number of Small Establishments in the C&D Industry with Payroll, 

by Employment Size Class ................................................... 2A-3 

2A-3 Value of Construction Work by Type of Construction ............................. 2A-4 

2B-1 Specialization within NAICS 23311 (Land subdivision and land development), 

Categorized by Value of Construction Work ..................................... 2B-1 

2B-2 Specialization within NACIS 23321 (Single-family housing construction), 

Categorized by Value of Construction Work ..................................... 2B-3 

2B-3 Specialization within NAICS 23322 (Multifamily housing construction), 

Categorized by Value of Construction Work ..................................... 2B-5 

2B-4 Specialization within NAICS 23331 (Manufacturing and industrial building construction), 

Categorized by Value of Construction Work ..................................... 2B-7 

2B-5 Specialization within NAICS 23332 (Commercial and institutional building construction), 

Categorized by Value of Construction Work ..................................... 2B-9 

2B-6 Specialization within NAICS 23411 (Highway and street construction), 

Categorized by Value of Construction Work .................................... 2B-11 

2B-7 Specialization within NAICS 23412 (Bridge and tunnel construction), 

Categorized by Value of Construction Work .................................... 2B-13 

2B-8 Specialization within NAICS 23491 (Water, sewer, and pipeline construction), 

Categorized by Value of Construction Work .................................... 2B-15 

x 
LIST OF TABLES (cont.) 

Table Page 

2B-9 Specialization within NAICS 23492 (Power and communication transmission lines 

construction), Categorized by Value of Construction Work ........................ 2B-17 

2B-10 Specialization within NAICS 23493 (Industrial non-building structure construction), 

Categorized by Value of Construction Work .................................... 2B-19 

2B-11 Specialization within NAICS 23499 (All other heavy construction), Categorized by 

Value of Construction Work ................................................. 2B-21 

2B-12 Specialization within NAICS 23593 (Excavation contractors), Categorized by 

Value of Construction Work ................................................. 2B-23 

2B-13 Specialization within NAICS 23494 (Wrecking and demolition contractors), 

Categorized by Value of Construction Work .................................... 2B-25 

2D-1 Summary Statistics for the C&D Industry ....................................... 2D-1 

3-1 Summary of Regulatory Options Being Co-Proposed by EPA ......................... 3-3

4-1 Costs Incurred at Various Stages of a Residential Construction Project ................. 4-15

4-2 Model Parameters and Data Sources ............................................ 4-16

4-3 Baseline Economic Model of a Hypothetical 7.5-Acre Residential Development .......... 4-20

4-4 Illustrated Impact of Incremental Storm Water Control Requirements on Model Project 

Under Proposed Rule Option 1 ................................................. 4-21

4-5 Obligation of Federal-Aid Highway Funds for Selected Highway Improvements and 

Functional Classifications - 1995 to 2000 ........................................ 4-24

4-6 Model Single-Family Residential Construction Firm Financial Data ................... 4-28

4-7 Impact of Compliance Costs on Developer-Builder’s Balance Sheet ................... 4-30

4-8 Number of Establishments in the Construction and Development Industry Adjusted for

Regulatory Option Coverage .................................................. 4-37

4-9 Employment in the Construction and Development Industry Adjusted for 

Regulatory Option Coverage .................................................. 4-37

4-10 Acres Converted from Undeveloped to Developed State, 1992-1997 ................... 4-47

4-11 New Single-Family and Multifamily Housing Units Authorized, 1995-1997 ............. 4-48

4-12 Average and Median Lot Size for New Single-Family Housing Units Sold, 1995-1997 ..... 4-49

4-13 Average Building Square Footage .............................................. 4-51

4-14 Typical Building Sizes and Size Ranges by Type of Building ......................... 4-52

4-15 National Estimates of Land Area Developed Per Year Based on Building Permit Data ..... 4-53

4-16 National Estimates of Land Area Disturbed Based on National Resources 

Inventory Totals ............................................................ 4-54

4-17 Distribution of Permits by Site Size ............................................. 4-56

4-18 Estimates of Acreage Affected Under Proposed Rule Option 2 ........................ 4-57

4-19 Change in Housing Affordability—Sample Calculation ............................. 4-61

4-20 Household Information for Imputing Changes in Ownership Possibilities ............... 4-62

4A-1 Model Project Parameters and Data Sources ..................................... 4A-1 

4C-1 Model Establishment Characteristics Based on Census Data ........................ 4C-1 

4C-2 Model Establishment Characteristics Based on Dun and Bradstreet Data ............... 4C-2 

4C-3 Financial Ratio Data by Quartile .............................................. 4C-3 

xi 
LIST OF TABLES (cont.) 

Table Page 

5-1 Baseline Sales Price and Profit Conditions for the Model Projects ...................... 5-4

5-2a Impact of Regulatory Options on Model Project Financials—100 Percent 

Cost Pass Through, All Project Sizes .......................................... 5-6

5-2b Impact of Regulatory Options on Model Project Financials—Zero Percent 

Cost Pass Through, All Project Sizes ............................................. 5-6

5-3a Estimated National Costs of Storm Water Control Options ............................ 5-8

5-3b Calculation of Total Cost per Unit ............................................... 5-9

5-4 Impact of Regulatory Options on Financial Performance for Model Firm Single-Family

Residential Construction, 10-24 Housing Units Starts Class .......................... 5-12

5-5a Impact of Regulatory Options on Model Firm Financial Performance 

– Zero Cost Pass Through .................................................... 5-13

5-5b Impact of Regulatory Options on Model Firm Financial Performance 

– Estimated Actual Cost Pass Through ........................................... 5-14

5-6 Impact of Proposed Rule on Model Firm Financials – Highway Construction ............ 5-16

5-7a Estimated Facility Closures – Zero Percent Cost Pass Through ...................... 5-17

5-7b Estimated Facility Closures – Estimated Cost Pass Through .......................... 5-18

5-8a Estimated Employment Losses – Zero Percent Cost Pass Through .................... 5-19

5-8b Estimated Employment Losses – Estimated Cost Pass Through ....................... 5-19

5-9a Barrier to Entry Analysis – Zero Percent Cost Pass Through ......................... 5-21

5-9b Barrier to Entry Analysis – Estimated Cost Pass Through ............................ 5-22

5-10 Barrier to Entry Analysis – Highway Construction ................................. 5-23

5-11 Impact of Erosion and Sediment Control Costs on Housing Affordability ............... 5-24

5-12 Single-Family Residential Average HOI by Census Division ......................... 5-25

5-13 Single-Family Residential Percentage Change in HOI by Census Division .............. 5-25

5-14 Single-Family Residential Changes in Price and Quantity from Baseline ................ 5-26

5-15 Multifamily Residential Changes in Price and Quantity from Baseline .................. 5-27

5-16 Commercial Changes in Price and Quantity from Baseline ........................... 5-28

5-17 Industrial Changes in Price and Quantity from Baseline ............................. 5-28

5-18 Changes in Output and Total Employment from Baseline ............................ 5-30

5-19 Changes in Social Welfare Measures – All Sectors Combined ........................ 5-31

5-20 Loss of Output to the Construction Industry by State and Use Category for Option 2 ...... 5-32

5-21 Net Change in Total Employment by State and Use Category Under 

Proposed Rule Option 2 ...................................................... 5-34

5-22 Costs to Establish Construction Programs ........................................ 5-36

5A-1 Estimated Closures as a Percent of Total Establishments, Cash Flow Method 

(Zero Cost Pass Through) .................................................... 5A-1 

5A-2 Estimated Closures as a Percent of Total Establishments, Cash Flow Method 

(with Cost Pass Through) .................................................... 5A-1 

5A-3 Estimated Employment Losses as a Percent of Total Employment, Cash Flow Method 

(Zero Cost Pass Through) .................................................... 5A-2 

5A-4 Estimated Employment Losses as a Percent of Total Employment 

(with Cost Pass Through) .................................................... 5A-2 

5B-1 Sensitivity Tests with Alternative Elasticities .................................... 5B-2 

5C-1 Costs of Phase II Erosion and Sediment Control, by Site Size ($1997) ................. 5C-3 

xii 
LIST OF TABLES (cont.) 

Table Page 

5C-2 Estimated National Costs of Erosion and Sediment Controls – Alternative Baseline ...... 5C-4 

5C-3 Social Costs and Benefits of Erosion and Sediment Controls – Alternative Baseline ...... 5C-4 

5C-4a Impact of Combined Phase II and Proposed Effluent Guidelines Costs on Model Project 

Financials – 100 Percent Cost Pass Through ..................................... 5C-5 

5C-4b Impact of Combined Phase II and Proposed Effluent Guidelines Costs on Model Project 

Financials – Zero Percent Cost Pass Through .................................... 5C-5 

5C-5 Impact of Combined Phase II and Effluent Guidelines Costs on Model Firm Financials 

– Zero Percent Cost Pass Through ............................................. 5C-7 

5C-6 Estimated Facility Closures – Zero Cost Pass Through ............................ 5C-10 

5C-7 Estimated Employment Losses – Zero Cost Pass Through ......................... 5C-11 

5C-8 Impact of Erosion and Sediment Control Costs on Housing Affordability 

—Alternative Baseline (No Phase II Compliance) ................................ 5C-12 

5C-9 Changes in Output and Total Employment from the Alternate Baseline ............... 5C-13 

6-1 SBA Small Business Definitions for the Construction and Development Industry .......... 6-4

6-2 Number of Affected Establishments in the Construction and Development Industry ........ 6-6

6-3 Ratio of Businesses to Establishments by Employment Class .......................... 6-7

6-4 Estimated Number of Firms by Employment Class, and Revenues per Establishment ....... 6-8

6-5 Estimated Number of Small Businesses Potentially Affected by the Proposed Rule ....... 6-10

6-6 Key Model Facility Data by Housing Starts Classification Category ................... 6-19

6-7a Estimated Number of Small Business Owned Establishments with Compliance Costs 

Exceeding 1 Percent of Revenues – Zero Cost Pass Through ......................... 6-27

6-7b Estimated Number of Small Business Owned Establishments with Compliance Costs 

Exceeding 3 Percent of Revenues – Zero Cost Pass Through ......................... 6-28

6-7c Estimated Number of Small Business Owned Establishments with Compliance Costs 

Exceeding 1 Percent of Revenues – Estimated Cost Pass Through ..................... 6-29

6-7d Estimated Number of Small Business Owned Establishments with Compliance Costs 

Exceeding 3 Percent of Revenues – Estimated Cost Pass Through ..................... 6-30

7-1 Environmental Measures from the Baseline Environmental Assessment ................. 7-3

7-2 Sample Calculation of Avoided Loss of Water Storage Capacity ....................... 7-5

7-3 Sample Calculation of Avoided Navigational Dredging .............................. 7-7

7-4 Sample Calculation of Avoided Water Treatment Costs .............................. 7-9

8-1 Total Suspended Sediment (TSS) – Differences from Baseline ......................... 8-2

8-2 Benefits Estimates ............................................................ 8-2

9-1 Social Costs and Benefits ...................................................... 9-5

10-1 Impacts of Proposed Rule Compliance Costs on Government Units .................... 10-4

xiii 
LIST OF FIGURES

Figure Page 

ES-1 Historical Data on Housing Construction ....................................... ES-13

2-1 Number of Establishments in the C&D Industries, by State .......................... 2-15

2-2 Seasonal Trends for Employment in the C&D Industries ............................ 2-17

2-3 New Privately Owned Housing Units Authorized, Seasonally Adjusted Annual Rate ...... 2-34

4-1 Pre- and Post-Regulatory Cumulative Distribution Function for Current Ratio ........... 4-39

4-2 Baseline Distribution Function with Bounds for Facility Cashflow .................... 4-43

6-1 Baseline Distribution Functions for Facility Revenues .............................. 6-23

xiv 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

EXECUTIVE SUMMARY
 

ES.1 INTRODUCTION 

The deposition of sediment from construction site runoff has contributed to the loss of capacity in 

small streams, lakes, and reservoirs, leading to the necessity for mitigation efforts such as dredging or 

replacement. In response, the U.S. Environmental Protection Agency (EPA) is proposing several options 

to address storm water discharges from construction sites. As one option, EPA would establish 

inspection and certification requirements that would be incorporated into the storm water permits issued 

by EPA and States, with other permit requirements based on the best professional judgement of the 

permit authority. As another option, EPA would establish technology-based effluent limitation guidelines 

and standards (ELGs) for storm water discharges from construction sites required to obtain National 

Pollutant Discharge Elimination System (NPDES) permits. The final option would involve no incremental 

regulation. EPA would allow technology-based permit requirements to continue to be established based 

upon the best professional judgment of the permit authority. 

This Economic Analysis (EA) summarizes EPA’s analysis of the estimated compliance costs and 

the economic impacts that may be incurred by regulated entities within the construction and development 

(C&D) industry as a result of the proposed regulations. The EA describes the proposed regulatory 

options considered by EPA. Financial impacts to establishments in the C&D industry, potential impacts 

on consumers of C&D industry output, and market and other secondary impacts such as industry 

employment are also covered here. This EA also responds to requirements for small business analyses 

under the Regulatory Flexibility Act (RFA) as amended by the Small Business Regulatory Enforcement 

Fairness Act (SBREFA) and for cost-benefit analyses under Executive Order 12866 and the Unfunded 

Mandates Reform Act (UMRA). 

ES-1
 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

ES.2 INDUSTRY PROFILE 

ES.2.1 Data Sources 

EPA relied on existing data sources, including academic literature, industry trade associations, and 

government data such as that provided by the U.S. Census Bureau. Major data sources are discussed in 

more detail where they are used to support sections of this analysis. 

Of primary importance in the early development of this EA was the 1997 Census of Construction, 

conducted by the U.S. Census Bureau. The Census provided information on the industry sectors 

potentially affected by the proposed rule, as well as characteristics of each sector such as employment 

and revenue levels. EPA used other reports from the Census Bureau, including: 

• Report C25 – Characteristics of New Housing 

• Report C40 – Building Permits 

• Report C20 – Housing Starts 

• Report C30 – Value Put in Place 

These reports were used to develop and support the various economic models used in this 

analysis. 

Other data sources used to create a profile of the C&D industry included focus group sessions 

with the National Association of Home Builders (NAHB) and various NAHB publications, the Economic 

Analysis for the Final Phase II NPDES Storm Water Regulations, and a report on the remodeling 

industry by the Joint Center for Housing Studies at Harvard University, in addition to a variety of 

academic literature. 

ES-2
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

ES.2.2 Industry Description 

The construction industry plays an integral role in the nation’s economy, contributing 

approximately five percent of the Gross Domestic Product. Establishments in this industry are involved in 

a wide variety of activities, from land development and subdivision to homebuilding, construction of 

nonresidential buildings and other structures, heavy construction work (including roadways and bridges), 

and a myriad of special trades such as plumbing, roofing, electrical, excavation, and demolition work. 

C&D activity affecting water quality typically involves site selection and planning, and land-disturbing 

tasks during construction such as clearing, excavating and grading. Disturbed soil, if not managed 

properly, can be easily washed off-site during storm events. Storm water discharges generated during 

construction activities can cause an array of physical, chemical and biological impacts. 

Several characteristics of the construction industry affect the structure of this economic analysis: 

• Individuals (e.g., homebuyers) are often the direct customers of the construction industry. 

With individuals as the direct consumer it is necessary to address issues such as cost pass 

through and the impacts of regulations on housing affordability. 

• The construction industry is dominated by small businesses. As a result, EPA carefully 

considered the impacts on small businesses in accordance with the Regulatory Flexibility 

Act (RFA), as amended by the Small Business Regulatory Enforcement Fairness Act 

(SBREFA). 

• There are complex and varying relationships between developers and builders, resulting in 

a variety of different business models. Developers may undertake all improvement and 

sell completed lots directly to builders, act as builders themselves and remain onsite to 

build out the development, or sell some lots and retain others to build on. 

• Construction activities are highly localized. This suggests that a regional approach to 

analysis may be helpful in accounting for varying market conditions. 

• The standard industry definitions include a large number of establishments primarily 

engaged in remodeling activities. Such establishments are less likely to be involved in 

land disturbing activities. 

For the purposes of this economic analysis, the “C&D industries” are broadly defined to include 

those establishments within the construction sector (NAICS 23) that may be involved in activities that 

ES-3
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

disturb the ground at construction sites. This includes site clearing or site preparation activities such as 

tree removal, excavation, blasting, scraping, grading, etc. EPA believes that many establishments in 

NAICS 233 (Building, developing, and general contracting) and NAICS 234 (Heavy construction) are 

likely to engage in such activities on a regular basis. Establishments within selected 5-digit industries that 

are part of NAICS 235 (Special trade contractors) may also engage in land-disturbing activities. These 

may include NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors). 

However, as discussed in Section VI.A in the preamble of the proposed rule, Special trade contractors 

are typically subcontractors and not identified as NPDES permittees. Table ES-1 identifies the industry 

sectors that may be covered by the proposed regulations. 

ES-4
 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table ES-1. Industry Definitions for Construction and Development Industry Profile 

NAICS Code Industry Relevant SIC Codes 

233 Building, developing, and general contracting 

2331 

Land subdivision and 

development 

23311 

Land subdivision and 

development 6552 Land subdividers and developers, except cemeteries 

2332 

Residential building 

construction 

23321 

Single-family housing 

construction 

1521 General contractors–single-family houses 

1531 Operative builders (partial) 

8741 Management services (partial) 

23322 

Multifamily housing 

construction 

1522 General contractors–residential buildings other than single-family (partial) 

1531 Operative builders (partial) 

8741 Management services (partial) 

2333 

Nonresidential building 

construction 

23331 

Manufacturing and 

industrial building 

construction 

1531 Operative builders (partial) 

1541 General contractors–industrial buildings and warehouses (partial) 

8741 Management services (partial) 

23332 

Commercial and 

institutional building 

construction 

1522 General contractors–residential buildings, other than single-family (partial) 

1531 Operative builders (partial) 

1541 General contractors–industrial buildings and warehouses (partial) 

1542 General contractors–nonresidential buildings except industrial buildings 

and warehouses 

8741 Management services (partial) 

234 Heavy Construction 

2341 

Highway, street, bridge, 

and tunnel construction 

23411 

Highway and street 

construction 

1611 Highway and street construction contractors, except elevated highways 

8741 Management services (partial) 

23412 

Bridge and tunnel 

construction 1622 Bridge, tunnel, and elevated highway construction 

2349 Other heavy construction 

23491 

Water, sewer, and 

pipeline construction 

1623 Water, sewer, pipeline, and communications and power line construction 

(partial) 

8741 Management services (partial) 

23492 

Power and 

communication 

transmission line 

construction 

1623 Water, sewer, pipeline, and communications and power line construction 

(partial) 

8741 Management services (partial) 

23493 

Industrial nonbuilding 

structure construction 

1629 Heavy construction, n.e.c. (partial) 

8741 Management services (partial) 

23499 

All other heavy 

construction 

1629 Heavy construction, n.e.c. (partial) 

7353 Heavy construction equipment rental and leasing (partial) 

8741 Management services (partial) 

235 Special trade contractors 

23593 Excavation contractors 1794 Excavation work special trade contractors 

23594 

Wrecking and demolition 

contractors 1795 Wrecking and demolition work special trade contractors 

Source: U.S. Census Bureau (2000).
 

ES-5
 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

ES.2.2.1 Number of Establishments 

In 1997, there were a total of 261,617 establishments with payroll in the C&D industries. This 

represented 39.8 percent of all establishments in the construction sector (NAICS 23) and 4.1 percent of 

all U.S. business establishments. Between 1992 and 1997, the number of establishments with payroll in 

the C&D industries increased from 235,789 to 261,617, an increase of 11.0 percent (see Table ES-2). 

This overall modest increase masks some significant offsetting changes in establishment counts within 

individual industries, as defined under NAICS, i.e.,: 

• The number of establishments in the land development sector (NAICS 2331) decreased 

by 46.6 percent; 

• There was a 13.5 percent increase in the number of establishments in residential and 

nonresidential building construction (NAICS 233, except 2331); 

• The number of establishments in heavy construction increased by 14.5 percent; 

• There was a 33.0 percent increase in the number of special trades contractor 

establishments (NAICS 235), including a 31.2 percent increase among excavation 

contractors and a 59.6 percent increase among demolition contractors. 

Table ES-2. Number of Establishments in Construction and Development Industries, 1997 vs 1992 

NAICS Industry 

Number of Establishments 

1992 1997 

Pct. Change 

1992-1997 

233, exc. 2331 

Building, developing, and general 

contracting, except land development and 

subdevelopment 168,407 191,101 13.5% 

2331 Land development and subdevelopment 15,338 8,185 -46.6% 

234 Heavy construction 37,180 42,557 14.5% 

235a Special trade contracting 14,864 19,771 33.0% 

Subtotal 235,789 261,617 11.0% 

a

 Includes NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only.

Figures may not add to totals due to rounding.

Source: U.S. Census Bureau (2000).

ES-6
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

ES.2.2.2 Employment 

In 1997, employment in the C&D industries totaled nearly 2.4 million workers. This represented 

41.6 percent of all construction sector employment (NAICS 23) and 2.3 percent of all employment in U.S. 

business establishments. Table ES-3 shows a distribution of employment by NAICS industry. NAICS 

2331 (Land subdivision and land development) accounts for 41,827 employees (1.8 percent of the total), 

the rest of NAICS 233 (Building, developing, and general contracting) accounts for 1.3 million employees, 

or 55.2 percent of the total. A total of 880,400 or 37.3 percent of the total are employed in NAICS 234 

(Heavy construction), and NAICS 23593 and 23594 (Excavation contractors and Wrecking and 

demolition contractors) employ 135,057 (5.7 percent of the total).1 

Table ES-3.	 Number of Employees in the Construction and Development Industries, Establishments With 

Payroll, 1997 

NAICS Industry 

Number of 

Employees 

Percent 

of Total 

233, except 

23311 

Building, developing, and general contracting, except land 

subdivision and land development 1,301,126 55.2% 

23311 Land subdivision and land development 41,827 1.8% 

234 Heavy construction 880,400 37.3% 

235a Special trade contractors 135,057 5.7% 

TOTALS 2,358,410 100.0% 

a

 Includes NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only. 

Source: U.S. Census Bureau (2000). 

Construction is a seasonal activity in many parts of the country, and employment data from the 

industry bear this out. In 1997 employment of construction workers was lowest in March at 1.59 million 

and highest in August at 1.83 million. 

1

 A comparison to 1992 employment levels (comparable to that shown in Table ES-2) is not easily made 

because of the change from SIC to NAICS basis between the 1992 and 1997 Census periods. 

ES-7 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

ES.2.2.3 Revenues 

Overall, the value of construction work completed in the C&D industries was $525.3 billion in 

1997. This represents an increase of 58.8 percent over the $330.6 billion in (nominal) value recorded in 

1992. NAICS 233 (Building and developing) accounted for $368.0 billion or 70.0 percent of the total 

overall value in 1997. Value of work for heavy construction contractors (NAICS 234) was $127.8 billion 

or 24.4 percent of the total, while special trade contractors (NAICS 23593 and 23594) completed work 

valued at $15.9 billion, representing 3.0 percent of total revenues. The average value of construction 

work done per establishment ranges from $0.8 million per year for special trades to $3.0 million per year 

for heavy construction. 

Table ES-4. Value of Construction Work (Thousands of 1997 Dollars) 

NAICS Description 

Value of Construction Worka ($1,000) 

Total Per Establishment 

233, except 

2331 

Building, developing, and general 

contracting, except land development 

and subdivision $368,006,098 $1,926 

2331 Land subdivision and land development $13,635,521 $1,666 

234 Heavy construction $127,841,600 $3,004 

235b Special trade contractors $15,910,770 $805 

TOTAL $525,393,989 $2,008 

a

 Value of construction work includes all value of construction work done during 1997 for construction work
 

performed by general contractors and special trade contractors. Included is new construction, additions and
 

alterations or reconstruction, and maintenance and repair construction work. Also included is the value of any
 

construction work done by reporting establishments for themselves.
 

b Covers establishments in NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition
 

contractors) only.
 

Source: U.S. Census Bureau (2000).
 

ES.2.2.4 Number of Potentially Regulated Businesses 

EPA took several steps to define the number of C&D establishments that may be affected by the 

proposed regulations. The analysis began with all C&D establishments as defined in Table ES-1, using 

ES-8
 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

data from the 1997 Census of Construction. EPA next estimated the number of C&D establishments 

primarily engaged in remodeling work, using data from the National Association of Home Builders 

(NAHB) and the Joint Center for Housing Studies at Harvard University (Joint Center). These were 

excluded because they were judged unlikely to engage in land disturbing activities. The final step was to 

estimate the number of C&D establishments who are unlikely to disturb more than one acre of land. This 

was done to exclude establishments that fall below the regulatory coverage of the proposed rule.2 

A number of establishments classified in the C&D industries are primarily engaged in remodeling 

activities. These establishments are not expected to be affected under the proposed rule because they 

are unlikely to engage in any land-disturbing activities. The Joint Center (2001) recently published a 

report focused solely on the remodeling industry. This report classified establishments that derive at least 

half of their revenues from remodeling activities as remodelers. When defined in this manner, the study 

found that 62,400 establishments classified as general contractors/builders in 1997 were actually 

remodelers. The study goes further to identify establishments classified in various special trades (e.g., 

carpentry, plumbing) that are primarily engaged in remodeling, but provides no estimates for the special 

trades industries that form part of the C&D industries as defined for this proposed rule (i.e.,in NAICS 

23593 Excavation contractors and 23594 Wrecking and demolition contractors).3 The report does not 

address remodeling activities conducted by establishments in NAICS 234 (Heavy construction), however, 

EPA does not believe that many establishments in this sector are principally engaged in remodeling 

activities. 

EPA believes that builders who construct only a few houses per year are also unlikely to be 

affected by the proposed rule, because such builders are unlikely to build on sites over one acre in size. A 

special report on the homebuilding industry, published by the Census Bureau (Rappaport and Cole, 2000), 

estimates the number of establishments according to the number of housing units started each year. In 

2

 An additional step used in the analysis of Option 2 was to estimate the number of C&D establishments 

that disturb only 5 acres of land or more. Option 2 would not apply to sites below 5 acres in size. 

3

 The Joint Center study does provide an estimate for the number of remodelers classified in “miscellaneous 

special trades” (NAICS 2359), which includes NAICS 23593 and 23594, but several other industries as well. The 

number of remodelers classified primarily in NAICS 23593 and 23594 may not be large, however, since the total 

number in NAICS 2359 is only 6,600. 

ES-9 
--

--

--

Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

1997, the number of establishments that built between one and four houses (the smallest builder size 

category) was 50,661. 

From Table ES-2, EPA estimates that the total number of establishments in the C&D industry is 

261,617. Subtracting the 62,400 remodeling establishments and the 50,661 establishments that start 

between one and four houses per year leaves 148,556 establishments potentially affected by the proposed 

rule. Table ES-5, below, shows the number of establishments in the C&D industry, adjusted for the 

number of remodelers and small-scale builders.4 

Table ES-5. Number of Establishments Potentially Affected by the Proposed Rule 

NAICS Industry 

Establishments With Payroll 

Number Percent of Total 

2331 Land development and subdivision 8,185 3.1% 

23321 Single-family residential building construction 138,849 53.1% 

23322 Multi-family residential building construction 7,543 2.9% 

2333 Nonresidential construction 44,710 17.1% 

234 Heavy construction 42,557 16.3% 

235a Special trade contracting 19,771 7.6% 

SUBTOTAL 261,617 100.0% 

Minus Remodeling Establishments 62,400 

Minus Establishments Starting 1 - 4 Houses per Year 50,661 

Number of Potentially Affected Establishments 148,556 

a

 Includes NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only.
 

Figures may not add to totals due to rounding. See also the footnote below.
 

Source: U.S. Census Bureau (2000); Rappaport and Cole (2000); Joint Center (2001).
 

4

 EPA believes, in addition, that a majority of establishments in NAICS 23593 (Excavation contractors) and 

23594 (Wrecking and demolition contractors) will not be affected by the proposed rule because they act as 

subcontractors to the actual NPDES storm water permittee, who will most often be a developer or general contractor. 

EPA has included these establishments in the universe of potentially affected establishments shown in Table ES-5, 

but has excluded them from the economic impact analysis summarized below. For further details, see Section 2.3.4. 

ES-10 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

ES.2.2.5 Small Entities 

Small entities are defined by the Small Business Administration (SBA) according to size standards 

based on either number of employees or annual revenue (13 CFR 121). For all of the C&D industries, the 

size standards are based on annual revenues. The SBA revenue thresholds for the C&D industry range 

from $5.0 million for NAICS 233110 (Land subdivision and land development) to $27.5 million for the 

majority of NAICS 233 (Building, developing, and general contracting) and NAICS 234 (Heavy 

construction).5 As shown in Table ES-6, 95,753 potentially affected C&D businesses, representing 98.6 

percent of all potentially affected businesses in the C&D industry, fall below the SBA-defined revenue 

thresholds for this industry and therefore may be qualified as small businesses. 

Note that for this analysis, due to data limitations for the land development industry (NAICS 

23311) EPA accounted for these establishments by assigning them to the four building construction 

industries (single-family residential, multifamily residential, commercial6, and industrial) based on the share 

of affected establishments represented by each sector.7 EPA likewise lacked financial data for 

establishments in the special trades industries (NAICS 235) but decided to exclude these establishments 

from the small entity analysis rather than have them represented by model firms that are dissimilar in their 

characteristics. In general, EPA believes establishments in NAICS 235 will not be affected by the 

proposed rule. Chapter Six of this report provide further detail on EPA’s approach to the small entity 

analysis. 

5

 For those industries with a $27.5 million SBA cutoff, the table shows the number of firms and 

establishments with revenues below $25.0 million (the next closest SBA data break point). For industries with a $11.5 

million SBA cutoff, figures shown are for firms and establishments with revenues below $7.5 million. 

6

 See section ES.4.1 for a description of the commercial construction industry. 

7

 Implicitly, this means that establishments in the land development industry are represented by model 

facilities in each of the four building construction industries. Prior to doing this, EPA compared industry 

characteristics such as average employment, revenues, and assets across industries and found them to be similar. 

ES-11 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table ES-6. Estimated Number of Small Businesses Potentially Affected by the Proposed Rule. 

NAICS 

Potentially 

Affected 

Establishment 

s 

Potentially 

Affected 

Businesses 

Potentially Affected Small 

Businesses 

Small 

Businesses as 

a Percent of 

Total for 

Individual 

Number Industry

Percent of 

total 

233210: Single-family 

housing construction 34,070 34,041 34,004 35.5% 99.9% 

233220: Multifamily 

housing construction 4,603 4,597 4,571 4.8% 99.4% 

233310: Manufacturing 

and industrial building 

construction 7,742 7,719 7,498 7.8% 97.1% 

233320: Commercial and 

institutional building 

construction 39,810 39,587 39,013 40.7% 98.6% 

23411 Heavy 

Construction 11,270 11,141 10,667 11.1% 95.7% 

Total 97,495 97,085 95,753 100.0% 98.6% 

Source: EPA estimates (see Chapter Six). 

ES.2.3 Industry Dynamics 

For purposes of the economic analysis, EPA has selected 1997 as the baseline year. In part this 

reflects the availability of data from the 1997 Census of Construction, but in addition EPA believes 1997 

to be reasonably representative year for the affected industries. Before reaching this conclusion, EPA 

examined historical activity data for the construction industry, reviewed analyses of recent trends, and 

looked at projections for the future. As a result of this review, EPA concluded the following: 

• Historically, construction activity has been highly cyclical. Data from 1959 through 2001 

for new housing units authorized by building permit show an overall growth trend that is 

punctuated by cyclical swings (see Figure ES-1). These reach highs in 1972, 1978, and 

1986 and lows in 1974, 1982, and 1991. 

• Since 1991, the industry has been on a fairly continuous growth trend. Single-family 

housing, for example, grew from an annual level of 0.7 million new units in 1991 to 1.2 

million new units in 1999, which represents an average annual growth rate of 8.2 percent. 

ES-12
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

During this same period, real GDP grew by an average of 4.1 percent per year (BEA, 

2002). 

• Structural changes in the market have made construction less cyclical than before. In a 

recent analysis, the NAHB identifies several factors that have contributed to reducing the 

cyclicality of housing market activity. These include the easing of rules on credit 

availability, the subsequent development of adjustable-rate mortgage instruments, and the 

maturation of the secondary market for mortgage-backed securities (NAHB, no date). 

• An NAHB report called The Next Decade for Housing predicts that over the 2001-2010 

period the nation will build an average of 1.82 million new homes per year, up from an 

average of 1.66 million per year over the 1991-2000 (see Table ES-7). 

• A surprising feature of the most recent economic slowdown is that it has had almost a 

negligible effect on construction activity, and new home construction in particular. As 

NAHB’s chief economist wrote in early 2002, “Believe it or not, 2001 turned out to be a 

record year for sales of both new and existing homes, despite three quarters of economic 

recession and the shock of the terrorist attacks.” (Seiders, 2002). 

1959 1964 1969 1974 1979 1984 1989 1994 1999 

Year 

0 

500 

1,000 

1,500 

Thousands of units 

1 unit 

2-4 units 

5 units or more 

Source: http://www.census.gov/pub/const/bpann.pdf 

New Privately Owned Housing Units Authorized by Building Permits in Permit-Issuing Places 

Annual Data 

Figure ES-1. Historical data on housing construction. 

ES-13
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table ES-7.	 Housing Supply and Demand - Historical Data and Projections for 2001-2010 

(all data are in thousands and represent annual changes) 

1971-1980 1981-1990 1991-2000 2001-2010 proj. 

Change in households 1,578 1,281 1,137 1,255 

Change in vacancies 151 219 184 223 

Net removals 333 214 343 344 

Total Demand 2,062 1,714 1,664 1,822 

New single-family housing units 1,110 979 1,108 1,203 

New multifamily housing units 602 491 257 343 

Mobile homes 349 244 298 276 

Total Supply 2,062 1,714 1,664 1,822 

Source: NAHB (no date); based on Bureau of the Census data and NAHB forecasts. 

Based on this review, EPA concluded that data from the year 1997 provide a reasonable basis for 

characterizing the industries likely to be affected by the proposed ELG. In particular, EPA concluded that 

there is nothing to suggest that 1997 represents a particularly robust year, or that during the coming years 

in which the industry will have to adapt to the requirements of the ELG it will be in a relatively weak 

position, compared to the profile presented here. 

ES.3 REGULATORY OPTIONS 

ES.3.1 Current Regulatory Status of the C&D Industry 

The Construction General Permit (CGP), published in 1992 and revised in 1998, directs those 

seeking an NPDES permit from EPA to prepare a storm water pollution prevention plan (SWPPP) for 

certain construction activities. The CGP also calls for installation of temporary sediment basins for 

construction sites with disturbed area of 10 acres or more. The permit lists a variety of options and goals 

for other erosion and sediment controls (ESCs), but none are required. A description of ESCs is to be 

contained in the SWPPP. Options and goals for post-construction storm water best management 

practices (BMPs) are also contained in the CGP, but none are required. As with ESCs, selected BMPs 

ES-14
 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

are to be described in the SWPPP. Further discussion of current storm water regulations affecting 

construction activities can be found in Chapter One. 

The C&D industry ELG would complement the existing NPDES permitting program by setting 

minimum technology-based national standards for active construction ESCs and requiring inspection and 

certification of ESC practices. The proposed regulatory options considered by EPA are described below. 

ES.3.2 Summary of Proposed Regulatory Options 

EPA is proposing BAT/BPT/BCT/NSPS guidelines and standards for active construction phase 

erosion and sediment control under the proposed ELG. The specific options under consideration are 

summarized in Table ES-8 and described in detail in Chapter Three of this EA. All three options are coproposed, none is identified as “preferred.” 

Table ES-8. Summary of Regulatory Options Proposed by EPA 

Option Description Regulatory Mechanism Applicability 

Option 1 Inspection and Certification 

of Construction Site Erosion 

and Sediment Controls 

Amendment to NPDES storm 

water permitting regulations 

Construction sites disturbing 1 

acre or more 

Option 2 “Codification” of the 

Construction General Permit 

(CGP) 

plus Inspection and 

Certification Requirements 

Effluent limitation guidelines Construction sites disturbing 5 

acres or more 

Option 3 No Additional Regulation 

(Baseline) 

N/A All sites 

EPA has defined the baseline for the proposed rule as full compliance with the construction 

requirements of the final Phase I and Phase II NPDES storm water regulations. EPA also conducted a 

supplemental analysis that takes into account the fact that some states have not fully implemented the 

construction permitting requirements of the final Phase II NPDES storm water rule. The deadline for 

compliance with these requirements is March 10, 2003. The alternative baseline scenario considers the 

ES-15
 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

combined impact of the Phase II NPDES storm water rule and ELG regulations. Since EPA does not 

have current information on the extent of implementation of the construction permitting requirements of 

the Phase II NPDES storm water rule, the supplemental analysis assumes that all affected activities 

incur the combined cost of the Phase II NPDES storm water rule and ELG requirements. 

ES.4 ECONOMIC IMPACT ANALYSIS 

The economic impact analysis models the economic impacts of the proposed rule from several 

different perspectives. EPA has developed a series of model projects to analyze the economic 

achievability of regulatory alternatives at the project level. These models are based on representative 

project characteristics for single-family residential, multifamily residential, commercial, and industrial 

projects of various sizes. For example, the single-family residential model project reflects national 

averages for typical lot size, number of housing units built, size of housing units, etc. as well as project 

financial characteristics such as lot prices, development costs, permitting costs, construction costs, and 

project financing alternatives. A second type of modeling simulates the impacts of the regulatory options 

at the establishment and/or firm level (most construction firms operate only a single establishment). 

These models build on the project-level models to account for the level of activity (number and mix of 

projects) a typical firm is involved with in a typical year. EPA assesses the potential for business closure 

and employment losses using the firm-level model analysis. The third level of analysis focuses on the 

impacts of the regulatory options on the national markets affected by regulations on construction and 

development activities. The primary focus of this analysis is on the residential sector in terms of changes 

in house sales prices due to the proposed regulations, but EPA has also analyzed the effects of the 

regulations on the commercial and industrial sectors. These models are described in detail in Chapter 

Four of this report. In that chapter EPA provides a detailed discussion of the data sources and 

methodologies used for each type of model (project-, firm-, and market-level). Chapter Five contains the 

results of these analyses.8 

8

 The model projects were developed with input from industry representatives and from literature sources to 

ensure they are representative of projects undertaken by firms likely to be affected by the proposed ELG. The model 

firms are developed using mean or median values for firm characteristics as reported in the 1997 Census of 

Construction. See Chapter Four for more extensive discussion of the modeling methodologies. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

ES.4.1 Impacts on Model Construction Projects 

Section ES.3 described the approach used by EPA to develop model projects that assess the 

impact of the various regulatory options on the financial performance of the project and to determine the 

incremental project-level costs that would result. EPA developed models for the following four project 

types: 

• Single-family residential 

• Multifamily residential 

• Commercial9 

• Industrial 

EPA prepared multiple versions of each project type to reflect a range of project sizes–1, 3, 7.5, 

25, 70, and 200 acres. EPA also analyzed each model project under two cost pass through (CPT) 

scenarios. In the 100 percent CPT scenario the developer/builder passes on 100 percent of the regulatory 

cost to the buyer or consumer. The impacts are felt by consumers in the form of changes in the sales 

prices of the building or housing unit. In the zero CPT scenario the developer/builder absorbs all of the 

regulatory costs and the impact is reflected in a change in pre-tax profits. The baseline project sales price 

is calculated in the models and varies according to project type and size. The baseline pre-tax profit is set 

at 10 percent of building sales price based on input from industry. Tables ES-9a and ES-9b present the 

weighted average changes in price to consumers and in pre-tax developer/builder profit for all regulatory 

options. Values in Table ES-9 are weighted based on the distribution of acreage by project type and size. 

Changes in project cost to buyers under 100 percent cost pass through range from 0.04 percent to 

0.07 percent (single family) for Option 2 (Table ES-9), and are below 0.1 percent for Option 1. Changes 

in builder profit under zero cost pass through range from -0.35 percent (commercial) to -0.65 percent 

(single family) for Option 2. Builder impacts are no worse than -0.13 percent for Option 1. More 

complete comparisons appear in Chapter Five, Table 5-2. 

9

 For the purposes of this analysis, the commercial construction industry included hotels/motels, 

amusement, religious, parking garages, service stations, hospitals, offices, public works (including roads and 

highways), educational, stores, and other nonresidential buildings. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table ES-9a.	 Weighted Average Change in Sales Price to Buyer (All Site Sizes) 

100 Percent Cost Pass Through 

Option 

Percent Change in Project Price to Buyer 

Single-family Multifamily Commercial Industrial 

1 0.01% 0.01% 0.01% 0.01% 

2 0.07% 0.04% 0.04% 0.06% 

3 0.00% 0.00% 0.00% 0.00% 

Source: EPA estimates (see Chapter Five). 

Table ES-9b.	 Weighted Average Change in Builder-Developer Profit (All Site Sizes) 

Zero Cost Pass Through 

Option 

Percent Change in Developer/Builder Profit 

Single Multi Commercial Industrial 

1 -0.12% -0.07% -0.07% -0.13% 

2 -0.65% -0.38% -0.35% -0.54% 

3 0.00% 0.00% 0.00% 0.00% 

Source: EPA estimates (see Chapter Five). 

ES.4.2 Impacts on Model Construction Firms 

ES.4.2.1 Impacts on Model Firm Financial Ratios 

To analyze impacts of the proposed rule at the level of the facility, EPA developed model facilities 

based on 1997 Census of Construction data, Census special studies on the housing industry, and Dun & 

Bradstreet financial data. EPA constructed income statements and balance sheets for each model facility 

by scaling D&B data to represent different sized facilities based on Census revenue figures. EPA 

calculated incremental compliance costs per establishment, then used these model establishment income 

statements and balance sheets to estimate the post regulatory value of the following financial ratios 

considered especially significant to the construction industry: 

ES-18
 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

• Gross Profit Ratio 

• Return on Net Worth 

• Current Ratio 

• Debt to Equity Ratio 

EPA expressed impacts to the model establishments engaged in the model construction projects in terms 

of the percent change from baseline value to post-regulatory value for each financial ratio. 

Table ES-10 shows changes in the financial ratios under each regulatory option, with the range in 

outcomes reflecting simulations run using varying assumptions of model firm size and average project size 

(see Chapter Four for further details).10 Return on net worth is the most sensitive ratio and shows the 

largest change in value, followed in descending order by the gross profit, debt to equity, and current ratios. 

Also, with the exception of the return on net worth ratio, the multifamily model establishment tends to 

incur larger impacts to its financial ratios than do the other industry sectors. 

Under the more costly Option 2, return on net worth is projected to decrease as much as 5.85 

percent in the single-family sector and 3.0 percent in the multifamily sector, but less than 1.5 percent in 

the commercial and industrial sectors. The gross profit ratio is projected to decrease by as much as 1 

percent in the multifamily sector, and from about 0.3 to 0.5 percent in the remaining sectors. The debt to 

equity ratio is projected to worsen by as much as 0.6 percent for multifamily sector establishments; 

changes in this ratio range from 0.21 percent (single-family) to 0.31 percent (commercial) for the 

remaining sectors. The largest impact on the current ratio again occurs in the multifamily sector (a 

decrease of 0.16 percent), with changes of 0.05 in the other three sectors. Note that the figures 

presented in this table assume zero CPT. 

10 The table shows results for the four building construction industries (single-family residential, multifamily 

residential, commercial, and industrial). EPA conducted a separate analysis for the heavy construction industry, 

which found similar (i.e., very small) impacts. See Table 5-6. 

ES-19 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table ES-10. Impact of Compliance Costs on Model Firm Financials -- Zero Cost Pass 

Through 

Construction Industry 

and Regulatory Option 

Percent Change in Financial Ratios, From Baselinea 

Gross Profit 

Return on Net 

Worth Current Ratio Debt to Equity 

Min. Max. Min. Max. Min. Max. Min. Max. 

Single-family residential 

Option 1 0.000% -0.230% 0.000% -2.540% 0.000% -0.020% 0.000% 0.900% 

Option 2 0.000% -0.520% 0.000% -5.850% 0.000% -0.050% 0.000% 0.210% 

Option 3 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 

Multifamily residential 

Option 1 0.000% -0.310% 0.000% -0.990% 0.000% -0.050% 0.000% 0.200% 

Option 2 0.000% -0.950% 0.000% -3.070% 0.000% -0.160% 0.000% 0.640% 

Option 3 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 

Commercial 

Option 1 0.000% -0.170% 0.000% -0.530% 0.000% -0.020% 0.000% 0.130% 

Option 2 0.000% -0.400% 0.000% -1.250% 0.000% -0.050% 0.000% 0.310% 

Option 3 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 

Industrial 

Option 1 0.000% -0.140% 0.000% -0.430% 0.000% -0.020% 0.000% 0.120% 

Option 2 0.000% -0.320% 0.000% -1.020% 0.000% -0.050% 0.000% 0.280% 

Option 3 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 

a Ranges (minimum and maximum) reflect results across model firms of varying sizes. 

Source: EPA estimates (see Chapter Five). 

ES.4.2.2 Closures and Employment Losses 

To estimate facility closures, EPA generalized its model facility analysis above by constructing a 

cumulative distribution function for the return on net worth, current, and debt to equity ratios using the 

quartile values found in D&B. EPA assumed financial distress occurs if the post regulatory value of an 

individual ratio falls below the lowest quartile benchmark. EPA used a weighted average of financial 

ES-20
 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

distress indicators under the three financial ratios as its estimate of the incremental probability of closure 

due to the proposed rule. Multiplying this probability by the number of establishments represented by the 

model results in the projected number of closures. Multiplying the projected number of closures by 

average facility employment results in estimated direct employment impacts. 

Under Option 2, the largest number of establishment closures is projected to occur in the 

commercial sector (43 closures), followed by the single-family residential sector (13 closures). Closures 

as a percent of total establishments in the sector are largest in the commercial sector where about 0.1 

percent of the total are estimated to close. Employment impacts as a percent of each sector’s total 

employment are roughly proportional to closure impacts. Adjusting for CPT, as in Table ES-12, 

decreases the projected closure impacts significantly. 

Table ES-11.	 Estimated Facility Closures 

Zero Cost Pass Through 

Option 

Single-Family Multifamily Commercial 

Number Pct. of Total Number Pct. of Total Number Pct. of Total 

1 4 0.005% 1 0.022% 11 0.028% 

2 13 0.015% 3 0.065% 43 0.108% 

3 0 0.000% 0 0.000% 0 0.000% 

Option 

Industrial Heavy TOTAL 

Number Pct. of Total Number Pct. of Total Number Pct. of Total 

1 2 0.026% 0 0.000% 18 0.012% 

2 7 0.090% 26 0.230% 92 0.063% 

3 0 0.000% 0 0.000% 0 0.000% 

Source: EPA estimates (see Chapter Five). 

ES-21
 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table ES-12.	 Estimated Facility Closures 

Estimated Cost Pass Through 

Option 

Single-Family Multifamily Commercial 

Number Pct. of Total Number Pct. of Total Number Pct. of Total 

1 1 0.001% 0 0.000% 1 0.003% 

2 2 0.002% 0 0.000% 4 0.010% 

3 0 0.000% 0 0.000% 0 0.000% 

Option 

Industrial Heavy TOTAL 

Number Pct. of Total Number Pct. of Total Number Pct. of Total 

1 0 0.000% 0 0.000% 2 0.001% 

2 1 0.013% 3 0.027% 10 0.007% 

3 0 0.000% 0 0.000% 0 0.000% 

Source: EPA estimates (see Chapter Five). 

ES.4.2.3 Barriers to Entry 

The proposed rule should not present a barrier to new establishments entering the construction 

industry. This proposal does not generate additional costs to start a new construction company, nor does 

it create a difference in project costs between existing firms and new entrants (such as development fees 

or input prices). Such cost differentials, if they existed, would represent a barrier to new industry 

entrants. 

The impact of the proposed rule will essentially be felt through increased borrowing requirements 

to finance construction projects. On the surface this should affect both existing and new firms equally. 

New entrants may be affected indirectly, however, in that the requirements may marginally increase their 

start up capital needs, in order to qualify for the somewhat larger short term construction loans required to 

undertake a project. EPA examined the ratio of compliance costs to current and total assets to determine 

if new market entrants would need a significant amount of additional capital to obtain construction loans to 

start a project. Note that existing firms would face the same burden — this does not represent a cost 

differential between new and existing firms. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

EPA’s analysis indicates that compliance costs would represent a maximum of 0.82 percent of 

model establishments’ current assets (0.6 percent of total assets) under Option 2. As above, the 

maximum projected impact occurs in the multifamily sector. For the other sectors, compliance costs 

represent less than 0.3 percent of current assets. This methodology is conservative because it does not 

account for the fact that a firm would typically be expected to finance 20 percent of the incremental 

compliance costs from their own financial resource to obtain the loan — not the full amount as assumed 

here.11 

Table ES-13. Barrier to Entry Analysis -- Zero Cost Pass Through 

Option Comb. 

Compliance Costs Divided by: 

Current Assets Total Assets 

Min Max Min Max 

Single-family Residential 

1 0.000% 0.100% 0.000% 0.070% 

2 0.000% 0.230% 0.000% 0.170% 

3 0.000% 0.000% 0.000% 0.000% 

Multifamily Residential 

1 0.000% 0.260% 0.000% 0.190% 

2 0.000% 0.820% 0.000% 0.600% 

3 0.000% 0.000% 0.000% 0.000% 

Commercial 

1 0.000% 0.120% 0.000% 0.090% 

2 0.000% 0.270% 0.000% 0.220% 

3 0.000% 0.000% 0.000% 0.000% 

Industrial 

1 0.000% 0.110% 0.000% 0.080% 

2 0.000% 0.250% 0.000% 0.190% 

3 0.000% 0.000% 0.000% 0.000% 

Source: EPA estimates (see Chapter Five). 

11 The table shows results for the four building construction industries (single-family residential, 

multifamily residential, commercial, and industrial). EPA conducted a separate analysis for the heavy construction 

industry, which found similar (i.e., very small) impacts. See Table 5-10. 

ES-23 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

ES.4.3 Impacts on National Construction Markets and the National Economy 

EPA developed a series of regional market models to estimate the impact of compliance costs of 

the proposed regulation on markets for new construction. In addition, a national partial equilibrium model 

estimated changes in the national market for new single-family homes. The results of these models were 

aggregated to estimate the national impacts of the regulation. 

Table ES-14 summarizes the annual national costs to builders of each option in terms of the 

incremental cost ESC management over the cost under the baseline conditions. 

Table ES-14. Estimated National Costs of ESC Controls 

All dollar values in constant, pre-tax, 1997 dollars 

Option 

National Costs by Type of Construction 

($millions) 

Total 

Single-family Multifamily Commercial Industrial ($millions)

1 $24.1 $11.9 $78.4 $3.7 $118.1 

2 $121.5 $59.4 $277.3 $11.0 $469.2 

3 $0.0 $0.0 $0.0 $0.0 $0.0 

National Costs per Unit by Type of Construction 

$/house $/sq ft $/sq ft $/sq ft 

1 $16.91 $0.003 $0.007 $0.008 

2 $90.79 $0.019 $0.031 $0.030 

3 $0.00 $0.000 $0.000 $0.000 

Source: EPA estimates (see Chapter Five). 

EPA’s literature review (Chapter Four) suggests the long-run supply of housing is considered 

highly elastic while demand for new housing construction is relatively inelastic. Under these conditions, 

changes in costs are passed through to home buyers without a large loss in sales. Non-residential 

consumers are more price sensitive and passed through costs contribute to a larger reduction in 

construction in many markets. The decrease in number of units sold varied by option combination from: 

• 0.0 to 0.02 percent for single-family housing 

• 0.0 to 0.01 percent for multifamily housing 

• 0.0 to 0.07 percent for commercial construction and 

• 0.0 to 0.32 percent for industrial construction 

ES-24
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Additional analyses of the single-family housing market assessed the impact of the regulation on 

the affordability of newly constructed homes. One measure was the number of households that would no 

longer qualify for a mortgage to buy the model median priced new home. In the most costly option 

combination, 29,100 households that would have qualified for a mortgage in the baseline would no longer 

qualify when all of the compliance costs were included in the home price. As a percent of households 

that qualified in the baseline the percentage no longer qualifying ranged from 0 to 0.15%. 

Another measure of affordability is the Housing Opportunity Index (HOI) which measures the 

proportion of households in a housing market that can afford the median priced home. Across more than 

200 metropolitan areas modeled, HOI changed by a maximum of 0.02 percent for Option 1 and 0.11 

percent for Option 2. 

The model firm analysis showed the number of jobs that may be lost in the construction industry. 

These losses have effects throughout the economy as laid off workers consume less and fewer projects 

are undertaken. The market model generated estimates of these indirect employment losses. The 

reduction in construction activity generates national employment losses in all industries of 6,000 jobs under 

Option 2. These losses are offset, however, by spending to implement the program which creates new 

jobs. EPA’s analysis indicates that this stimulus effect is larger than the loss of activity and produces a 

net increase of 7,200 new jobs under Option 2. Compliance costs passed on to consumers reduce the 

resources consumers have for other goods and services as they spend more on storm water management. 

This again creates a drag on employment. The net loss in jobs in the national economy is 280 for Option 1 

and 1,400 for Option 2. 

Finally, the market models also estimate the social cost of the regulation. Given the relatively 

small shifts in supply and inelastic demand the social cost, or deadweight loss, of the regulation is only 

$200,000 for the most costly option. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

ES.5 SMALL ENTITY IMPACT ANALYSIS 

In accordance with the Regulatory Flexibility Act (RFA, 5 U.S.C. et seq., Public Law 96-354) as 

amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA) of 1996, EPA has 

considered the effects that the proposed C&D regulations may have on small entities. The RFA 

generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and 

comment rulemaking requirements under the Administrative Procedure Act or any other statute unless the 

agency certifies that the rule will not have a “significant impact on a substantial number of small 

entities.”12 

For this proposed rulemaking, EPA could not conclude that costs are sufficiently low to justify 

such “certification.” Instead, EPA conducted outreach to small businesses, convened a Small Business 

Advocacy Review (SBAR) panel, and prepared an Initial Regulatory Flexibility Analysis (IRFA). 

Chapter Six details the IRFA and presents EPA’s assessment of the impacts of the proposed regulations 

on small businesses in the C&D industry. 

ES.5.1 Definition of Affected Small Entities 

The RFA defines a “small entity” as a small not-for-profit organization, small governmental 

jurisdiction, or small business. EPA expects that the principal impact of the proposed C&D regulations on 

small entities will fall on (1) small businesses that undertake C&D activities and (2) small governmental 

units involved in permitting C&D activities. 

Small businesses are defined (with some exception) according to the size standards established by 

the Small Business Administration (SBA). SBA establishes criteria for identifying small businesses based 

on either the number of employees or annual revenues (13 CFR 121).13 Qualifying revenue levels vary 

12 The preparation of an IRFA for a proposed rule does not foreclose certifying no significant impact for the 

final rule (USEPA, 1999). 

13 Employees counted in determining size includes all individuals employed on a full-time, part-time, 

temporary or other basis. Employment is measured as the average number of employees for each pay period over the 

previous 12 months. For standards based on revenues, SBA uses the average revenues over the last three 

completed fiscal years. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

by NAICS code and differ among NAICS industries. Within the C&D industry there is a range of 

qualifying revenue levels, from $5.0 million for NAICS 23311 (Land subdivision and development), to 

$27.5 million for the majority of industries within NAICS 233 and 234. For businesses in the special 

trades sector (as defined for this proposed rule), the small business revenue threshold is $11.5 million. 

See Table ES-6 above for the number of establishments in the C&D industry that fall below these 

revenue thresholds. 

ES.5.2 Small Entity Impacts 

EPA has conducted an IRFA for the proposed rule. The IRFA includes a description and 

estimates of the following: 

• Number of small businesses that will be affected; 

• The reporting, recordkeeping, and other compliance requirements of the proposed rule; 

• Any Federal rules that may duplicate, overlap, or conflict with the proposed rule; 

• Any significant regulatory alternatives to the proposed rule that would accomplish the 

stated objectives of the applicable statutes and which minimize impacts to small 

businesses. 

As presented in Table ES-6, approximately 97,085 businesses are potentially affected by the 

proposed rule; over 98 percent of these businesses (95,753) may be classified as small businesses. EPA 

assessed the impacts to small businesses by examining the ratio of estimated compliance costs to firm 

revenues. Impacts are determined by the number and percentage of firms incurring costs that exceed 

one percent and three percent of revenues. EPA relied on the model facility approach to assess the 

impacts of the proposed rule on small businesses. Each model facility actually represents a set of 

approximately similar firms (e.g., similar levels of employment within some bounded range) with revenues 

that form a statistical distribution around the model facility’s revenue figure. These distributions were 

used to estimate the number and percentage of small business-owned establishments in each industry 

sector that incur compliance costs exceeding one and three percent of revenues. The results are 

presented as ranges that represent the lower and upper bounds of the impacts calculated by EPA. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Additional detail on EPA’s methods may be found in Chapter Six, Section 6.4. Table ES-15a presents the 

results of the one percent revenue test and Table ES-15b presents the results for the three percent test. 

Table ES-15a.	 Estimated Number of Small Business-Owned Establishments 

With Compliance Costs Exceeding 1 Percent of Revenues 

Zero Percent Cost Pass Through 

Option 

Single-family Multifamily Commercial 

Number 

Pct. of Small 

Businesses Number 

Pct. of Small 

Businesses Number 

Pct. of Small 

Businesses 

Low High Low High Low High Low High Low High Low High 

1 0 47 0.000% 0.138% 0 5 0.000% 0.110% 0 62 0.000% 0.159% 

2 40 140 0.118% 0.412% 8 18 0.175% 0.395% 18 234 0.046% 0.599% 

3 0 0 0.000% 0.000% 0 0 0.000% 0.000% 0 0 0.000% 0.000% 

Option 

Industrial Heavy TOTAL 

Number 

Pct. of Small 

Businesses Number 

Pct. of Small 

Businesses Number 

Pct. of Small 

Businesses 

Low High Low High Low High Low High Low High Low High 

1 0 12 0.000% 0.160% 0 0 0.000% 0.000% 0 126 0.000% 0.000% 

2 2 36 0.270% 0.480% 36 199 1.863% 0.337% 104 627 0.109% 0.109% 

3 0 0 0.000% 0.000% 0 0 0.000% 0.000% 0 0 0.000% 0.000% 

Source: EPA estimates (see Chapter Six). 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table ES-15b. Estimated Number of Small Business-Owned Establishments 

With Compliance Costs Exceeding 3 Percent of Revenues 

Zero Percent Cost Pass Through 

Option 

Single-family Multifamily Commercial 

Number 

Pct. of Small 

Businesses Number 

Pct. of Small 

Businesses Number 

Pct. of Small 

Businesses 

Low High Low High Low High Low High Low High Low High 

1 0 15 0.000% 0.044% 0 2 0.000% 0.044% 0 21 0.000% 0.054% 

2 0 45 0.000% 0.133% 0 6 0.000% 0.132% 0 77 0.000% 0.197% 

3 0 0 0.000% 0.000% 0 0 0.000% 0.000% 0 0 0.000% 0.000% 

Option 

Industrial Heavy TOTAL 

Number 

Pct. of Small 

Businesses Number 

Pct. of Small 

Businesses Number 

Pct. of Small 

Businesses 

Low High Low High Low High Low High Low High Low High 

1 0 4 0.000% 0.053% 0 0 0.000% 0.000% 0 42 0.000% 0.044% 

2 0 12 0.000% 0.160% 0 65 0.000% 0.607% 0 205 0.000% 0.214% 

3 0 0 0.000% 0.000% 0 0 0.000% 0.000% 0 0 0.000% 0.000% 

Source: EPA estimates (see Chapter Six). 

ES.6 BENEFITS ANALYSIS 

The key categories of benefits examined for the proposed rule include decreased stream channel 

sedimentation and reduced in-stream total suspended solids (TSS) and sediment concentration. 

ES.6.1 Benefits Methodology 

EPA’s Environmental Assessment estimates the impact of the proposed regulation on several 

measures of environmental quality with implications for social well-being. Sediment in waterways, for 

example, imposes costs on society through the degradation of water quality, and filling in of water storage 

impoundments and navigational channels. EPA estimated the monetary benefits of the regulation by 

connecting these environmental measures to the related costs they would continue to impose on society in 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

the absence of the proposed regulations. Such avoided cost benefit valuation methods yield lower bound 

estimates of value. Since the methodology for assessing and quantifying each benefit category differs the 

sections below present only a summary of the benefits methodology. More complete details can be found 

in Chapter Seven. 

ES.6.2 Environmental Assessment and Benefits Analysis 

ES.6.2.1 Overview of Environmental Assessment and Benefits Analysis 

The environmental effects of the options were measured in terms of reductions in discharge of 

sediment. Option 1 is expected to result in discharge of 2.6 to 7.9 million fewer tons of total solids 

annually. Option 2 is expected to result in discharge of 11.1 million fewer tons annually. These 

reductions contribute to savings in dredging costs for water storage impoundments and navigational 

channels. Table ES-16 summarizes the results of the environmental assessment. More complete results 

are shown in Table 8-2. These estimates are the starting point for benefit valuation. 

Table ES-16. Environmental Measures (thousand tons per year) 

Source: EPA estimates (See Chapter Eight). 

Decrease from baseline in: 

Option 1 

Low High Option 2

Settleable solids 

Turbidity producing solids 

2,110 

527 

6,330 

1,583 

8,901 

2,225 

Total solids 2,638 7,913 11,127 

ES.6.2.2 Avoided Water Treatment Costs 

Turbid water requires pretreatment before it can be used in industrial or municipal water systems. 

By removing turbidity-producing solids from streams, the proposed regulation reduces the need for 

pretreatment, saving water users money. The total benefit shown in Table ES-17 is quite small, as storm 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

water runoff is only one source of turbidity so its removal does not obviate the need for pretreatment 

entirely. The marginal costs of pretreatment are also quite low. 

ES.6.2.3 Avoided Loss of Water Storage Capacity 

Reservoirs and impoundments serve many purposes but generally cannot function if they fill with 

silt. This estimate of value for this benefit category is based on the costs of dredging sediment that settles 

in reservoirs. Only a small portion of sediment reaches water bodies that would be dredged if filled, so 

benefits for this category are relatively small. 

ES.6.2.4 Avoided Navigational Dredging 

Like water storage capacity, navigational channels must be dredged when they fill with sediment. 

Keeping sediment out of streams reduces the need for dredging. Only a small share of streams flow to 

commercial waterways and harbors so this benefit is also relatively small. 

Table ES-17. Point Estimates of Benefits by Category ($1997 million per year) 

Option 

Benefit Category 

Water Treatment Water Storage Navig. Dredging Total

1 $0.1 $7.1 $2.6 $9.7 

2 $0.2 $15.0 $5.4 $20.6 

3 — — — $0.0 

Source: EPA estimates (see Chapter Eight). 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

ES.6.2.5 Non-quantified Benefits 

Several categories of benefits discussed in other studies were considered for this benefit 

assessment. For the most part, the benefits expected to be derived from these categories are relatively 

small and difficult to quantify. Therefore, EPA discusses the following categories qualitatively, rather 

than attempting to quantify them: 

• Water contact recreation 

• Biodiversity effects 

• Wetland preservation 

• Other sources of benefits (decrease in clogged roadside and irrigation ditches) 

Chapter Seven provides more detailed explanation and discussion of these qualitative benefits categories. 

ES.7 SOCIAL COSTS AND BENEFITS 

The social costs of the proposed regulation represent the real commitment of resources by society 

to administering, implementing, and enforcing the rule. Direct social costs include the compliance costs of 

construction firms, administration costs of governments, and operation and maintenance costs of home 

owners, municipalities, industrial and commercial property owners. This regulation is not expected to 

have substantial indirect social costs because it does not propose any radical changes in the production 

process or technology. The anatomy of the market for new construction also limits the loss of social 

welfare. 

Table ES-18 compares the sum of these social costs with the benefits estimated in Chapter Eight 

and discussed above. The social costs are greater than the monetized benefits. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table ES-18.	 Social Costs and Benefits of Options 

(1997 $Million per year) 

Option 

Installation, 

Design and 

Permitting 

Operation and 

Maintenance 

Government 

Costs 

Deadweight 

Loss 

Total Social 

Costs Total Benefits 

1 $118.1 

$421.2 

$0.0 

$0.0 

$48.0 

$0.0 

$0.0 

$0.3 

$0.0 

$0.0 

$0.2 

$0.0 

$118.2 $9.7 

$20.6 

$0.0 

2 $469.6 

3 $0.0 

Source: EPA estimates (see Chapter Nine). 

ES.8 ANALYSIS OF OTHER IMPACTS 

ES.8.1 Unfunded Mandates 

EPA has determined that the proposed C&D regulations may contain a federal mandate that may 

result in expenditures of $100 million or more for the private sector in any one year. Accordingly, EPA 

has prepared a written statement in accordance with section 202 of the UMRA. In addition, EPA has 

determined that the proposed C&D regulations do not include a federal mandate that may result in 

estimated costs of $100 million or more to either state, local, or tribal governments in the aggregate. Nor 

do the proposed regulations contain regulatory requirements that might significantly or uniquely affect 

small governments. Therefore, this proposal is not subject to the requirement of section 203 of the 

UMRA. 

ES.8.2 Environmental Justice 

EPA has determined that the proposed C&D regulations will not disproportionately affect 

minority or low-income populations, nor will they have disproportionately high health or environmental 

effects. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

ES.8.3 Children’s Health 

EPA has determined that the proposed C&D regulations do not have any significant implications 

in regard to children’s health or safety. 

ES-34
 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

ES.9 REFERENCES 

BEA, 2002. Bureau of Economic Analysis. National income and product accounts tables. Available at 

http://www.bea.doc.gov/bea/dn/nipaweb/index.asp 

Joint Center 2001. Remodeling homes for changing households. (Joint Center for Housing Studies of 

Harvard University). 

NAHB no date. The Next Decade for Housing. National Association of Home Builders. Available at 

http://www.nahb.com/facts/nextdecadeforecast.pdf. 

Rappaport B.A., T.A. Cole. (U.S. Census Bureau, Manufacturing and Construction Division). 2000. 

Construction sector special study: Housing starts statistics--A profile of the homebuilding industry. 

Seiders 2001. David Seiders. Housing and the Economy in the Aftermath of the September 11 Attacks 

on America. National Association of Home Builders, January 31, 2002. Available at 

http://www.nahb.com/news/Jan31-02seiderscommentary.htm. 

U.S. Census Bureau. 2000. 1997 Economic census: Construction, United States. Various Reports. 

Available at http://www.census.gov/epcd/ec97/us/US000_23.HTM. 

U.S. EPA. 1999. Revised Interim Guidance for EPA Rulewriters: Regulatory Flexibility Act as amended 

by the Small Business Regulatory Enforcement Fairness Act. March 29. Available at 

http://www.epa.gov/sbrefa/documents/igui99.pdf. 

U.S. Small Business Administration. 1998. Statistics of U.S. Businesses: Firm Size Data [HTML Files] 

http://www.sba.gov/advo/stats/data.html. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

CHAPTER ONE 

INTRODUCTION 

The U.S. Environmental Protection Agency (EPA) is proposing some options to address storm 

water discharges from construction sites. As one option, EPA is proposing technology-based effluent 

limitation guidelines and standards (ELGs) for storm water discharges from construction sites required to 

obtain National Pollutant Discharge Elimination System (NPDES) permits. As another option, EPA is 

proposing not to establish ELGs for storm water discharges from those sites, but to allow technologybased permit requirements to continue to be established based upon the best professional judgment of the 

permit authority A third option would establish inspection and certification requirements that would be 

incorporated into the discharge permits issued by EPA and States, with other permit requirements based 

on the best professional judgement of the permit authority. The regulatory proposals, if implemented, are 

expected to significantly reduce the amount of sediment discharged from construction sites. The 

deposition of sediment originating from construction sites has contributed to the loss of capacity in small 

streams, lakes, and reservoirs, leading to the necessity for mitigation efforts such as dredging or 

replacement. 

This Economic Analysis (EA) summarizes EPA’s analysis of the incremental compliance costs 

and the economic impacts that may be incurred by regulated entities within the C&D industry. The EA 

details EPA’s proposed regulation and the alternative regulatory options considered by EPA. The report 

covers financial impacts to establishments in the C&D industry, potential impacts on consumers of C&D 

industry output, and market and other secondary impacts on the national economy, such as employment 

and output. The EA also undertakes small business analyses under the Regulatory Flexibility Act (RFA) 

as amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA), cost-benefit 

analyses under Executive Order 12866 and the Unfunded Mandates Reform Act (UMRA). EPA also 

addresses the issues of environmental justice and children’s health. 

This chapter begins with a discussion of the current regulatory environment in the C&D industry. 

Section 1.2 presents EPA’s reasons for proposing this rule while Section 1.3 identifies the potentially 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

affected sectors of the C&D industry. Section 1.4 provides an overview of key data sources used in the 

development of this EA, and Section 1.5 provides an outline for the remainder of this report. 

1.1 EXISTING REGULATORY FRAMEWORK 

The Federal Water Pollution Control Act, also known as the Clean Water Act (CWA), was 

passed by Congress in 1972 to “restore and maintain the chemical, physical, and biological integrity of the 

nation’s waters” (33 U.S.C. § 1251 (a)), sometimes referred to as “fishable, swimmable” criteria. The 

CWA establishes a comprehensive program for protecting our nation’s waters. Among its core 

provisions, the CWA prohibits the discharge of pollutants from a point source to waters of the U.S., 

except those authorized by a NPDES permit. Under Title III, the CWA also provides for the 

development of technology-based effluent limitations that are imposed through the NPDES permit 

framework to control direct discharges of pollutants. 

The CWA was amended in 1987 to require implementation of a comprehensive national program 

for addressing municipal and industrial storm water discharges (Water Quality Act of 1987, Pub. L. 100-4, 

February 4, 1987). CWA Section 402(p) requires that industrial, municipal and other storm water 

dischargers designated by EPA obtain NPDES permits. In response to these amendments EPA has 

promulgated two rules that contain provisions affecting the C&D industry. These regulations, commonly 

referred to as the Phase I and Phase II storm water rules, require NPDES permits for construction 

activities disturbing more than one acre and discharging storm water. Phase I was promulgated on 

November 16, 1990 (55 FR 47990), with permit requirements taking effect in 1992. Phase II was 

promulgated on December 22, 1999 (64 FR 68722). 

1.1.1 NPDES Permit Regulation of the C&D Industry 

The C&D industry is currently regulated under NPDES permit requirements for construction 

activities disturbing more than one acre. Construction activities disturbing five acres or more are covered 

under the Phase I requirements while construction activities disturbing between one acre and five acres 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

are covered under the Phase II requirements. (Applications for permits for storm water discharges 

associated with small construction activity under the Phase II rule, however, are not due until March 10, 

2003.) The NPDES regulations affecting the construction and development industry are implemented 

through EPA’s Construction General Permit (CGP) in states without their own authorized NPDES 

program. 

The CGP requires permittees to prepare a storm water pollution prevention plan (SWPPP) for 

C&D activities. The permit lists options and goals for other erosion and sediment controls (ESCs), and 

the SWPP must contain a description of any ESCs used, but there are no required elements.1 Options 

and goals for post-construction best management practices (BMPs) are also contained in the CGP, but 

none are specifically required. As with ESCs, those BMPs selected for use must be described in the 

SWPPP. 

The Phase II regulations also provide waivers for construction activities disturbing between one 

and five acres of land in instances where: 

• Activity occurs during a negligible rainfall period (rainfall erosivity factor of less 

than five), or 

• A Total Maximum Daily Load (TMDL) or equivalent analysis addresses the 

pollutants of concern leading to a determination that storm water controls are not 

necessary for construction activity. (64 FR 68735). 

These waivers acknowledge that variance in regional factors such as climate, annual rainfall 

patterns, and existing hydrology affect the incidence and magnitude of storm water runoff. 

The CGP is the vehicle through which the NPDES storm water regulations are implemented for 

construction activities. There is a national CGP issued by EPA which applies in those areas where EPA 

Regions 1, 2, 3, 5, 7, 8, 9 and 10 are the NPDES permitting authorities. In addition, EPA Regions 4 and 6 

have their own version of the CGP which applies only in those areas where the respective Region is the 

1

 For sites with 10 acres or more of disturbed area, the CGP does require installation of temporary sediment 

basins. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

NPDES permitting authority. Other NPDES programs also require permits, and as with most of these 

other programs, the NPDES storm water permits may be issued through one of EPA’s ten regions (as 

described above) or through an authorized state/territory NPDES permitting authority. At this time 44 

states have NPDES permitting authority.2 EPA itself issues storm water permits in nondelegated states, 

on tribal lands, and in most territories. 

EPA’s CGP currently covers large (5 acres or larger) construction activities; NPDES permitting 

authorities are expected to develop and issue storm water permits for small (between 1 and 5 acres) 

construction activities by December 8, 2002. EPA expects that the national CGP and the general permits 

currently in use by NPDES permitting authorities will be used as templates for the small construction 

permits. EPA’s CGP is valid for a five year period, after which time the permit will be reviewed and 

renewed for another 5-year period. The CGP was originally issued in 1992 and revised in 1998 and thus 

is due for renewal in 2003. EPA plans to incorporate the small construction activity permitting 

requirements into its national CGP at the time of the permit’s renewal. 

1.2 PURPOSE OF THE PROPOSED RULE 

The existing NPDES storm water regulations require construction site operators to manage 

construction site runoff, but do not require any specific level of control. One of the proposed regulatory 

options (Option 2) would establish effluent limitation guidelines in the form of minimum standards for 

design and implementation of erosion and sediment controls used during the active phase of construction. 

Existing compliance determination practices for construction site storm water controls rely 

principally on site inspections by local governments, however enforcement efforts are reported to be 

uneven nationwide, largely due to limited enforcement resources a the Federal, State and local levels. 

Option 2 would also establish minimum requirements for conducting site inspections and providing 

2

 All states with the exception of Alaska, Arizona, District of Columbia, Idaho, Massachusetts, New 

Hampshire and New Mexico have some level of NPDES permitting authority. Even in those states with NPDES 

permitting authority, EPA may be responsible for issuing permits for activities conducted at federal facilities and/or 

on tribal lands. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

certification as to the design and completion of various aspects of those controls. These requirements 

could strengthen the current permit program. Another regulatory option (Option 1) would establish the 

same site inspection and certification requirements, but without the ESC standards. 

1.3 INDUSTRIES AFFECTED BY THE PROPOSED C&D EFFLUENT GUIDELINES 

This report focuses on the major C&D industries potentially affected by the proposed ELG 

requirements. Table 1-1 identifies these industries according to both their North American Industry 

Classification System (NAICS) and Standard Industrial Classification (SIC) codes.3 A detailed 

description of these C&D industries may be found in Chapter Two of this report. 

3

 The NAICS system recently replaced the SIC system. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 1-1. Industries Potentially Affected by Proposed Rulemaking 

Regulated Entities 

North American Industry 

Classification System Code 

(NAICS) 

Standard Industrial Classification 

Codes 

(SIC)a 

Land subdivision and development 23311 6552 

Single-family housing construction 23321 1521, 1531, 8741 

Multifamily housing construction 23322 1522, 1531, 8741 

Manufacturing and industrial building 

construction 23331 1531, 1541, 8741 

Commercial and institutional building 

construction 23332 1522, 1531, 1541, 1542, 8741 

Highway and street construction 23411 1611, 8741 

Bridge and tunnel construction 23412 1622, 8741 

Water, sewer, and pipeline 

construction 23491 1623, 8741 

Power and communication 

transmission line construction 23492 1623, 8741 

Industrial nonbuilding structure 

construction 23493 1629, 8741 

All other heavy construction 23499 1629, 7353, 8741 

Excavation contractors 23593 1794 

Wrecking and demolition contractors 23594 1795 

Source: U.S. Census Bureau 1997 Census of Construction

a

 Some parts of the Standard Industrial Classification Codes are included in other North American Industry

Classification Codes.

1.4 OVERVIEW OF KEY DATA SOURCES 

A common data source used to support the development of many past ELGs is the CWA Section 

308 industry survey. For this proposed rule, however, EPA determined that such a survey should not be 

undertaken. This determination necessitated the use of existing data sources, including academic 

literature, industry trade associations, and government data such as that provided by the U.S. Census 

Bureau. Major data sources are discussed in more detail where they are used to support sections of this 

analysis. This section provides an overview of several key sources and their importance to the economic 

analysis of the proposed C&D ELG. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Of primary importance in the development of this EA were the 1992 and 1997 Censuses of 

Construction, conducted by the U.S. Census Bureau. The Census provided information on the industry 

sectors potentially affected by the proposed rule, as well as characteristics of each sector such as 

employment and revenue levels. Also used were several other reports from the Census Bureau, 

including:4 

• Report C20 – Housing Starts 

• Report C25 – Characteristics of New Housing, 

• Report C30 – Value Put in Place, 

• Report C40 – Building Permits 

All of these reports contributed to the various economic models developed for this EA. 

The U.S. Department of Agriculture’s (USDA’s) Natural Resources Inventory (NRI) was used 

to determine the amount of disturbed acreage caused by urbanization and new development. This 

information was important to the environmental assessment, the benefits assessment, and as a way to 

determine the rate of new development. 

EPA also used data collected from permits issued by existing NPDES permitting authorities. 

Currently, regulation of C&D activity is triggered when a builder/developer files a notice of intent (NOI) 

with the permitting authority. Permitting authorities record these NOIs in order to track development 

within their jurisdiction. EPA obtained copies of NOI databases for NPDES-approved states and for 

those non-authorized states where EPA acts as the NPDES permitting authority.5 The databases 

contained a wide variety of information, such as total site size, disturbed acreage, project type (e.g., 

residential, nonresidential), and project ownership status (public or private). EPA planned to use this 

information to estimate the number of storm water starts. The databases, however, lacked the level of 

detail EPA needed to use the data to its full advantage. In addition, inconsistencies in the type of data 

4

 These reports are available at the following web address: http://www.census.gov/const/www/. 

5

 NPDES permits are fully administered by EPA in six States plus Washington, DC. In other States EPA acts 

as the permitting authority for activities on Indian and/or Federal lands only. 

1-7 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

collected and coverage made it difficult to compare the databases with one another. Although EPA could 

not use these databases in the manner hoped, they were useful for generating rough estimates of the 

number of permits issued nationwide, as a check on the permit estimates reported by the Census Bureau. 

EPA did not conduct further analysis on these databases prior to the proposal of this rule. 

An additional source of information for the development of the economic analysis (described in 

Section 4.2) was a series of focus groups held with representatives of the National Association of Home 

Builders (NAHB). These focus groups helped EPA understand the process of construction project 

development and provided estimates of data elements most helpful in building economic models. These 

estimates were particularly useful when national-level data from other sources (such as the Census 

Bureau) were not available. 

Some of the data and methodologies used in the Phase II EA were also used in this rulemaking 

effort. These sources and methods were described in detail in Chapters Four, Five, and Six. 

1.5 REPORT ORGANIZATION 

This EA report is organized as follows: 

! Chapter 2 contains the Industry Profile, which provides background information on the 

establishments and industry sectors potentially affected by the proposed rule. 

! Chapter 3 summarizes the Proposed Effluent Guidelines Regulations and discusses the 

regulatory options considered by EPA. 

! Chapter 4, Economic Impact Analysis Methodology, explores the data, methodology, and 

analyses used in the determination of project, establishment, and market level impacts due 

to incremental storm water control costs incurred under the proposed regulation. 

! Chapter 5 presents the impacts of the proposed rule for the model project, model 

establishment, and national market. This chapter also includes a discussion of other 

potential impacts of the proposed rule according to Executive Order 12866 including 

regional and social impacts. 

1-8
!

Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

! Chapter 6 contains information on the Initial Regulatory Flexibility Analysis (IRFA) and 

the small business analysis under the Regulatory Flexibility Act (RFA) as amended by the 

Small Business Regulatory Enforcement Fairness Act (SBREFA). 

! Chapter 7 presents the Benefits Methodology by which EPA identifies, qualifies, 

quantifies, and where possible monetizes the benefits associated with reduced storm 

water runoff. 

! Chapter 8 presents the Environmental Assessment and Benefits Analysis, which 

assesses the nationwide benefits of the proposed regulation following the methodology 

outlined in the previous chapter. 

! Chapter 9 looks at the Costs and Benefits of the Proposed C&D ELG using the benefits 

assessment described in Chapter 8. Here, EPA presents an assessment of the 

nationwide costs and benefits of the proposed regulation pursuant to Executive Order 

12866 and the Unfunded Mandates Reform Act (UMRA). 

! Chapter 10 presents a discussion of UMRA. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

CHAPTER TWO

PROFILE OF THE CONSTRUCTION AND DEVELOPMENT INDUSTRIES 

2.1 INTRODUCTION 

The construction and development (C&D) industry plays an integral role in the nation’s 

economy, contributing approximately five percent of the Gross Domestic Product. Establishments in this 

industry are involved in a wide variety of activities, from land development and subdivision to 

homebuilding, construction of nonresidential buildings and other structures, heavy construction work 

(including roadways and bridges), and a myriad of special trades such as plumbing, roofing, electrical, 

excavation, and demolition work. C&D activity affecting water quality typically involves site selection 

and planning, and land-disturbing tasks during construction such as clearing, excavating and grading. 

Disturbed soil, if not managed properly, can be easily washed off-site during storm events. Storm water 

discharges generated during construction activities can cause an array of physical, chemical and 

biological impacts. EPA’s proposed effluent guidelines for the C&D industry seek to reduce the 

environmental and economic effects of storm water runoff from construction sites. 

Several characteristics of the C&D industry affect the structure of this economic analysis: 

• Individuals (e.g., homebuyers) are often the direct customers of the C&D industry. With 

individuals as the direct consumer it is necessary to address issues such as cost 

passthrough and the impacts of regulations on housing affordability. 

• There are complex and varying relationships between developers and builders, resulting 

in a variety of different business models. Developers may undertake all site 

improvements and sell completed lots directly to builders, act as builders themselves and 

remain onsite to build out the development, or some combination of the two. 

• The C&D industry is dominated by small businesses. As a result, EPA will carefully 

consider the impacts on small businesses in accordance with the Regulatory Flexibility 

Act, as amended by the Small Business Regulatory Enforcement Fairness Act 

(SBREFA). 

• C&D activities are highly localized. This suggests that a regional approach to analysis is 

appropriate to account for varying market conditions. 

2-1
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

• The standard industry definitions include a large number of establishments primarily 

engaged in remodeling activities, who are less likely to be involved in land disturbing 

activities. 

The C&D industry as defined for this proposed rule is comprised of four main industry groups 

that will further affect the structure of this analysis: 

• Land development and subdivision 

• Residential construction 

• Nonresidential construction 

• Heavy construction 

These four industry groups encompass those parts of the industry most likely to engage in land 

disturbing activities. Land disturbing activities are further described in the Development Document 

(EPA, 2002a) and the impacts of these activities are described in the Environmental Assessment (EPA, 

2002b). 

2.1.1 Recent Trends in the C&D Industry 

Between 1992 and 1997, the number of establishments with payroll in the C&D industries 

overall increased from 235,789 to 261,617, an increase of 11.0 percent (see Table 2-1). This overall 

modest increase masks some significant offsetting changes in establishment counts within individual 

industries, as defined under the North American Industrial Classification System (NAICS), i.e.: 

• The number of establishments in the land development industry group (NAICS 2331) 

decreased by 46.6 percent;1 

1

 The decrease in the number of developers may have been a response to changes in tax laws and the 

Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989 (Pub.L. 101-73, August 9, 1989) 

and the 1993 implementing regulations. The objective of FIRREA and the implementing regulations was to correct 

events and policies that led to a high rate of bankruptcies in the thrift industry in the late 1980s. The regulations 

changed lending practices by financial institutions, requiring a higher equity position for most projects, with lower 

loan-to-value ratios, and more documentation from developers and builders. (Kone, 2000). 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

• There was a 13.5 percent increase in the number of establishments in residential and 

nonresidential construction (NAICS 233, except 2331); 

• The number of establishments in heavy construction increased by 14.5 percent; 

• There was a 33.0 percent increase in the number of special trades contractor 

establishments, (NAICS 235), including a 31.2 percent increase among excavation 

contractors and a 59.6 percent increase among demolition contractors. 

Table 2-1

Number of Establishments in Construction and Development Industries, 1997 vs 1992

NAICS Industry 1992 1997 Pct. Change 

233, exc. 

2331 

Building, developing, and general contracting, except 

land development and subdevelopment 168,407 191,101 13.5% 

2331 Land development and subdevelopment 15,338 8,185 -46.6% 

234 Heavy construction 37,180 42,557 14.5% 

235a Special trade contracting 14,864 19,771 33.0% 

Subtotal 235,789 261,617 11.0% 

a

 Includes NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors).

Figures may not add to totals due to rounding.

Source: U.S. Census Bureau (2000a).

2.1.2 Data Sources Used 

Several data sources are used in this profile chapter to characterize the C&D industry. The 

primary data source is the 1997 Census of Construction (herein referred to as Census), conducted every 

five years by the U.S. Census Bureau. A second data source comes from the U.S. Small Business 

Administration (SBA). The SBA data is used because it provides firm-level data that is necessary for 

economic modeling purposes and for the small entity analysis (the Census data is reported at the level of 

the construction establishment, not the firm). Table 2-2 compares the Census data with that from SBA in 

order to further clarify the differences and identify how each are used in this Economic Analysis. The 

majority of this chapter uses data from the 1997 Census to profile the C&D industry, since that source 

provides a greater level of detail on industry characteristics. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2-2

Comparison of Major Data Sources

Characteristic 

Data Source 

Census of Construction SBA 

Level of Detail Establishmenta Firmb (company) and establishment 

Source of Data 

Survey (sent to approx. 130,000 

establishments from a universe of 

650,000) 

County Business Patterns SUSB 

report, which ultimately relies on 

administrative records data 

How the Data are Applied 

in this Analysis 

Industry-level analysis to determine the 

number of potentially affected 

establishments 

Firm-level analysis, for purposes of 

determining the number of 

potentially affected firms 

considered “small” by SBA size 

standards 

a

 The Census Bureau defines an establishment as “a relatively permanent office or other place of business where

the usual business activities related to construction are conducted” (U.S. Census Bureau, 2000a). b

 A firm is considered to be an aggregation of the establishments owned by a single company; therefore, one firm

may be comprised of several establishments.

2.1.3 Organization of this Chapter 

The purpose of this industry profile is to provide an overview of the C&D industries, describe 

their key characteristics and structure, and analyze current and historical trends. Section 2.2 describes 

the process that EPA used to identify and define the industry for the purposes of the proposed rule. 

Section 2.3 presents characteristics of the C&D industry, including both industry and firm-level data. 

Section 2.4 discusses supply and demand factors in the C&D industry while Section 2.5 describes 

various economic and financial characteristics of the industry. Section 2.6 looks at key business 

indicators and ratios. Section 2.7 covers industry growth and trends, and Section 2.8 takes a brief look at 

international competition in the C&D industry. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

2.2 INDUSTRY DEFINITION 

2.2.1 Basis for Regulation 

The proposed rule will cover establishments within the construction sector (NAICS 23) that 

disturb the land at construction sites of one acre or more.2 These land-disturbing activities may include 

site preparation and site clearing tasks such as tree removal, excavation, blasting, scraping, and grading, 

and are generally accomplished with the aid of heavy equipment such as skidders, bulldozers, backhoes, 

excavators, and graders. These activities may destabilize soils and create conditions that allow storm 

water to accumulate and flow across the site. This increase in storm water flow can cause erosion and 

lead to the transport of soil particles and attached pollutants, which eventually may be conveyed offsite 

and discharged into receiving waters. Both the increased flow and associated pollutant and sediment 

loads that result from land-disturbing activities can negatively impact the biological, physical, and 

chemical characteristics of the receiving waters. 

The proposed effluent guidelines will build upon the Phase I and Phase II storm water 

regulations promulgated under the National Pollutant Discharge Elimination System (NPDES), as well as 

upon EPA’s storm water construction general permit (CGP). The CGP is the vehicle through which 

Phase I regulations are being implemented, and upon revision in 2003 it will also reflect the Phase II 

regulations. The CGP also will be the vehicle through which the proposed rule is implemented. The 

proposed rule will also build upon current state and local storm water control requirements by adding 

increased specificity and consistency to these requirements. See Chapter Three for more information on 

the proposed rule. The methodology chapter provides further detail on the planned implementation of 

the proposed rule. 

2

 The Bureau of the Census classifies industries according to the North American Industrial Classification 

System, or NAICS. Under the NAICS, economic activity is first divided into twenty broad 2-digit industry codes. 

One of these is Construction (NAICS 23). Each 2-digit industry is further subdivided into 3-, 4-, and 5-digit level 

industries. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

2.2.2 Industry Definition 

For the purposes of this economic analysis, the “C&D industries” are assumed to include those 

establishments within the construction sector (NAICS 23) that may be involved in activities that disturb 

the ground at construction sites. This includes site clearing or site preparation activities such as tree 

removal, excavation, blasting, scraping, grading, etc. EPA believes that many establishments in NAICS 

233 (Building, developing, and general contracting) and NAICS 234 (Heavy construction) are likely to 

engage in such activities on a regular basis. Establishments within selected 5-digit industries that are part 

of NAICS 235 (Special trade contractors) may also engage in land-disturbing activities. The latter may 

include NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors). 

However, as discussed in Section VI.A in the preamble of the proposed rule, Special trade contractors are 

typically subcontractors and not identified as NPDES permittees. Table 2-3 identifies the industries that 

may be covered by the proposed regulations. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2-3

Industry Definitions for Construction and Development Industry Profile

NAICS Code Industry Relevant SIC Codesa 

233 Building, developing, and general contracting 

2331 Land subdivision and development 

23311 Land subdivision and development 6552 Land subdividers and developers, except cemeteries 

2332 Residential building construction 

23321 Single-family housing construction 

1521 General contractors–single-family houses 

1531 Operative builders (partial) 

8741 Management services (partial) 

23322 Multifamily housing construction 

1522 General contractors–residential buildings other than 

single-family (partial) 

1531 Operative builders (partial) 

8741 Management services (partial) 

2333 Nonresidential building construction 

23331 

Manufacturing and industrial 

building construction 

1531 Operative builders (partial) 

1541 General contractors–industrial buildings and warehouses 

(partial) 

8741 Management services (partial) 

23332 

Commercial and institutional 

building construction 

1522 General contractors–residential buildings, other than 

single-family (partial) 

1531 Operative builders (partial) 

1541 General contractors–industrial buildings and warehouses 

(partial) 

1542 General contractors–nonresidential buildings except 

industrial buildings and warehouses 

8741 Management services (partial) 

234 Heavy Construction 

2341 

Highway, street, bridge, and tunnel 

construction 

23411 Highway and street construction 

1611 Highway and street construction contractors, except 

elevated highways 

8741 Management services (partial) 

23412 Bridge and tunnel construction 1622 Bridge, tunnel, and elevated highway construction 

2349 Other heavy construction 

23491 

Water, sewer, and pipeline 

construction 

1623 Water, sewer, pipeline, and communications and power 

line construction (partial) 

8741 Management services (partial) 

23492 

Power and communication 

transmission line construction 

1623 Water, sewer, pipeline, and communications and power 

line construction (partial) 

8741 Management services (partial) 

23493 

Industrial nonbuilding structure 

construction 

1629 Heavy construction, n.e.c. (partial) 

8741 Management services (partial) 

23499 All other heavy construction 

1629 Heavy construction, n.e.c. (partial) 

7353 Heavy construction equipment rental and leasing (partial) 

8741 Management services (partial) 

235 Special trade contractors 

23593 Excavation contractors 1794 Excavation work special trade contractors 

23594 Wrecking and demolition contractors 1795 Wrecking and demolition work special trade contractors a

 NAICS recently replaced the SIC (Standard Industrial Classification) System. 

Source: U.S. Census Bureau (2000a). 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

As seen in Table 2-3, each NAICS industry is comprised of one or more industries defined under 

the former Standard Industrial Classification (SIC) system. With the 1997 Census, the Census Bureau 

switched from reporting data on an SIC basis to an NAICS basis, thereby making it difficult to compare 

data from 1997 with that from the 1992 and earlier Census reporting periods. Within this economic 

profile the objective is to provide data at the most detailed level as possible, while still maintaining the 

ability to provide meaningful comparisons between 1997 and earlier Census periods. With this in mind, 

most of the statistical tables contained in this profile reflect the following industry breakdown:3 

NAICS 233, except 2331 Building, developing, and general contracting, except land subdivision and land development

NAICS 2331 Land subdivision and land development

NAICS 234 Heavy construction

NAICS 235 Special trades contractorsa

a

 Covered industries to include NAICS 23593 (Excavation contractors) and NAICS 23594 (Wrecking and demolition 

contractors) only, when possible. 

2.3 INDUSTRY CHARACTERISTICS 

Several steps are used to define the number of C&D establishments that may be affected by the 

proposed regulations. First, EPA identifies all C&D establishments as defined above using data from the 

1997 Census of Construction. Second, EPA estimates the number of establishments classified as C&D 

establishments that are primarily engaged in remodeling work, using data from the National Association 

of Home Builders (NAHB) and the Joint Center for Housing Studies at Harvard University (Joint 

Center). Third, EPA estimates the number of establishments classified as C&D establishments that are 

engaged in C&D activities but are unlikely to disturb more than one acre of land, using data from Census 

and various secondary sources. Section 2.3.1 looks at the industry-wide characteristics of C&D 

establishments, including number and size of establishments, employment, and geographic distribution of 

3

 Some detailed breakdowns may be available only at the 3-digit NAICS level, in which case separate data 

for NAICS 2331 cannot be provided and will be included with data for all of NAICS 233. NAICS 233, except 

2331, includes data for both residential and nonresidential construction activities. Where more detailed data are 

available they are included in this profile. In some cases data at a more detailed NAICS level is available (e.g., 5-

digit NAICS) but was considered too detailed to present in the body of this profile. The availability of such data is 

noted throughout the profile, and reference is made to Appendix 2A where such tables are presented. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

establishments. Section 2.3.2 describes firm-level data for the C&D industry. Section 2.3.3 describes the 

number of small entities, and section 2.3.4 looks at the number of entities in the C&D industry that 

disturb less than one acre during the normal course of business. The estimated number of potentially 

affected establishments is presented in Section 2.3.5. 

2.3.1 Establishment-Level Data 

This section presents data for all establishments within the C&D industry as defined in Section 

2.2, based primarily on 1997 Census of Construction sources. Included is information on the number and 

size of establishments, geographic distribution, employment, payroll and benefits, and level of 

specialization. 

2.3.1.1 Number and Size of Establishments 

Data from the Census of Construction indicate there were a total of 261,617 establishments with 

payrolls in the C&D industries in 1997 (i.e., NAICS 233, 234, 23593, and 23594; see Table 2-4). Of 

these, the largest number of establishments are in NAICS 233 (Building, developing, and general 

contracting). This subsector includes 199,289 establishments, representing 76.2 percent of all C&D 

establishments. Within NAICS 233, single-family home construction (NAICS 23321) accounted for the 

majority of establishments (138,849 out of 199,289 or 69.7 percent). 

Land development and subdevelopment (NAICS 2331) accounted for 8,185 establishments or 

3.1 percent of all establishments in the C&D industries. NAICS 234 (Heavy construction) includes 

42,557 establishments or 16.3 percent of the total. Of these, 27 percent are primarily highway and street 

construction contractors, another 27 percent are contractors that work on water, sewer, pipeline, 

communications and power line projects, and 43 percent are engaged in other types of heavy construction 

(All other heavy construction). Within the special trades contractors subsector (NAICS 235), NAICS 

23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) together account for 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

19,771 establishments, or 7.6 percent of the C&D industries total. Excavation contractors account for 

over 90 percent of these establishments. 

Table 2-4

Number of Establishments in the Construction and Development Industry, Based on the 1997 Census of Construction

NAICS Industry 

Establishments With Payrolls 

Number Percent of Total 

233 Building, developing, and general contracting 199,289 76.2% 

2331 Land development and subdivision 8,185 3.1% 

23321 Single-family residential building construction 138,849 53.1% 

23322 Multi-family residential building construction 7,543 2.9% 

2333 Nonresidential construction 44,710 17.1% 

234 Heavy construction 42,557 16.3% 

235a Special trade contracting 19,771 7.6% 

SUBTOTAL 261,617 100.0% 

a

Covered industries include NAICS 23593 (excavation contractors) and NAICS 23594 (wrecking and demolition contractors) only. 

Across the board, the C&D industries are dominated by small establishments.4 As shown in 

Table 2-5, Census reports that some 60.6 percent of establishments with payrolls have fewer than 5 

employees, 77.8 percent have fewer than 10 employees, and 87.1 percent have fewer than 20 employees.5 

Overall, only 1.1 percent of C&D establishments with payrolls have 100 or more employees. On 

average, establishments in NAICS 234 (Heavy construction) are somewhat larger than those in the other 

NAICS, with a lower percentage of establishments appearing in each of the smaller establishment size 

classes. 

4

 Establishments are officially defined as “small” by the SBA according to size standards based on either 

number of employees or annual revenue (13 CFR 121). Qualifying revenue levels differ among NAICS industries, 

and within the C&D industries there is a range of qualifying revenue levels, from $5.0 million for NAICS 23311 

(Land subdivision and development) to $27.5 million for the majority of industries within NAICS 233 and 234. A 

more detailed review of industry size distribution based on the SBA definitions will be presented as part of the 

Small Entity Impact Analysis. 

5

 And, as noted above, some 450,338 establishments in the C&D industries have no employees. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

The preponderance of small establishments is equally apparent when analyzed on the basis of 

revenue size class. Overall in 1997, 37.1 percent of establishments with payrolls had annual revenues 

below $250,000; 54.7 percent had annual revenues below $500,000; and 69.6 percent had annual 

revenues below $1.0 million. These data are shown in Table 2-6. Only 9,118 establishments, 

representing 3.5 percent of the total, had annual revenues in excess of $10.0 million. Section 2.3.1.7 

contains more information on small entities in the C&D industry and the small business analysis is 

presented in Chapter Six of this EA. 

In addition to the small establishments with payrolls, a large number of establishments—some 

450,338 in 19976

—operate with no paid employees and are not included in the totals in Tables 2-4 

through 2-6. Available data suggests these establishments are very small relative to establishments with 

payrolls. While employer establishments in NAICS 233 and 234 had $517.7 billion in receipts for 1997, 

nonemployer establishments had only $36.5 billion in receipts, which represents only 7 percent of the 

receipts of employer establishments. 

6

 Includes establishments in NAICS 233 and 234 only. Data on nonemployer establishments was not 

available at the 5-digit NAICS level for NAICS 235, thus information for NAICS 23593 and 23594 could not be 

separated from the rest of NAICS 2359 (Other special trade contractors). Including all nonemployer establishments 

in NAICS 2359 (339,521), the total number of such establishments in the C&D industries is 789,859. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2-5

Number of Small Establishments with Payrolls in the Construction and Development Industry, Based on Employment

NAICS Industry Total 

Establishments 

with less than 

5 employees 

Establishments 

with less 

10 employees 

Establishments 

with less than 

20 employees 

No. 

Percent 

of Total No. 

Percent 

of Total No. 

Percent 

of Total 

233a 

Building, developing, and 

general contracting 199,289 138,926 69.7% 172,079 86.3% 187,672 94.2% 

234 Heavy construction 42,557 18,956 44.5% 26,802 63.0% 33,337 78.3% 

235b Special trade contractors 19,771 700c 3.5% 4,690 23.7% 6,833 34.6% 

TOTAL 261,617 158,582 60.6% 203,571 77.8% 227,842 87.1% 

than 

a Data below the 3-digit NAICS (i.e., for NAICS 2331 Land development and subdevelopment) not publishable. 

b

 Covers establishments in NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only. 

c

 Data for NAICS 23593 (Excavation contractors) not included in this calculation because data did not meet publication 

standards. 

Figures may not add to totals due to rounding. 

Source: U.S. Census Bureau (2000a). 

Table 2-6

Number of Small Establishments in the Construction and Development Industry, Based on Value of Business Done

NAICS Industry Total 

Establishments with 

less than $250,000 

in business 

Establishments with 

less than $500,000 in 

business 

Establishments with 

less than $1 million 

in business 

No. 

Percent 

of Total No. 

Percent 

of Total No. 

Percent 

of Total 

233a 

Building, developing, 

and general contracting 199,289 83,536 41.9% 118,493 59.5% 147,917 74.2% 

234 Heavy construction 42,557 13,364 31.4% 20,238 47.6% 26,726 62.8% 

235b,c 

Special trade 

contractors 19,771 269 1.4% 4,344 22.0% 7,385 37.4% 

TOTAL 261,617 97,169 37.1% 143,075 54.7% 182,028 69.6% 

a

 Data below the 3-digit NAICS (i.e., for NAICS 2331 Land development and subdevelopment) not publishable.

b Covers establishments in NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only. 

c Figures may be low due to lack of sufficient data for NAICS 23593 (Excavation contractors) and 23594 (Wrecking and

demolition contractors) for values under $250,000.

Figures may not add to totals due to rounding.

Source: U.S. Census Bureau (2000a).

The overall average level of receipts among nonemployer establishments is $81,000 versus $1.98 

million for establishments with payrolls. A recent study by the Joint Center for Housing Studies of 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Harvard University indicates that a substantial number of the nonemployer establishments—at least 

141,000 of those classified as general building contractors (NAICS 233)—are actually remodelers (Joint 

Center 2001).7 The Joint Center estimates do not account for nonemployer establishments outside 

NAICS 233 (i.e., NAICS 234 (Heavy construction) or 235 (Special trades). As discussed further in 

Section 2.3.2, EPA has reviewed available data on such nonemployer establishments and concluded that 

most are unlikely to be affected by the proposed rules. 

2.3.1.2 Legal Form of Organization 

The Census Bureau defines construction establishments according to how they are organized 

legally, using the following classification scheme: (a) corporations, (b) proprietorships, (c) partnerships, 

and (d) other. In 1997, a total of 173,602 C&D establishments with payrolls (66.4 percent of the total) 

were organized as corporations (see Table 2-7). A further 64,733 (24.7 percent) were organized as 

proprietorships while 14,313 (5.5 percent) operated as partnerships and 8,969 (3.5 percent) operated 

under some other legal form of organization. Organization as a corporation is most prevalent in NAICS 

2331 (Land subdivision and development), at 76.6 percent, and least prevalent in NAICS 235 (Special 

trade contractors), at 61.6 percent. See Appendix 2A for more detailed industry-level data. 

7

 The estimate of 141,000 establishments is probably an underestimate. The Joint Center applied the 

percentage of establishments with payrolls known to be remodelers to the nonemployer establishments. In practice, 

remodelers probably account for a larger percentage of nonemployer establishments than employer establishments. 

As the report states, “(o)ur procedures thus generate a conservative estimate of the number of businesses 

concentrating their activities in residential remodeling” (Joint Center, 2001, p. 35). 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2-7

Number of Establishments in the Construction and Development Industry with Payrolls, by Legal Form of Organization

NAICS Description 

Corporations Proprietorships Partnerships Other Total 

Number 

Percent 

of Total Number 

Percent 

of Total Number 

Percent 

of Total Number 

Percent 

of Total Number 

Percent 

of Total 

233 

Building, developing, 

and general 

contracting, except 

land subdivision and 

development (2331) 124,475 65.1% 50,235 26.3% 9,827 5.1% 6,567 3.4% 191,104 100.0% 

2331 Land subdivision and 

development 6,268 76.6% 327 4.0% 1,323 16.2% 267 3.3% 8,185 100.0% 

234 Heavy construction 30,682 72.1% 8,401 19.7% 2,115 5.0% 1,359 3.2% 42,557 100.0% 

235a Special trade 

contractors 12,177 61.6% 5,770 29.2% 1,048 5.3% 776 3.9% 19,771 100.0% 

TOTAL 173,602 66.4% 64,733 24.7% 14,313 5.5% 8,969 3.5% 261,617 100.0% 

a

Covers establishments in NAICS 23593 (Excavation Contractors) and 23594 (Wrecking and Demolition Contractors) only. 

Source: U.S. Census Bureau (2000a). 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

2.3.1.3 Geographic Distribution 

Figure 2-1 shows a geographic distribution of establishments by state. The largest concentrations 

of establishments are in California, New York, Texas, Florida, and Pennsylvania. Combined, these states 

account for approximately 25 percent of all C&D establishments nationwide. 

Figure 2-1. Number of establishments in the C&D industries, by state, 1997. 

2.3.1.4 Employment 

In 1997, establishments with payrolls in the C&D industries employed a total of nearly 2.4 

million workers. Table 2-8 shows a distribution of employment by NAICS industry. NAICS 2331 (Land 

subdivision and land development) accounts for 41,827 employees (1.8 percent of the total), the rest of 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

NAICS 233 (Building, developing, and general contracting) accounts for 1.3 million employees, or 55.2 

percent of the total. A total of 880,400 or 37.3 percent of the total are employed in NAICS 234 (Heavy 

construction), and NAICS 23593 and 23594 (Excavation contractors and Wrecking/demolition 

contractors) employ 135,057 (5.7 percent of the total). 

Table 2-8

Number of Employees in the Construction and Development Industries Establishments With Payrolls, 1997

NAICS Industry 

Number of 

Employees 

Percent 

of Total 

233, except 

2331 

Building, developing, and general contracting, except land subdivision 

and land development 1,301,126 55.2% 

2331 Land subdivision and land development 41,827 1.8% 

234 Heavy construction 880,400 37.3% 

235a Special trade contractors 135,057 5.7% 

TOTALS 2,358,410 100.0% 

a

 Includes NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only. 

Source: U.S. Census Bureau (2000a). 

Construction is a seasonal activity in many parts of the country, and employment data from the 

industry bear this out. Figure 2-2 shows quarterly employment data for all NAICS in the C&D industries, 

as well as the annual average. Overall, employment of construction workers was lowest in March at 1.59 

million and highest in August at 1.83 million. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Figure 2-2. Seasonal trends for employment in the C&D industries, 1997. 

2.3.1.5 Payrolls and Benefits 

In 1997, the payrolls of all C&D industries totaled $76.8 million (see Table 2-9). Of this number 

$48.3 million (62.9 percent) went to construction workers and $28.5 million (37.1 percent) went to other 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

employees.8 In addition, the C&D industries incurred $11.2 million in legally required fringe benefit 

expenditures and $6.5 million in voluntary fringe benefits, for a total of $17.6 million in fringe benefits.9 

Table 2-9 shows detailed data on payrolls and benefits for each of the C&D industries. 

2.3.1.6 Specialization 

Specialization in the C&D industries refers to the percent of establishment revenues earned from 

different types of construction activity. Specialization data provide some insight into the homogeneity of 

businesses classified within the same NAICS industry. When reporting to Census, an establishment selfreports its own degree of specialization by type of construction, based on the percentage of revenue 

earned from each type of construction work. Table 2-10 shows, as an example, the specialization of 

establishments in NAICS 23321 (Single-family home construction) across the “type of construction” 

categories defined by the Census Bureau, and the revenues earned by establishments in each 

specialization category.10,11 

8 Construction workers include all workers up through the working supervisor level directly engaged in 

construction operations, such as painters, carpenters, plumbers, and electricians. Included are journeymen, 

mechanics, apprentices, laborers, truck drivers and helpers, equipment operators, and on-site recordkeepers and 

security guards. Other employees include employees in executive, purchasing, accounting, personnel, professional, 

technical activities, and routine office functions. 

9 Legally required contributions include Social Security contributions, unemployment compensation, 

workman's compensation, and State temporary disability payments. Voluntary expenditures include life insurance 

premiums, pension plans, insurance premiums on hospital and medical plans, welfare plans, and union negotiated 

benefits. 

10 Due to high degrees of variation of specialization and types of construction among NAICS sectors, 

detailed tables for each NAICS in the C&D industries are presented separately in Appendix 2B. 

11 Because the Census Bureau only considers construction establishments to be specialized if they earn 

more than half of their revenues from one particular type of construction, the total value of construction work shown 

in these tables will not match industry totals, which cover all establishments, including those that are not specialized. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2-9

Payrolls and Benefits for Employees in the Construction Industry (Thousands of 1997 Dollars)

NAICS Industry 

Payrollsa Fringe Benefits (All Employees) 

Construction 

workersb 

Other 

employeesc 

All 

employeesd 

Legally 

required 

expenditurese 

Voluntary 

expendituresf 

Total 

fringe 

benefitsg 

233 

Building, developing, and general 

contracting $23,135,832 $19,410,280 $42,546,112 $5,929,710 $3,011,115 $8,940,824 

23311 Land subdivision and land development $254,247 $1,255,526 $1,509,773 $164,669 $71,648 $236,317 

23321 Single-family housing construction $7,739,858 $7,224,726 $14,964,583 $2,000,118 $623,079 $2,623,197 

23322 Multifamily housing construction $1,022,265 $744,361 $1,766,627 $255,879 $76,644 $332,523 

23331 

Manufacturing and industrial building 

construction $3,322,347 $1,806,620 $5,128,967 $777,829 $446,522 $1,224,351 

23332 

Commercial and Institutional building 

construction $10,797,116 $8,379,046 $19,176,160 $2,731,214 $1,793,222 $4,524,436 

234 Heavy construction $22,218,582 $8,073,267 $30,291,850 $4,665,757 $3,120,979 $7,786,736 

23411 Highway and street construction $7,095,139 $2,432,488 $9,527,626 $1,507,465 $1,109,177 $2,616,641 

23412 Bridge and tunnel construction $1,378,759 $468,401 $1,847,160 $344,821 $263,297 $608,117 

23491 Water, sewer,, and pipeline construction $4,087,007 $1,435,273 $5,522,281 $844,394 $493,761 $1,338,155 

23492 

Power and communication transmission 

line construction $1,748,715 $638,717 $2,387,432 $374,145 $231,538 $605,683 

23493 

Industrial nonbuilding structure 

construction $2,734,020 $988,343 $3,722,363 $486,625 $302,813 $789,439 

23499 All other heavy construction $5,174,943 $2,110,046 $7,284,989 $1,108,307 $720,394 $1,828,701 

235h Special trade contractors $2,940,440 $1,005,609 $3,946,050 $582,157 $329,925 $912,082 

23593 Excavation contractors $2,525,857 $828,017 $3,353,874 $483,764 $283,952 $767,716 

23594 Wrecking and demolition contractors $414,583 $177,592 $592,176 $98,393 $45,973 $144,366 

TOTAL $48,294,854 $28,489,156 $76,784,012 $11,177,624 $6,462,019 $17,639,642 a

 Payrolls includes the gross earnings paid in the calendar year 1997 to all employees on the payrolls of construction establishments. It includes all forms of compensation such as salaries, wages,

commissions, bonuses, vacation allowances, sick leave pay, prior to such deductions as employees' Social Security contribution, withholding taxes, group insurance, union dues, and savings bonds.

b

 Construction workers include all workers up through the working supervisor level directly engaged in construction operations, such as painters, carpenters, plumbers, and electricians. Included

are journeymen, mechanics, apprentices, laborers, truck drivers and helpers, equipment operators, and on-site recordkeepers and security guards.

c

 Other employees include employees in executive, purchasing, accounting, personnel, professional, technical activities, and routine office functions.

d

 Sum of construction workers and other employees.

e

 Legally required contributions include Social Security contributions, unemployment compensation, workman's compensation, and State temporary disability payments.

f

 Voluntary expenditures include life insurance premiums, pension plans, insurance premiums on hospital and medical plans, welfare plans, and union negotiated benefits.

g

 Total fringe benefits represent the expenditures made by the employer during 1997 for both legally required and voluntary fringe benefit programs for employees.

h

 Covers establishments in NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only.

Source: U.S. Census Bureau (2000a). 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Specialized establishments in NAICS 23321 (i.e., those that earn 51 percent or more of revenues 

from one type of construction) may be specialized in either detached single-family housing construction 

or attached single-family housing construction.12 The number of construction type specializations may 

depend on the NAICS, as some industry definitions encompass a broader set of construction activities 

(see Appendix 2B). Within NAICS 23321, establishments specialized 51 percent or more in detached, 

single-family housing construction performed construction work valued at $127.9 billion. 

Establishments 100 percent specialized in detached, single-family housing construction performed 

construction work worth $90.4 billion, or 64.4 percent of all work done by establishments with 

specialization in construction work. Similarly, for establishments specializing in construction of attached 

single-family houses by 51 percent or more, the value of work was $12.5 billion, and 52.8 percent of the 

work ($6.6 billion) was done by establishments with complete specialization in attached single-family 

houses. Further analysis of the value of construction work performed by the C&D industries can be 

found in Section 2.7.1. 

Table 2-10

Specialization within NAICS 23321 (Single-Family Home Construction), Categorized by Value of Construction Work

(Millions of 1997 Dollars)

Type of 

Construction with 

Specialization 

Estabs. 

spec. 51 % 

or more 

Estabs. 

with 100 

% spec. 

Estabs. 

with 90 to 

99 % spec. 

Estabs. 

with 80 to 

89 % spec. 

Estabs. 

with 70 to 

79 % spec. 

Estabs. 

with 60 to 

69 % spec. 

Estabs. 

with 51 to 

59 % spec. 

Single-family houses, 

detached $127,870 $90,434 $14,615 $7,040 $6,600 $6,603 $2,574 

Single-family houses, 

attached, including 

townhouses and 

townhouse-type 

condominiums $12,534 $6,623 $1,292 $877 $1,074 $1,693 $971 

Source: U.S. Census Bureau (2000a). 

12 Although they may earn revenues from other types of construction (e.g., highway construction) they 

would no longer be classified in NAICS 23321 if they earned 51 percent or more of their revenue from such 

sources. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

2.3.2 Firm-Level Data 

The SBA Office of Advocacy contracts with the U.S. Census Bureau to produce firm-level data 

for U.S. industries. Currently, distributions by employment size are available on an NAICS basis for 

1998, and distributions by receipt size are available on an SIC basis for 1997. 

The SBA data is based primarily on administrative records and is not generated in conjunction 

with, nor is it linked to, data collected through the Census of Construction. As a result, there may be 

minor inconsistences between data reported by SBA and that reported by the Census of Construction.13 

The SBA/Census data, however, is the only firm-level data available for C&D industries, so EPA is 

including it in this analysis because it is valuable to the economic modeling and the small entity analysis, 

which applies at the firm, not the establishment, level.14 

2.3.2.1 Number and Size of Firms 

Table 2-11 presents the number of firms with payrolls (firms with paid employment) and number 

of establishments in the C&D industries in 1998.15 These data indicate that a majority of firms operate a 

single establishment, and have fewer than 20 employees. Of the 215,301 C&D firms in 1998; 

approximately 99 percent of these operate only one establishment, and 94 percent have fewer than 20 

employees; less than 1 percent of firms have more than 500 employees. In 1998, there were 39,062 firms 

in heavy construction and these operated 40,091 establishments. More than 97 percent of the heavy 

13 For example, the SBA data provide estimates of the number of establishments operated by C&D firms. 

These establishment counts, however, do not match those reported in the Census of Construction. This is partially 

due to differences in coverage (the SBA data include administrative establishments while the Census of 

Construction does not) as well as differences in data collection methods. 

14 For clarification, an establishment is defined as “a relatively permanent office or other place of business 

where the usual business activities related to construction are conducted” (Census, 2000a). A firm refers to the 

aggregation of all establishments owned by one company; therefore one firm may consist of several establishments. 

15 "The data excludes non-employer businesses, thus excluding many self-employed individuals 

(employment is measured in March so firms starting after March, firms closing before March and seasonal firms can 

have zero employment)." SBA Office of Advocacy website, http://www.sba.gov/advo/stats/data.html. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

construction firms operate a single establishment and approximately 79 percent of heavy construction 

firms have fewer than 20 employees. 

Table 2-11

Employer Firms and Establishments by Employment Size of Firm by NAICS Codes, 1998 -- SBA Data

Industry NAICS 

Firms Establishments 

Total 0 <20 <500 500+ Total 0 <20 <500 500+ 

Building, developing, & 

general contracting 233 215,301 38,904 202,969 214,921 380 216,893 38,907 203,020 215,478 1,415 

Land subdivision & land 

development 23310 11,192 2,829 10,618 11,101 91 11,369 2,832 10,628 11,179 190 

Single-family housing const. 23321 153,029 29,168 149,240 152,937 92 153,561 29,168 149,253 153,108 453 

Multifamily housing const. 23322 8,054 1,405 7,413 8,027 27 8,091 1,405 7,414 8,041 50 

Mfg & industrial building 

construction 23331 6,842 720 5,470 6,775 67 6,904 720 5,471 6,784 120 

Commercial & institutional 

building construction 23332 36,355 4,782 30,240 36,158 197 36,968 4,782 30,254 36,366 602 

Heavy construction 234 39,062 4,589 30,987 38,788 274 40,091 4,589 31,010 39,098 993 

Highway & street const. 23411 10,884 1,493 8,265 10,806 79 11,268 1,493 8,273 10,901 367 

Bridge & tunnel construction 23412 886 70 520 865 21 925 70 521 880 45 

Water, sewer, & pipeline 

construction 23491 7,749 676 5,786 7,704 45 7,823 676 5,787 7,726 97 

Power & communication 

transmission line 

construction 23492 3,170 404 2,464 3,133 37 3,305 404 2,465 3,157 148 

Industrial nonbuilding 

structure construction 23493 641 52 411 575 66 709 52 411 583 126 

All other heavy construction 23499 15,860 1,894 13,541 15,758 102 16,061 1,894 13,553 15,851 210 

Excavation contractors 23593 23,209 4,310 22,145 23,201 8 23,240 4,310 22,145 23,223 17 

Wrecking & demolition 

contractors 23594 1,336 247 1,094 1,329 7 1,344 247 1,094 1,332 12 

Source: U.S. Small Business Administration (1998), based on data provided by the U.S. Census Bureau. 

2.3.2.2 Firm-Level Revenues 

Table 2-12 shows the number of employer firms and establishments, in 1997, based on NAICS 

industry and revenue size class. These data also show that a large number of firms in the C&D industries 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

are small. Approximately three-quarters (75.2 percent) of the firms in the target industry sectors reported 

under $1.0 million in revenues for 1997 and nearly 94 percent of firms reported revenues under $5.0 

million. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2-12

Firms and Establishments with Payrolls by Revenue Size Class (1997)a

 (SBA Data)

Description 

FIRMS ESTABLISHMENTSb 

Total 

Number of 

Firms 

< $1 

Million 

< $5 

Million 

< $7.5 

Million 

< $25 

Million 

< $100 

Million 

Over $100 

Million 

Total 

Establishments 

< $1 

Million 

< $5 

Million 

< $7.5 

Million 

< $25 

Million 

< $100 

Million 

Over $100 

Million 

Land Subdivision and 

Development 11,036 7,744 10,207 10,501 10,851 10,948 88 11,205 7,746 10,218 10,514 10,896 11,018 186 

Single-Family Housing 

Construction 149,130 123,414 145,305 146,917 148,634 148,975 155 149,823 123,420 145,339 146,962 148,736 149,161 661 

Multifamily Housing 

Construction 6,911 5,128 6,347 6,518 6,791 6,877 34 7,009 5,129 6,354 6,527 6,810 6,910 99 

Manufacturing and Industrial 

Building Construction 7,950 4,674 6,841 7,156 7,692 7,879 71 8,075 4,675 6,847 7,166 7,713 7,914 160 

Commercial and Institutional 

Building Construction 38,195 22,518 32,523 34,085 36,964 37,882 313 39,044 22,526 32,560 34,133 37,075 38,124 920 

Highway and Street 

Construction 10,778 5,683 8,681 9,291 10,320 10,679 99 11,117 5,683 8,689 9,302 10,349 10,758 359 

Bridge and Tunnel 

Construction 875 287 583 638 788 847 28 915 288 584 640 795 859 56 

Water, Sewer, and Pipeline 

Construction 7,916 4,475 6,861 7,245 7,768 7,883 33 8,075 4,476 6,864 7,251 7,791 7,938 137 

Power and Communication 

Transmission Line 

Construction 2,781 1,572 2,411 2,546 2,729 2,770 11 2,837 1,572 2,412 2,548 2,738 2,789 48 

Industrial Nonbuilding 

Structure Construction 3,941 2,786 3,612 3,713 3,860 3,909 32 4,023 2,787 3,617 3,720 3,874 3,936 86 

All Other Heavy Construction 12,973 9,110 11,873 12,213 12,697 12,863 111 13,594 9,118 11,920 12,279 12,814 13,087 507 

Excavation Contractors 22,046 19,093 21,659 21,820 22,002 22,038 8 22,072 19,093 21,661 21,823 22,005 22,055 17 

Wrecking and Demolition 

Contractors 1,270 840 1,165 1,204 1,249 1,261 9 1,285 840 1,166 1,205 1,252 1,271 14 

TOTAL 275,802 207,324 258,068 263,847 272,345 274,811 992 279,074 207,353 258,231 264,070 272,848 275,820 3,250 a

 Data are for 1997. SBA does not report revenue size class data in NAICS format and will not do so until the 2002 Economic Census is published. These figures were calculated using percentages

provided in the Census Bureau’s NAICS to SIC bridge, which is available at www.census.gov/epcd/ec97brdg.HTM. b

 The number of establishments reported here may differ from the number reported in previous tables due to the different sources used (see Table 2-2 and accompanying text for further discussion). 

Earlier tables are based on data from the 1997 Economic Census; Table 2-12 is based on 1997 data from SBA/Census and was converted from SIC to NAICS for the purposes of this analysis. 

Source: SBA 1998

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

2.3.3 Number of Small Entities 

Small entities are defined by the SBA according to size standards based on either number of 

employees or annual revenue (13 CFR 121). For all of the C&D industries, the size standards are based 

on annual revenues. Table 2-13 presents the SBA revenue thresholds for the C&D industry, which range 

from $5.0 million for NAICS 233110 (Land subdivision and land development) to $27.5 million for the 

majority of NAICS 233 (Building, developing, and general contracting) and NAICS 234 (Heavy 

construction). An estimated 189,805 C&D businesses, representing 99.5 percent of all businesses in the 

C&D industry, fall below the SBA-defined revenue thresholds for this industry and therefore may be 

qualified as small businesses. Table 2-13 shows the total estimated number of businesses and total small 

businesses in the C&D industry; the number of potentially affected small businesses is developed in 

Chapter Six. 

Table 2-13

Number of Firms and Establishments Above and Below SBA Thresholds for Small Business Definition:

Based on Data from SBA

NAICS 

SBA Revenue 

Threshold 

(million $) 

Total Estimated 

Number of 

Businesses 

Estimated 

Number of 

Small 

Businesses 

Small Businesses 

as a Percent of 

Total 

233210: Single-family 

Housing Construction $27.5 138,732 138,583 99.9% 

233220: Multifamily 

Housing Construction $27.5 7,534 7,491 99.4% 

233310: Manufacturing 

and Industrial Building 

Construction $27.5 7,257 7,050 97.1% 

233320: Commercial and 

Institutional Building 

Construction $27.5 37,220 36,681 98.6% 

TOTAL – 190,743 189,805 99.5% 

a

 For those industries with a $27.5 million SBA cutoff, the table shows the number of firms and establishments

with revenues below $25.0 million (the next closest SBA data break point). For industries with a $11.5 million

SBA cutoff, figures shown are for firms and establishments with revenues below $7.5 million.

Source: SBA 1998; also see Chapter Six, Tables 6-2 and 6-3

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

2.3.4 Entities Not Covered by the Proposed Rule 

Not all establishments and firms that fall within the industry definitions outlined in the previous 

sections will be affected by the proposed rule. The proposed rule will apply only to those NPDESpermitted establishments engaged in activities that disturb land. EPA believes that some entities will be 

excluded from regulatory coverage because they are primarily engaged in remodeling activities that will 

not result in land disturbance. Others will be excluded because they are generally not the primary 

NPDES permit holder. As discussed in Section VI.A in the preamble of the proposed rule, Special trade 

contractors are typically not identified as NPDES permit holders and thus will not likely be covered by 

the proposed rule. In this section EPA estimates the number of establishments that fall into these 

categories. The resulting estimates are brought together in Section 2.3.5 to derive the number of 

establishments covered under each option of the proposed rule. 

2.3.4.1 Establishments Engaged in Remodeling 

Two sources provide information on the potential number of C&D establishments that are 

actually remodelers. In an article published in Housing Economics, NAHB economists estimated that in 

1997 approximately 45,952 establishments in the residential building industry were involved in 

remodeling activities only (Ahluwalia and Chapman, 2000). This count is based on analysis of Census 

microdata on establishments, receipts, and source of receipts. Establishments were classified as 

remodelers in this study if they earned 100 percent of revenues from remodeling activities. 

The Joint Center for Housing Studies at Harvard University recently published a report focused 

solely on the remodeling industry (Joint Center, 2001) . This report classified establishments that derive 

at least half of their revenues from remodeling activities as remodelers. When defined in this manner, 

the study found that 62,400 establishments classified as general contractors/builders in 1997 were 

actually remodelers. 

Both of these estimates are based on establishments classified by Census as general 

contractors/builders. The Joint Center study goes further to identify establishments classified in various 

special trades (e.g., Carpentry, Plumbing) that are primarily engaged in remodeling, but these estimates 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

do not include those considered part of the C&D industries (i.e., NAICS 23593 Excavation contractors 

and 23594 Wrecking and demolition contractors).16 NAHB does not address the issue of special trades 

contractors in their report. Neither report estimates the number of establishments in NAICS 234 (Heavy 

construction) that may be engaged primarily in remodeling activities; however, EPA does not expect that 

establishments in the heavy construction sector would be engaged in remodeling activities. 

Following review of these studies, EPA used the estimate from the Joint Center study as the best 

estimate of the number of remodelers included in statistics of the C&D industries. This study defines 

remodelers as establishments that earn at least 50 percent of revenues from remodeling activity (and thus 

earn less than 50 percent from building activity). EPA concludes that these establishments, when 

engaged in building activity, are unlikely to disturb more than one acre of land and would therefore not 

be covered by the proposed rule. 

2.3.4.2 Establishments That Are Not NPDES Permttees 

EPA has included in the universe of potentially affected establishments all establishments in 

NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) because such 

establishments engage in land disturbing activities. In reality, however, establishments in these industries 

generally act as subcontractors on C&D projects and are hired by developers or general contractors to 

perform specific tasks. EPA does not believe that such establishments generally appear as NPDES 

permittees or copermittees. Therefore, while these establishments are included among the universe of 

potentially affected establishments (and appear below in Table 2-14), EPA has not included them in the 

subsequent economic impact analysis chapters (i.e., Chapters Four, Five, and Six). 

16 The Joint Center study does provide an estimate for the number of remodelers classified in 

“miscellaneous special trades” (NAICS 2359), which includes NAICS 23593 and 23594, but several other industries 

as well. The number of remodelers classified primarily in NAICS 23593 and 23594 may not be large, however, 

since the total number in NAICS 2359 is only 6,600. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

2.3.5 Number of Potentially Affected Entities 

EPA took several steps to adjust the number of affected entities to account for regulatory 

coverage and data availability. Previous sections estimated that the total number of 

establishments in the C&D industry is 261,617 (see Table 2-4). Subtracting the 62,400 remodeling 

establishments estimated in Section 2.3.4 from this figure yields a potentially affected universe of 

199,214 establishments. EPA subtracted the 62,400 residential remodeling establishments from the 

single-family and multifamily building construction industries (NAICS 23321 and NAICS 23322), based 

on their respective shares of residential building establishments. 

In preparing its economic impact analysis, EPA concluded that data limitations on land 

developers (NAICS 2331) would preclude retaining this as a separate industry for purposes of regulatory 

analysis.17 Rather than excluding establishments in this industry category (which would potentially 

underestimate the number of affected entities and associated impacts) EPA distributed them among the 

four building construction industries (single-family, multifamily, commercial, and industrial 

construction), based on each industry’s share of total establishments.18 Table 2-14 reflects this 

allocation, which was done after removing those establishments engaged primarily in remodeling. 

EPA has further adjusted the population of affected establishments to account for differences in 

regulatory coverage. As described in Chapter Three, the proposed rule considers three erosion and 

sediment control (ESC) options. Option 1 would apply to sites that disturb one acre or more of land, 

while Option 2 would apply to sites that disturb five acres or more of land. Option 3 is a no regulation 

option, meaning that no sites or establishments would be affected. 

EPA used data from the Census Bureau and other sources to define an average housing density 

for the nation as a whole (average number of housing units per acre), then used this analysis to identify 

classes of establishments that would be excluded based on their likelihood of disturbing less than one 

acre (Option 1) or five acres (Option 2) on a project basis. EPA believes these estimates to be 

17 Specifically, EPA could not obtain equivalent financial data with which to build financial models of the 

land development industry. 

18 EPA provides further justification for and details about this step in the analysis in Chapter Four. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

conservative in terms of identifying establishments unaffected by the proposed rule. First, while the 

regulatory threshold applies to each site, EPA excluded establishments if the estimated number of acres 

disturbed in a year is below the regulatory threshold. In addition, the analysis was not adjusted for the 

percent of sites normally left undisturbed.19 

Based on this analysis, EPA assumed that establishments in the single-family building 

construction industry (NAICS 2331) that complete between 1 and 4 housing units each year would be 

excluded under Option 1. Under Option 2, EPA also assumed that establishments in the single-family 

building construction industry (NAICS 2331) that complete between 5 and 9 housing units, as well as 

establishments in the multifamily building construction industry (NAICS 2332) that complete between 2 

and 9 housing units each year, would be excluded. Chapter Four contains further detail on the data 

sources and method used to make this adjustment. 

Table 2-14 shows the distribution of establishments potentially affected under Option 1 and 2, 

following the redistribution of land developers (NAICS 2331) and adjustment for small builders exempt 

from the site size limitations of each option. Due to limited data, the number of establishments in NAICS 

234 (Heavy construction) and NAICS 235 (Special trades) affected under each option could not be 

refined further, so no adjustments are made to these establishment counts. Moreover, as discussed in 

Section XII of the preamble of the proposed rule, special trade contractors are not included in Chapter 5, 

Economic Impact Analysis Results of this report. Special trade contractors are typically subcontractors 

and are not NPDES permittees. Therefore, these contractors would not be directly affected by the 

proposed rule. 

19 For example, an establishment that completes 15 houses per year is estimated to account for 5.6 acres of 

converted land, based on the average housing density of 2.67 new single-family housing units per acre. EPA would 

include this establishment among those covered under Option 2, even though the actual area disturbed may well fall 

below 5 acres once open space, buffers, and other “undisturbed” areas are factored in. Furthermore, as noted, EPA 

assumes that all of the housing units are covered by a single NPDES permit while in reality the establishment might 

operate on more than one site, none of which exceeds the 5-acre threshold. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2-14. Number of Affected Establishments in the Construction and Development Industry 

NAICS Industry 

Option 1 Option 2 

Number 

Percent of 

Total Number 

Percent of 

Total 

23321 

Single-family residential building 

construction 34,070 22.9% 21,362 15.9% 

23322 

Multi-family residential building 

construction 4,603 3.1% 2,699 2.0% 

23331 

Manufacturing and industrial building 

construction 7,742 5.2% 7,742 5.8% 

23332 

Commercial and institutional building 

construction 39,810 26.8% 39,810 29.7% 

234 Heavy construction 42,557 28.6% 42,557 31.8% 

235a Special trade contracting 19,771 13.3% 19,771 14.8% 

Potentially affected establishments 148,553 100.0% 133,941 100.0% 

a

 Includes NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only.

Figures may not add to totals due to rounding.

Source: U.S. Census Bureau (2000a) and EPA estimates.

2.4 MARKET SUPPLY AND DEMAND 

The sections below discuss the supply and demand factors that affect the residential, 

nonresidential, and heavy construction industries. This discussion provides insight into the dynamics of 

the construction market and provides a basis for many of the key assumptions used in the economic 

impact models. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

2.4.1 Characteristics of Construction Supply 

This section discusses the factors that influence supply in the C&D industry. Topics include 

number and value of residential, nonresidential, and heavy construction projects; barriers to entry in the 

industry; and supply trends (the latter primarily for the residential construction market). 

2.4.1.1 Residential Building 

Number of Projects 

The Census Bureau operates three data collection programs that track and report output measures 

relevant for the C&D industry: 

• The Building Permits Program collects monthly information on building permits issued 

for new private residential construction. 

• The Survey of Construction collects information on residential units started, sold, and 

completed each month. Several data series are produced from this program. These 

include: 

• Housing Starts (Series C20)—Provides monthly data on the number of housing 

starts, including number of housing units authorized, started, and authorized but 

not yet started. 

• New One-Family Houses Sold (Series C25)—Provides monthly data on units sold 

and for sale, average and median sales prices, and price distribution of units sold. 

This series also produces the Price Index of New One-Family Houses Sold. 

• Characteristics of New Housing (Series C25A)—Compiles and publishes data 

annually on housing prices and physical characteristics such as size of unit, 

number of bathrooms, type of heating system, and type of exterior wall. 

• Housing Completions (Series C22)— This series, published monthly, provides 

data on the number of housing units completed in a month and on those under 

construction. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

• New Residential Construction in Selected Metropolitan Areas (Series 

C21)—Provides quarterly data by metropolitan area on units authorized, started, 

and completed.20 

• The Value Put in Place program publishes estimates of the value of construction work 

performed each month. 

Combined, these data programs produce vast amounts of information on construction industry 

output. This profile focuses on building permits, since the activities most likely to be influenced by the 

proposed effluent guidelines regulations are those that take place early in the development process. The 

following discussion and supporting tables provide further details about the building permits data 

collection program. 

The Building Permits Program collects data on private residential construction authorized by 

building permits based upon reports submitted by local building permit officials.21 The data include the 

number of permits authorized by type22 and the value of permits. These reports are provided in response to 

a mail survey using Form C-404 “Report of Building or Zoning Permits Issued and Local Public 

Construction.” The mail survey covers a sample of 8,500 permit-issuing places from a universe of 19,000 

in the U.S.23 Approximately 96 percent of all privately owned housing units are built in areas that require 

building permits. 

20 Census has discontinued publication of this series. The last year for which data were published was 

1998. 

21 Census discontinued collection of data on nonresidential construction authorized by building permits in 

1995 due to budget cuts. EPA has used historical data from this series to create projections of nonresidential 

building activity beyond 1995. See Section 2.6.1.2. 

22 Private residential construction is classified as: single-family homes, 2-family buildings, 3-4 family 

buildings, or 5 or more family buildings. Data collection for other types of construction (including nonresidential 

housekeeping, nonresidential buildings, and demolition and razing) was discontinued in 1995. 

23 All permit-issuing places in the most active MSAs and all CMSAs are selected with certainty for the 

sample. The remaining places are stratified by State into two strata based on the number of housing units authorized 

in 1989, 1990, 1991, and 1992. In each State, all places that authorized housing units during the period greater than 

or equal to a predetermined number of units were selected with certainty. The other places were selected at the rate 

of 1 in 10. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Figure 2-3 shows monthly data from January 1994 through July 2000 on the number of housing 

units authorized by building permit. The data in this chart represent seasonally adjusted annual averages. 

Seasonal adjustment eliminates the effect of changes that normally occur at about the same time and with 

about the same magnitude every year. 24 As seen, the seasonally adjusted annual rate of building permits 

issued shows a steady rise over the recent period. From an average of between 1.3 and 1.5 million units 

per year over the 1994 to 1997 period, the rate then rose through the 1998 to 2000 period. The rate 

appears to have reached a peak in January 2000 when it hit 1.7 million units, and has since fallen steadily 

back to approximately 1.5 million units per year. 

24 This includes the influence of factors such as normal or average changes in weather conditions, 

differences in the lengths of the months, and differences in the composition (trading-day variation) of the months. 

The seasonally adjusted annual rate is the seasonally adjusted monthly rate multiplied by 12. The seasonally adjusted 

annual rate for a particular month, for example July, can be interpreted to mean that if the only changes which occur 

in building permits from July through June of the following year were the normal seasonal changes described by the 

seasonal indexes, then the total building permits in that 12-month interval would equal the seasonally adjusted 

annual rate for July. The seasonally adjusted annual rate has the advantage of facilitating comparisons with previous 

annual building permit figures as well as with the seasonally adjusted annual rates for prior months. The seasonally 

adjusted annual rate is neither a forecast nor a projection; rather it is a description of the rate at which building 

permits are issued in the particular month for which it is calculated. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

The total number of new housing units authorized in 1997 was 1,441,136. Of these, 1,062,396 

or 73.7 percent were for single housing units.25 Table 2-15 shows the number of new privately owned 

housing units authorized by building permit, allocated to Census region and subregion. 1994 1995 1996 1997 1998 1999 

2000 

1,100 

1,200 

1,300 

1,400 

1,500 

1,600 

1,700 

1,800 

('000) 

Figure 2-3. New Privately Owned Housing Units Authorized, Seasonally Adjusted Annual Rate, U.S. 

Source: U.S. Census Bureau (2000e), Series C-40, Building Permits. 

25 A “housing unit” consists of a room or group of rooms intended for occupancy as separate living quarters 

by a family, by a group of unrelated persons living together, or by a person living alone. Separate living quarters are 

those in which the occupants live and eat separately from other persons in the building and have direct access from 

the outside of the building or through a common hall. In accordance with this definition, each apartment unit in an 

apartment building is counted as one housing unit. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2-15

New Privately Owned Housing Units Authorized by Building Permits in Permit-Issuing Places in 1997, by Region

Region Sub-Region Total 1 Unit 2 Units 3 and 4 Units 

5 Units or 

More 

Number of 

Structures 

with 5 Units or 

More 

Northeast 

New England 41,110 35,838 904 687 3,681 236 

Middle Atlantic 100,776 75,312 4,278 2,347 18,839 963 

Total Region 141,886 111,150 5,182 3,034 22,520 1,199 

Midwest 

East North Central 209,213 154,513 8,168 8,401 38,131 3,118 

West North Central 90,628 65,510 4,472 2,910 17,736 1,105 

Total Region 299,841 220,023 12,640 11,311 55,867 4,223 

West 

Mountain 179,632 134,403 2,548 3,675 39,006 3,098 

Pacific 183,913 132,670 4,590 5,180 41,473 2,902 

Total Region 363,545 267,073 7,138 8,855 80,479 6,000 

South 

South Atlantic 392,540 291,564 5,070 5,605 90,301 5,839 

East South Central 79,979 61,863 2,264 1,933 13,919 1,106 

West South Central 163,345 110,723 2,556 2,850 47,216 2,760 

Total Region 635,864 464,150 9,890 10,388 151,436 9,705 

TOTALS 1,441,136 1,062,396 34,850 33,588 310,302 21,127 

Source: U.S. Census Bureau (2000a). 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Value of Projects 

The same Census program that compiles and reports data on the number of housing units 

authorized by building permit also compiles data on the value of permits issued. The value reported in 

the permits data refers to the value of structures and site improvements covered by the building permit, 

but excludes land costs. 

The total value of residential building permits issued in the U.S. in 1997 was $141.0 billion. Of 

this, $121.2 billion, or 86.0 percent, was accounted for by single-family housing units. 

Table 2-16 shows the value of new privately owned housing units authorized by building permits 

in 1997, by Census region and subregion. The South region accounted for $55.9 billion (39.6 percent of 

the total), followed by the West with $40.7 billion (28.8 percent), the Midwest with $30.3 billion (21.4 

percent), and the Northeast with $14.1 billion (10.0 percent). 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2-16

New Privately Owned Housing Units Authorized- Valuation for Regions (Millions of 1997 Dollars)

Region Sub-Region Total 1 Unit 2 Units 3 and 4 Units 5 Units or More 

Northeast 

New England $4,737.7 $4,423.8 $59.3 $49.0 $205.5 

Middle Atlantic $9,399.5 $8,142.4 $232.4 $134.3 $890.4 

Total Region $14,137.2 $12,566.2 $291.7 $183.3 $1,095.9 

Midwest 

East North Central $21,688.0 $18,858.2 $584.1 $516.4 $1,729.4 

West North 

Central $8,573.9 $7,292.4 $294.3 $184.1 $803.3 

Total Region $30,261.9 $26,150.5 $878.3 $700.4 $2,532.6 

West 

Mountain $17,426.3 $15,038.7 $225.4 $245.8 $1,916.4 

Pacific $23,299.2 $19,693.7 $389.6 $410.3 $2,805.6 

Total Region $40,725.5 $34,732.4 $615.0 $656.1 $4,722.0 

South 

South Atlantic $35,206.7 $29,973.8 $301.1 $341.9 $4,590.0 

East South Central $6,840.6 $6,042.5 $106.1 $66.3 $625.7 

West South 

Central $13,832.4 $11,729.1 $111.8 $109.6 $1,881.9 

Total Region $55,879.7 $47,745.4 $518.9 $517.8 $7,097.6 

TOTAL $141,004.4 $121,194.5 $2,304.0 $2,057.7 $15,448.2 

Figures rounded from thousands reported by Census. 

Source: U.S. Census Bureau (2000a). 

2.4.1.2 Nonresidential Building 

Census discontinued the collection of data on nonresidential construction authorized by building 

permits in 1995 due to budgetary restraints. To fill this data gap, EPA has used historical (pre-1995) data 

on nonresidential starts to establish a relationship between residential and nonresidential starts from 

which current nonresidential activity can be estimated. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Number and Value of Projects 

EPA analyzed data from 1980 through 1994 on the number of nonresidential building permits, 

number of residential building permits, the value of nonresidential buildings put in place, and a time 

trend to estimate a statistical relationship that could be used to predict the number of nonresidential 

permits issued in 1997.26 Table 2-17 shows, for each region and subregion, the results from EPA’s 

analysis. EPA used a linear regression of nonresidential building permits on the remaining three 

variables to estimate the number of permits. 

The value of nonresidential building projects is reported by Census in the Value Put in Place 

data series. Table 2-17 also shows the value of nonresidential projects constructed in 1997 by region and 

subregion. 

26 EPA assumes that there is a one-to-one correspondence between permits and projects for nonresidential 

construction activity. Therefore, the predicted number of nonresidential permits issued in 1997 is assumed to also 

be the predicted number of nonresidential projects for that year. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2-17

Estimated Number of Nonresidential Building Permits for 1997, by Region

Region Sub-Region 

Nonresidential Permits 

(estimated) 

Value Put in Place 

(millions of dollars) 

Northeast 

New England 26,936 $1,034 

Middle Atlantic 51,530 $2,482 

Total Region 78,466 $3,516 

Midwest 

East North Central 62,193 $8,606 

West North Central 30,374 $1,745 

Total Region 92,568 $10,351 

West 

Mountain 27,696 $2,187 

Pacific 51,408 $6,736 

Total Region 79,105 $8,922 

South 

South Atlantic 124,452 $6,098 

East South Central 20,340 $3,228 

West South Central 31,093 $4,624 

Total Region 175,886 $13,950 

TOTALS United States 426,024 $36,739 

Figures may not add to totals due to rounding. 

Source: U.S. Census Bureau (2000a). 

As shown in Table 2-17, the number of nonresidential building projects authorized by permits in 

1997 is estimated at 426,024. The South had the highest number of nonresidential permits in 1997, with 

175,886, or 41.3 percent of the total. The Northeast had the fewest nonresidential permits issued, with 

only 78,466, or 18.4 percent of the total. 

The total value of nonresidential building projects constructed in 1997 was $36.7 billion. As 

with nonresidential permits, the South had the highest value put in place, with $13.9 billion (38.0 percent 

of total value put in place) while the Northeast had the lowest value of projects put in place with $3.5 

billion (9.6 percent of total). 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

2.4.1.3 Heavy Construction 

Heavy construction encompasses both building and nonbuilding construction activities, although 

95 percent of the work performed by establishments in NAICS 234 (Heavy construction) is classified as 

nonbuilding construction. The largest component of heavy construction work is highway and street 

construction. These activities account for one-third of the value of construction work completed by the 

heavy construction industries. When highway and street construction is combined with bridge and tunnel 

construction, the total value of work climbs to $53.3 billion, or 41.7 percent of the industry total. Heavy 

construction activities excluding roads, bridges, and tunnels (e.g., airport runways, sewers and water 

mains, transmission lines) account for the remaining 58.3 percent of construction value, but there is little 

data providing further detail on such activities. As a result, this section focuses principally on road, 

highway, bridge, and tunnel construction. 

The Federal Highway Administration (FHWA) publishes the most detailed report on highway, 

bridge, and transit systems in the United States. The 1999 Report to Congress, Status of the Nation’s 

Highways, Bridges and Transit: Conditions and Performance (C&P Report) includes not only 

information on the condition of these systems, but details on capital expenditures and improvements as 

well. The sections below summarize some of this data. 

Number of Projects 

Table 2-18 summarizes information from the C&P Report on the number of miles of highway, 

urban, and rural roads in the U.S., as well as the number of lane-miles represented Highway lanemileage has increased by an average of only 0.3 percent annually over the period 1987-1997. Although 

the report and Table 2-18 show the annual capital and maintenance expenditures on this roadway system, 

nowhere in the report (nor in any other data reviewed for this analysis) does FHWA present the number 

of projects funded or number of miles of new road completed. As a result, EPA lacks current estimates of 

the number of highway, road, bridge or transit construction projects that potentially would disturb land. 

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--

--

--

--

--

--

Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

The number of rural highway road-miles (as distinguished from lane-miles) declined by an 

average of 0.2 percent annually between 1987 and 1997. During the same period, urban highway roadmiles grew by an average of 1.7 percent annually. The decline of rural road mileage and comparative 

growth in urban road mileage may be due, at least in part, by the expansion of existing urban roadways 

indicated by the figures above for lane-mileage growth trends. Some areas that were previously 

classified as rural may also have been reclassified as urban during that 10-year period based on 

population growth.27 

Table 2-18. Highway Statistics 

Statistic 1997 Data 

1987-1997 Average 

Annual Growth 

(percent)a 

Total Rural Highway Miles 

Total Urban Highway Miles 

Total Highway Miles 

3.11 million 

0.84 million 

3.95 million 

-0.2 

1.7 

Total Rural Highway Lane-Miles 

Total Urban Highway Lane-Miles 

Total Highway Lane-Miles 

6.37 million 

1.89 million 

8.26 million 

2.1 

0.3 

Total Highway Expenditures 

(All Govts.) 

Total Highway Capital Outlay 

(All Govts.) 

Total Highway Capital Outlay Per Lane-Mile 

Total Highway Capital Outlay Per Road-Mileb 

$101.3 billion 

$48.7 billion 

$5,914 

$12,329-$12,360 

-- Not provided

a

 Not provided for all statistic categories.

b

 Range calculated by EPA as described in text.

Source: FHWA 1999, various tables.

27 The C&P Report defines “rural” areas as areas with a population under 5,000. “Urban” areas are those 

with a population greater than or equal to 5,000. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Value of Projects 

The C&P Report presents highway and road expenditures by all levels of government ownership. 

Expenditures are further classified as capital and non-capital. Non-capital expenditures include 

maintenance and service outlays.28 Maintenance activities are not expected to disturb significant amounts 

of land. Capital outlays refer to activities such as land acquisition and other right-of-way costs; 

preliminary and construction engineering; new construction, reconstruction, resurfacing, rehabilitation, and 

restoration of roadways, bridges, and other structures; and installation of guardrails, fencing, signs, and 

signals. Capital outlays are further classified according to whether they support system preservation, 

system expansion, or system enhancement. Definitions for these are as follows: 

• System Preservation—capital improvements on existing roads and bridges; includes 

reconstruction, resurfacing, pavement restoration/rehabilitation, widening of narrow lanes 

and shoulders, bridge replacement and bridge rehabilitation; does not include routine 

maintenance costs (these costs are captured by “non-capital expenditures”). 

• System Expansion—construction of new roads and bridges, as well as costs associated 

with adding lanes to existing roads; includes all of “New Construction,” “New Bridge,” 

“Major Widening,” and most costs associated with “Reconstruction - Added Capacity.” 

• System Enhancement—includes safety enhancements, installation of intelligent 

transportation systems, and environmental enhancements. 

Based on a review of these definitions, EPA concludes that the activities classified as capital 

outlays are most likely to result in land disturbances. In 1997, capital outlays totaled $48.7 billion. Table 

2-20 provides a more detailed breakdown of these expenditures. 

Another 1999 FHWA report, Our Nation’s Highways, shows that 6.9 percent of total state 

disbursements29 for highways in 1998 went to new road and bridge construction. Another 36.3 percent 

went to other capital improvements on existing highways. Between 1995 and 1997, expenditures (from all 

jurisdictions) for system expansion grew at a faster rate than expenditures for either system 

28 Maintenance outlays cover spot patching, crack sealing (roads and bridge decks), and maintenance/repair 

of route markers, signs, guardrails, fencing, signals, and lighting. 

29 Total state disbursements were $80.5 billion in 1998. This figure includes Federal Aid for highways. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

preservation or system enhancements. The C&P report shows that in 1997, 47.6 percent of capital 

outlays went toward system preservation; 8.0 percent went toward system enhancement; 15.6 percent 

went toward new roads and bridges; and another 28.8 percent went toward other system expansion. 

The FHWA data does not report the mileage of new roads constructed versus the mileage lost 

(removed or taken out of commission due to condition). Some data is available for capital outlays by 

improvement type (such as new road construction, resurfacing, etc.). This information is presented in 

Table 2-19.30 

30 The data in Table 2-19 is based on a sample of direct State expenditures on particular improvements. 

FHWA then used this state data to estimate a national average for roads under jurisdiction of all governmental units 

(local, state, federal) and for all roadway systems. The “Total, State Arterials & Connectors” is based on the direct 

State expenditures data; “Total, Arterials and Collectors, All Jurisdictions” is estimated based on the State data. 

FHWA reports that there is very little information on expenditures for local functional class roads. FHWA assumed 

that the expenditure patterns for local functional class roads more or less followed the expenditure patterns for 

arterials and collectors and used this assumption to estimate the total capital outlay by all government units for all 

road systems (arterials, collectors, and local functional class roads). These expenditures are accounts of 

governmental unit spending, not of construction contractor spending, though it may be assumed that since the 

majority of roads are owned by some government unit (local, state, federal), any costs incurred by the construction 

contractor would ultimately be paid for with government funds. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2-19. Highway Capital Outlay by Improvement Type, 1997 (Billions of Dollars) 

Expenditure Item 

System 

Preservation 

System Expansion 

System 

Enhancemen 

t Total 

New Roads 

& Bridges 

Existing 

Roads 

Direct State Expenditures on Arterials and Collectors 

Right-of-Way 

Engineering 

New Construction 

Relocation 

Reconstruction-Added Capacity 

Reconstruction-No Added Capacity 

Major Widening 

Minor Widening 

Restoration & Rehabilitation 

Resurfacing 

New Bridge 

Bridge Replacement 

Major Bridge Rehabilitation 

Minor Bridge Work 

Safety 

Traffic Management/Engineering 

Environmental and Other 

Total, State Arterials & Collectors 

2.6 

1.1 

1.0 

0.8 

2.5 

3.4 

1.7 

1.5 

0.7 

15.2 

0.9 

0.8 

3.1 

0.6 

5.4 

1.5 

1.3 

1.7 

2.6 

1.8 

8.9 

0.4 

1.2 

0.4 

0.5 

2.5 

2.4 

5.1 

3.1 

1.7 

3.7 

1.0 

1.8 

0.8 

2.5 

3.4 

0.6 

1.7 

1.5 

0.7 

1.2 

0.4 

0.5 

32.1 

Total Expenditures on Arterials and Collectors, All Jurisdictions (estimated)a 

Highways and Other 

Bridge 

Total, Arterials and Collectors 

13.7 

4.9 

18.5 

5.3 

0.8 

6.0 

11.2 

11.2 

3.1 

3.1 

33.2 

5.6 

38..9 

Total Capital Outlay on All Systems (estimated)b 

Highways and Other 

Bridges 

Total Capital Outlay, All Systems 

17.1 

6.1 

23.2 

6.6 

1.0 

7.6 

14.0 

14.0 

3.9 

3.9 

41.7 

7.0 

48.7 

Percent of Total Expenditures 47.6% 15.6% 28.8% 8.0% 100.0% 

a

 Improvement type distribution was estimated based on State Arterial and Collector data.

b

 Includes expenditures for arterials and collectors as well as for local functional class roads.

Sources: Highway Statistics 1997, Table SF12-A and unpublished FHWA data; all FHWA 1999 Exhibit 6-13

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

2.4.1.4 Characterization of Supply 

This section discusses the characteristics of supply in the C&D industry such as market structure, 

barriers to entry, and supply trends. 

Market Structure 

Section 2.3 summarized information about the size distribution of developers and builders, based 

on employee and revenue size criteria. As shown there, the industry consists predominantly of small 

firms and sole proprietorships who generally operate on a localized basis within a specific geographic 

market. Anecdotal information indicates that a large number of small firms focus on niche markets that 

are not as easily accessible to the large-scale builders (Housing Zone, 2001). 

While the majority of firms are small, a small number of large operators do control a sizeable 

share of the market. In its special report on homebuilding, for example, Census reports that just over 100 

builders, representing only 0.3 percent of all establishments, accounted for 90,772 new single-family 

homes, or 18.4 percent of the total. This represented an average of 865 homes per builder (see Table 2-

20).31 Assuming an average sales price of $200,000, builders in this size class would have average 

revenues of $173 million, substantially above the overall industry average of $1.0 million. At the top of 

the industry are builders like Pulte Corporation ($3.8 billion in housing revenues), Kaufman and Broad 

($3.7 billion), and Centex Corporation ($3.3 billion) who operate nationwide and wield considerable 

market power.32 

Discussions with representatives of the homebuilding industry suggest there are at least two 

common business models in the industry. Most projects are managed by either a single land developer 

who sells improved lots to individual builders, or feature a developer-builder who both develops the land 

and builds on it (some developers may sell some lots and retain others to build on themselves). Figure 2-

4 illustrates these two alternatives. 

31 These data are based on a subset of builders that are 100 percent specialized in new single-family home 

construction. 

32 http://www.housingzone.com/topics/pb/build/giants2000/2000400.asp accessed 3/9/01. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2-20

Selected Statistics for Establishments by Single-Family Housing Starts Size Class: 1997

[Detail may not add to total because of rounding]

Source: U.S. Bureau of the Census, Construction Sector Special Study Table 3a. 

(http://www.census.gov/ftp/pub/const/www/starts.pdf) 

Number of 

Housing Starts 

Establishments Starts 

Starts per 

No. % of Total No. % of Total Establishment

0 3,736 11.0% 0 0.0% 0.0 

1-4 14,781 43.6% 33,363 6.8% 2.3 

5-9 6,557 19.3% 42,175 8.6% 6.4 

10-24 5,411 16.0% 79,226 16.1% 14.6 

25-99 2,608 7.7% 109,258 22.2% 41.9 

100-499 720 2.1% 138,000 28.0% 191.7 

500+ 105 0.3% 90,772 18.4% 864.5 

Total 33,918 100.0% 492,792 100.0% 14.5 

Barriers to Entry 

In the economics literature, barriers to entry are considered to exist when it is difficult for a new 

firm to enter an existing market. According to academics who have studied the homebuilding industry, 

there are two types of barriers to entry for new homebuilding firms—entry costs and input cost 

differentials (Landis, 1986). 

• Entry cost differentials are the additional costs a new homebuilder must incur to 

participate in a given market. These costs may be manifested in the form of local 

development fees, abnormally high land costs, or abnormally high wages. In the short 

run, entry cost barriers raise the cost of building and keep builders who are unable or 

unwilling to pay the extra costs out of the market. In the long run, builders produce at 

less than their optimal scale (i.e., to the left of the lowest point on their marginal cost 

curve) to avoid holding unsold inventory in a downturn. Thus, entry barriers flatten the 

industry average cost curve by increasing builders’ exposure to “cyclical risk.” In 

addition, these barriers tend to reduce the advantage of high volume builders over the 

long term (Landis, 1986). 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

• Input cost differentials are exhibited when new homebuilders must pay higher prices for 

inputs than existing firms, or when they are prevented from accessing necessary inputs. 

Usually, input price differentials are a temporary phenomenon but some forms of 

regulation can create permanent price differentials. 

The existence of entry costs also increases the importance of up-front financing for home 

building projects. The builder must invest more funds earlier in the project to overcome the entry barrier. 

Firms with established credit may be able to borrow some of this up-front financing, while less wellestablished firms must use their own capital. In either case, the opportunity costs of the investment are 

larger so regulatory delays and environmental compliance requirements become more burdensome 

(Landis, 1986). Much of the cost of building regulation is the interest that accrues on invested funds 

while permits and variances are negotiated. Luger and Temkin (2000) estimate that the costs of delay for 

a 25-unit subdivision rise from $3,692 per month in the approvals stage to $13,400 per month in the 

construction phase. 

Similar issues confront non-residential and heavy construction contractors. Non-residential 

projects are generally larger than residential projects, so builder financing and carrying costs are 

proportionately larger. Since fewer firms can take on large projects, the opportunity for incumbent firms 

to maintain barriers to entry is also greater. Most heavy construction is carried out under government or 

utility contracts where competitive bidding is required. This may tend to level the playing field for 

entering firms who can overcome the basic qualification requirements. 

2.4.1.5 Supply Trends 

This section provides a brief overview of trends in homebuilding practices that could potentially 

influence baseline ESC practices or the adoption of ESC options proposed by EPA under the effluent 

guidelines. 

The National Governors Association (NGA) recently published a report examining a concept 

they have termed New Community Design (NCD). According to the report, NCD encompasses many of 

the concepts popular in residential design today: New Urbanism, Traditional Neighborhood 

Development, compact development, livable communities, master-planned communities, and neo2-47
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

traditional design. NCD has been described as “neighborhoods of housing, parks, and schools within 

walking distance of shops, civic services, jobs, and transit–a modern version of the traditional town” 

(Peter Calthorpe, as quoted in Hirschhorn and Souza, 2001, p. 9). This and other types of design such as 

low impact development (LID) have garnered new-found attention in recent years, and continue to be key 

topics for development professionals. Both NCD and LID are discussed in more detail below. 

New Community Design 

NCD is a development design philosophy aiming to create a walkable, multi-purpose community 

structure that decreases dependency on automobiles, takes advantage of public transportation, 

incorporates parks and other green spaces, and uses existing infrastructure. A community based on NCD 

incorporates residential, commercial, and institutional facilities. Residential communities are a blend of 

single and multi-family housing, and often blend commercial and retail facilities with housing units as 

well. According to the NGA report, approximately one-third of potential homebuyers would prefer an 

NCD community versus a traditional, sprawl-based development—provided that the option existed. 

Currently less than one percent of total housing construction is based on NCD principles. This means 

that the option to live in a NCD community versus a traditional sprawl community does not exist for 

many potential homebuyers. NGA identifies the following factors as limiting the adoption of NCD and 

similar concepts: 

• Local zoning codes make it difficult for mixed-use communities to get approved. 

• Lenders favor single-use residential projects, strip malls, and suburban office parks. This 

favoritism “causes conventional real estate analyses to discount the long-term returns of 

NCDs, making them difficult to finance” (Hirschhorn and Souza, p. 13). 

• Conventional developers and builders have expertise in single-use projects and, as a 

result, continue doing what they are already familiar with. In many cases these 

individuals are not able, or prepared, to deal with the increase in up-front costs arising 

from the increased intensity at the planning and design stage of a NCD project. 

A survey by the Canada Mortgage and Housing Corporation compared the costs and benefits of a 

conventional development (4,505 dwellings) with an NCD alternative (6,875 dwellings). The 

incremental savings resulting from the NCD alternative, on a per housing unit basis, were as follows: 

roads, $3,054; storm water management, $1,499; transit, $1,330; water, $1,099; policing, $1,016; and 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

sanitary services, $975. The total infrastructure savings for the NCD alternative are $61.5 million 

(Hirschhorn and Souza, p. 36). The NGA report offers one solution to the lagging supply of NCD 

construction: implement parallel building codes. Such parallel building codes may serve to “level the 

playing field” with conventional subdivision development while still allowing conventional development 

to take place. 

Low-Impact Development 

LID is a development design strategy that aims to protect the natural pre-development 

hydrological function of a site. True LID shares many features with NCD, such as smaller lot sizes and 

the addition of greenspace to the site plan. However, whereas NCD focuses on mixed-use development, 

LID at this time focuses primarily on residential development, although LID concepts may be easily 

applied to other types of development (e.g., commercial, mixed-use). 

The primary goals of LID are to: (1) minimize development impacts by reducing impervious 

surfaces, maintaining natural site drainage, reducing curb and gutter construction, and reducing clearing 

and grading; (2) create dispersed runoff controls on individual lots utilizing swales, flatter slopes, rain 

gardens, etc.; (3) maintain pre-development hydrology; and (4) encourage pollution prevention and 

runoff management by individual property owners (Coffman et al., 1998). 

Conventional site design relies on storm water controls that collect and convey runoff away from 

the property as quickly as possible. This type of design relies on pipes, paved surfaces, drainage ditches, 

and gutters as well as traditional best management practices (BMPs) such as ponds and sediment basins. 

Such conventional design actually amplifies hydrologic changes (increased volume, runoff frequency, 

and discharge rate) as “natural storage is lost, the amount of impervious surfaces in increased, the time of 

concentration is decreased, runoff travel times are decreased and the degree of hydraulic connection is 

increased” (Prince George’s County, 1999). In addition, while many conventional storm water control 

techniques are designed to “maintain the peak runoff discharge rate at predevelopment levels for a 

particular design storm event,” only the runoff rate is controlled, leaving the runoff volume, frequency, 

and duration to increase unchecked (Coffman et al., 1998). 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

As with any relatively new technology or approach,33 there are many concerns surrounding the 

effectiveness, costs, and benefits of LID as compared with conventional site design. Developers and 

builders want to know how using LID techniques will affect financing and their bottom line, while 

consumers want to know how it will affect their ability to purchase a new house, as well as their resale 

value. 

Many in the construction industry have found that they face lower development costs with LID 

than with conventional “curb and gutter” design. A presentation at a 1999 Storm Water Workshop for 

the Florida Keys Carrying Capacity Study (FKCC; sponsored by the U.S. Army Corps of Engineers, 

Jacksonville Division) demonstrates how LID can lower overall development costs. Table 2-21 

reproduces the construction cost table presented for a residential development in Maryland. 

Table 2-21. Construction Cost Comparison for Low Impact Development 

Cost Element Conventional Development Low Impact Development 

Grading/Roads $569,698 $426,575 

Storm Drains $225,721 $132,558 

SWM Pond/Fees $260,858 $10,530 

Bioretention/Micro $252,124 

Total $1,086,277 $821,787 

Unit Cost $14,679 $10,146 

Lot Yield 74 81 

Source: Coffman, 1999 

As shown above, construction costs associated with development were estimated to be nearly 

$250,000 lower for a LID development plan than for a conventional plan. In addition, the LID design 

actually increased lot yield from 74 lots to 81 lots. This is only one example of reduced construction 

costs and/or increased lot yield achievable though LID design. 

33 The term “relatively new” is used quite loosely here. LID technologies have been in use for some time, 

although such designs are just now beginning to gain mainstream acceptance. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

The major additional cost developers incur when choosing LID (as well as NCD), is the 

increased time and effort often needed at the design stage of a project. The additional planning time is 

used to assess site hydrology, design runoff controls for each lot, and other considerations. 

Conservation-oriented design “creates significant upfront costs and raises questions of financial viability” 

(Mammoser, 2000, p. 45). These costs can increase more if structures are built using environmentallyfriendly materials, which have generally higher “first cost” compared to more traditional materials. As 

noted by Mammoser, (2000), potential lenders may be wary of financing a LID project. As more LID 

projects prove successful and profitable, however, lenders may become more accepting of such 

“alternative” forms of development and perceive them as no more risky—and perhaps less risky—than 

conventional developments. 

2.4.2 Characteristics of Construction Demand 

This section describes the factors and characteristics of demand in the C&D industry. The major 

demand factors addressed are: housing demand and demand elasticity, the impact of regulation on 

demand for housing, and demand for nonresidential and heavy construction. 

2.4.2.1 Demand Factors Affecting Construction and Development Activities 

According to a recent study (Luger and Temkin, 2000), market demand is one of the three major 

factors taken into consideration by a builder/developer when deciding whether or not to propose a 

development. Market demand includes the types and quantities of housing units the public wants, and is 

affected by general macroeconomic conditions, demographics, and consumer tastes. Other factors that 

may affect demand for C&D activities include inflation (Henderschott, 1980), transaction costs (i.e., 

costs associated with purchasing a new home/facility) (Haurin and Chung, 1998), expected length of 

tenure (Haurin and Lee, 1989), mortgage loan to house value (Haurin and Lee, 1989), and borrowing 

constraints (Linneman et al., 1997; Zorn, 1993). Changing demographics tend to have a fairly large 

effect on the type of residential housing demanded (i.e., single-family versus multifamily) (Hirsch, 1994; 

Eppli and Childs, 1995). 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

2.4.2.2 Housing Demand and Elasticity 

As discussed above, housing demand is largely determined by macroeconomic factors, 

demographics, and consumer tastes. Changes in the age of family formation, the size of families, and 

their perceived needs for space will affect the market’s demand for houses of various sizes and styles. 

Geographic shifts in economic activity and changes in worker mobility affect where people wish to live. 

As these market factors evolve, an increasing number of buyers find that existing housing does not meet 

their desires. In other words it becomes an imperfect substitute for new housing (Landis, 1986). As an 

illustration, the average size of new homes has been increasing in the U.S., even as family sizes have 

diminished or remained unchanged. In 1995, the average size of a new home was 2,095 square feet. By 

1999 the average had risen more than 6 percent, to 2,225 square feet (Census, 2000c). Existing housing 

does, however, act as a check on the prices of new housing (Landis, 1986) since it serves as the default 

alternative. 

Demand for new construction may be viewed as the outcome of a four-way household decision 

process in which households decide whether to buy an existing home, buy a newly constructed home, 

improve their current home, or do nothing. In light of demographically-driven demand and the existence 

of near substitutes, it is not surprising that empirical studies find a somewhat inelastic demand for new 

housing (DiPasquale, 1999). Price is not the strong determining factor in housing markets that it is in 

more commodity-like markets. Luger and Temkin (2000) report that this inelasticity is more pronounced 

in the higher-end housing markets. 

Demographic trends are local as well as national phenomena. Different parts of the country grow 

at different rates and as the size and make up of the local population changes so do housing tastes and 

preferences. Location is a key aspect of housing demand, perhaps more significant than price. As a 

result, demand for homes in favorable locations is far stronger than demand for homes in less desirable 

locations. Strong demand in certain regions or neighborhoods will be reflected in a less elastic demand 

curve. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

2.4.2.3 Impact of Regulation on Housing Demand 

Increased regulations may exert upward pressure on housing prices which may, in turn, price 

some potential homebuyers out of the market due to income constraints. Luger and Temkin (2000) give 

the following example: if regulations on the construction industry increase the price of a house by 

$10,000, a household would need $2,500 more in annual income to still qualify for the house. The 

authors define “excessive” regulation as those regulations that are “beyond what is essential” to 

accomplish set environmental or developmental goals, or those delays that are longer than what should 

be necessary to accomplish a fair review of plans (Luger and Temkin, 2000). Table 2-22 illustrates this 

effect. 

Table 2-22. Impact of Regulatory-Driven Delays on Housing Affordability 

Parameters 

No Delay/No Excessive 

Regulation 

With Delays and Excessive 

Regulation 

House Price 

PITI Paymenta

 (per month) 

Income Needed to Qualify for Mortgage 

$175,000 

$1,377 

$55,000 

$185,000b 

$1,437c 

$57,500 

a

 Principal, Interest, Tax, Insurance Payment. Assumes an 80 percent, 30-year conventional mortgage at 8

percent interest, using tax and insurance data from New Jersey.

b

 Assumes $10,000 in regulatory costs added to the home price. c

 Calculated using typical mortgage spending limit equal to 30 percent of gross income. 

Source: Luger and Temkin 2000, pages 10-11.

Housing demand, especially in the higher-end market, tends to be fairly inelastic. This 

inelasticity results in the appearance of a multiplier effect with regard to regulatory costs and sales price. 

In other words, a one dollar increase in costs to the builder will translate into a more than one dollar cost 

to the consumer (if costs are passed forward as they tend to be with inelastic markets). Estimates for the 

magnitude of this multiplier range from two to six, with the average being approximately four (Luger and 

Temkin, 2000). The potential impact of this proposed rule on housing prices is discussed and analyzed 

in Chapters Four and Five. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

2.4.2.4 Trends in New Homes Sold 

Table 2-23 shows the number of new one-family houses sold and for sale from 1981 through 

1999, including the median number of months from start to sale, average sales prices, and median sales 

price. 

Table 2-23

New One-Family Houses Sold and For Sale

Year 

Total 

(Thousands) 

Median Months 

Start to Sale Average Sales Price Median Sales Price 

1981 436 5.1 $83,000 $68,900 

1982 412 3.9 $83,900 $69,300 

1983 623 2.9 $89,800 $75,300 

1984 639 3.4 $97,600 $79,900 

1985 688 3.9 $100,800 $84,300 

1986 750 3.6 $111,900 $92,000 

1987 671 3.9 $127,200 $104,500 

1988 676 4.0 $138,300 $112,500 

1989 650 4.3 $148,800 $120,000 

1990 534 4.5 $149,800 $122,900 

1991 509 4.4 $147,200 $120,000 

1992 610 3.5 $144,100 $121,500 

1993 666 3.6 $147,700 $126,500 

1994 670 3.8 $154,500 $130,000 

1995 667 4.3 $158,700 $133,900 

1996 757 4.2 $166,400 $140,000 

1997 804 3.7 $176,200 $146,000 

1998 886 3.5 $181,900 $152,500 

1999 907 3.3 $195,800 $160,000 

Source: Bureau of the Census (2000c). 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

2.4.2.5 Nonresidential Demand Characteristics 

Demand characteristics affecting the nonresidential and heavy construction sectors are similar to 

those affecting the residential sector. General economic conditions, interest rates, and past industry 

activity all have an effect on current demand. According to a recent press release by CMD (2001b), the 

demand and supply cycles in construction are highly localized, and at any given time different cities 

across the nation are at different points in their own cycles. For example, as of October, 2001, office 

markets in Washington D.C., San Diego, Los Angeles, and several areas in New York were experiencing 

increasing office vacancies, but new construction was still occurring. In markets such as Dallas, 

Jacksonville, Tampa, and Salt Lake City, however, there has been low or even negative demand growth. 

While buildings in progress are still being completed, new construction starts have slowed dramatically. 

The industrial market was still fairly stable in October and had not yet begun showing signs of substantial 

decline (CMD, 2001b). 

As with residential construction, general population growth should ensure that demand for all 

building types will continue to rise in the future (CMD, 2001b). The rate at which demand increases, 

however, is certainly variable and may not be the same for all markets in all portions of the United States. 

For the commercial building market in particular, past building activity has affected demand through 

recent years. The Economic Recovery Tax Act of 1981 fueled a commercial building boom that 

ultimately generated severe excess capacity in the market (CMD, 2001a). This caused a decrease in 

demand for new commercial construction throughout the late 1980s and into the 1990s as the market 

worked to absorb some of the excess commercial space. The growth in the technology sector in the late 

1990s spurred another boom in the office market. According to CMD (2001a), approximately 20 million 

square feet of office space was built between 1998 and 2000 as a result of increased demand from this 

one sector. Vacancy rates increased once again as the year 2000 brought the decline of the technology 

sector and associated economic downturn. 

For the commercial and industrial sectors, increasing vacancy rates tend to be followed by a 

decrease in new construction activity as the market tries to absorb the over-supply of space. The demand 

for new construction in these sectors is heavily influenced by the performance of other sectors, as 

evidenced by the technology sector example above. A “boom” in one industry necessitates the 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

acquisition of new space for expansion; if the market does not have a ready supply of the type of space 

needed, then new construction increases. At the same time, a “bust” in a given industry will free up 

space in the market, and until the space is absorbed, new construction will slow. As with residential 

construction, lower interest rates may increase construction activity, while higher rates will tend to slow 

activity. 

2.4.2.6 Heavy Construction Demand Characteristics 

The heavy construction industry (NAICS 234) is defined by the U.S. Census Bureau to include 

those establishments that are “engaged in the construction of heavy engineering and industrial projects 

(except buildings) such as highways, power plants, and pipelines” (U.S. Census Bureau, 2000f). Heavy 

construction projects are characterized by their linear nature, as many projects are spread along a 

horizontal, rather than vertical, plane (Ringwald, 1993). Since the definition of heavy construction 

projects excludes buildings, these projects are much more weather-sensitive than building construction 

and there are fewer days suited for heavy construction projects nationwide, especially in the northern 

states (Ringwald, 1993). The general trend in heavy construction through the 1990s was toward the 

rehabilitation of existing infrastructure (Ringwald, 1993). 

In addition, the majority of heavy construction projects (and the majority of the value of 

construction work) is performed for public, rather than private, owners (Ringwald, 1993; U.S. Census 

Bureau, 2000f, p.5). As Table 2-24 shows, more than 50 percent of the value of construction work in 

NAICS 234 occurs under government-owned projects, compared with less than 25 percent of the value in 

NAICS 233 (Building, developing, and general contracting) and NAICS 235 (Special trades). This 

division of project ownership sets the heavy construction sector apart from the other major construction 

sectors. 

For heavy construction firms, work done for a public entity generally entails different contractual 

requirements than work done for private entities. When the project owner is a public entity such as a 

city, state, or federal government, at least 50 percent of the contract-related jobs are generally performed 

by the prime contractor, or conversely, less than half of the work under a given contract will be 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

subcontracted to other firms (Ringwald, 1993). This practice provides a public owner with more easily 

enforceable specifications, since the majority of the work is done by the primary contractor (Ringwald, 

1993). On the other hand, 80 to 100 percent of the work on a privately-owned project may be 

subcontracted to firms other than the prime contractor (Ringwald, 1993). 

The negotiated contracts often used in private-sector construction are not as common in the 

public arena. This is because a private owner generally has to prove the cost-effectiveness of the contract 

only to the owner’s satisfaction, whereas a public owner may be called on to demonstrate the costeffectiveness of such contracts to large numbers of taxpayers (Ringwald, 1993). For this reason, most 

heavy construction contracts let by public entities are competitively bid. Often, local law or agency 

regulations require the use of competitive bidding for public projects. There is a sense that such a system 

provides fairness in the awarding of contracts, as well as providing value to the taxpayers (ASCE, 2000). 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2-24. Value of Construction Work by Project Ownership (1997, $thousands) 

1997 

NAICS 

code Description 

Owned by 

Federal 

Government 

Owned by 

State/Local 

Govts. 

Total Govt. 

Owned 

Govt. 

Owned 

as 

Percent 

of Total 

Privately 

Owned 

Privately 

Owned as 

Percent of 

Total 

Total Private 

and 

Government 

233 

Building, developing, and 

general contracting $14,362,134 $43,472,528 $57,834,664 15.2% $323,806,944 84.8% $381,641,608 

234 Heavy Construction $8,845,515 $60,368,420 $69,213,936 54.1% $58,627,664 45.9% $127,841,600 

235 Special Trade Contractorsa $559,910 $2,179,346 $2,739,258 17.2% $13,171,513 82.8% $15,910,771 

TOTAL $23,767,559 $106,020,294 $129,787,858 24.7% $395,606,121 75.3% $525,393,979 

a

Covers establishments in NAICSs 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only.

Source: U.S. Census Bureau (2000f), 1997 Census of Construction.

Figures may not add to totals due to rounding.

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

2.5 ECONOMIC AND FINANCIAL CHARACTERISTICS 

2.5.1 Value of Work Done 

For the C&D industries, the Bureau of Census defines the value of construction work as the 

combined value of completed work on new construction, additions, alterations, reconstruction, and 

maintenance and repair. In addition, the Census defines the value of business done as the sum of the 

value of construction work plus other business receipts, which include: receipts from retail and wholesale 

trade, rental of equipment, manufacturing, transportation, legal service, insurance, finance, rental of 

property and other real estate operations, and other non-construction activities. While the value of 

construction work is a good indicator of economic performance specifically related to C&D activity, the 

value of business done measure provides a better overall indicator of the economic performance of 

establishments in the C&D industries. 

In addition to value of construction work, value of other receipts, and value of work done, the 

1997 Census of Construction Industries includes three other measures: value of construction work 

subcontracted in from others, net value of construction work, and value added. The value of construction 

work subcontracted in from others includes the value of construction work done by reporting 

establishments as subcontractors. The net value of construction work is calculated by subtracting the 

costs of construction work subcontracted out to others from the value of construction work done. The 

value added component is equal to the value of business done minus the costs of construction work 

subcontracted to others and the costs for materials, components, supplies, and fuels (see Section 2.5.2 for 

discussion of these costs). 

Table 2-25 below shows, for each of the C&D industries, the dollar value of business done (or 

total revenues), value of construction work, value of other business receipts, value of construction work 

subcontracted in from others, net value of construction work, and value added. Overall, the total value of 

business done (or revenues) in the C&D industries was $534.2 billion in 1997. This represented a 

nominal increase of 57.8 percent over the $338.5 billion in business done in 1992. NAICS 233 (Building 

and Developing, including NAICS 2331) accounted for $386.9 billion or 72.4 percent of the total in 

1997. The value of business done by heavy construction contractors (NAICS 234) was $130.8 billion 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

(24.4 percent of the total), while special trade contractors (NAICS 23593 and 23594) earned $16.5 

billion (3.1 percent of the total). 

The total value of construction work done in the C&D industries was $525.4 billion and 

represented 98.3 percent of total business done in 1997. This represented a nominal increase of 58.9 

percent over the $330.6 billion in construction work done in 1992. Again, NAICS 233 (Building, 

developing, and general contracting, including NAICS 2331) accounted for the largest share, completing 

$381.6 billion (or 74.7 percent) of the total value of construction work done in the C&D industries in 

1997. Construction work by heavy construction contractors (NAICS 234) was valued at $127.8 billion 

(24.3 percent of the total). Work done by excavation and wrecking/demolition contractors (NAICS 

23593 and 23594) was worth $15.9 billion and represented 3.0 percent of the total value of construction 

work done in 1997. 

In addition to the $525.4 billion in construction work done, the C&D industries also 

subcontracted in $43.0 billion in construction work from others. This represented a nominal increase of 

91.2 percent over the $28.2 billion in work subcontracted in during 1992. Although NAICS 233 

accounted for the highest share of construction work value, NAICS 234 (Heavy construction) earned the 

greatest share of work subcontracted in, totaling $28.4 billion or 52.6 percent of the total construction 

work subcontracted in by the C&D industries in 1997. 

As explained above, the net value of construction work is calculated by subtracting the value of 

work subcontracted out to others from the value of construction work done. For the C&D industries, this 

measure totaled $318.6 billion in 1997, a nominal increase of close to 60 percent over the 1992 figure of 

$199.3 billion. Costs for materials, components, supplies, and fuels can be further subtracted to obtain 

the value added measure, which amounted to $199.9 billion in 1997, a nominal increase of 70.3 percent 

over 1992. Of the 1997 total, NAICS 233 (including NAICS 2331) accounted for $120.3 billion, or 60.2 

percent. Establishments in NAICS 234 (Heavy construction) accounted for $68.8 billion, or 34.4 percent 

of the value added while NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition 

contractors) accounted for $10.8 billion, representing 5.4 percent of the total. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2-26 shows the value of construction work done by major type of construction (building 

construction, nonbuilding construction, and construction not specified by kind) for each of the large 

NAICS categories (Building, developing, and general contracting; Heavy construction, and Special 

trades). The largest type of activity for both building contractors and special trades was single-family 

house construction. Highways and street-related construction were the largest category of activity for 

heavy construction contractors, followed by sewer and water main construction. Table 2A-3 in 

Appendix 2A contains a more detailed table, showing value of construction work done by specific type 

of construction. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2-25

Value and Net Value of Construction Work (Thousands of 1997 Dollars)

NAICS Description 

Dollar Value of 

Business Donea 

($1,000) 

Value of const 

workb

 ($1,000) 

Value of other 

business receiptsc 

($1000) 

Construction 

work 

subcontracted ind 

($1,000) 

Net value of 

construction 

worke

 ($1000) 

Value added f 

($1,000) 

233, except 

2331 

Building, developing, 

and general contracting, 

except land development 

and subdivision $372,516,170 $368,006,098 $15,451,969 $4,510,092 $188,579,070 $111,168,087 

2331 

Land subdivision and 

land development $14,409,755 $13,635,521 $774,235 $272,860 $10,247,820 $9,154,633 

234 Heavy construction $130,794,520 $127,841,600 $2,952,920 $28,386,274 $105,639,352 $68,775,976 

235g Special trade contractors $16,497,584 $15,910,770 $586,814 $9,845,092 $14,130,038 $10,818,550 

TOTAL $534,218,029 $525,393,989 $19,765,938 $43,014,318 $318,596,280 $199,917,246 

a

 Dollar value of business done comprises the total value of construction work and other business receipts from 1997.

b

 Value of construction work includes all value of construction work done during 1997 for construction work performed by general contractors and special trade contractors. 

Included is new construction, additions and alterations or reconstruction, and maintenance and repair construction work. Also included is the value of any construction work

done by reporting establishments for themselves.

c

 Other business receipts include receipts from retail and wholesale trade, rental of equipment, manufacturing, transportation, legal service, insurance, finance, rental of property

and other real estate operations, and other non-construction activities.

d

 Value of construction work subcontracted in from others includes the value of construction work during 1997 for work done by reporting establishments as subcontractors

e

 Net value of construction work is derived for each establishment by subtracting the costs for construction work subcontracted to others from the value of construction work

done.

f

 Value added, derived for each establishment, is equal to dollar value of business done less the costs of construction work subcontracted to others and costs for materials,

components, supplies, and fuels.

g

 Covers establishments in NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only.

Source: U.S. Census Bureau (2000a).

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2-26

Value of Construction Work by Type of Construction (Thousands of 1997 Dollars)

Type of Construction 

Building, developing, and general 

contracting Heavy construction Special trade contractorsa Total 

Value Pct. Value Pct. Value Pct. Value Pct. 

Building construction, total $371,426,049 97.32% $5,218,782 4.08% $12,550,515 78.88% $389,195,346 74.08% 

Nonbuilding construction, total $5,970,952 1.56% $121,763,483 95.25% $3,036,318 19.08% $130,770,753 24.89% 

Construction work, n.s.k. 

$4,244,630 1.11% $859,210 0.67% $323,939 2.04% $5,427,779 1.03% 

Total value of construction 

work $381,641,600 100.00% $127,841,600 100.00% $15,910,770 100.00% $525,393,970 100.00% 

NA = Data Not Available

a

Covers establishments in NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only.

Source: U.S. Census Bureau (2000a).

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

2.5.2 Selected Costs 

The Census of Construction reports on the categories of costs incurred by the C&D industries, 

including costs of materials, components, and supplies; costs of construction work subcontracted out to 

others; costs of power, fuels, and lubricants; costs of machinery, equipment, and buildings; and other 

selected purchased services. Costs of materials, components, and supplies reflect the costs of purchasing 

all materials, components, and supplies, except fuels, but do not include industrial and specialized 

machinery and equipment costs such as printing presses and computer systems nor costs of materials 

furnished to contractors by the owners of projects. Costs of construction work subcontracted out to 

others do not include the costs of purchasing materials, components, and supplies provided to a 

subcontractor for use nor costs for machinery or equipment rental. Included in the costs of power, fuels, 

and lubricants are the costs of fuels, lubricants, and electric energy purchased from other companies or 

received from other establishments of the company, plus costs for natural and manufactured gas, fuel oil, 

coal, and coke products. The selected materials costs described above are presented in Table 2-27. 

2.5.2.1 All Costs 

As shown in Table 2-27, all C&D establishments incurred costs of $334.3 billion in 1997 for 

materials, components, work subcontracted out, power, fuels, and lubricants. This represented a nominal 

increase of 59.6 percent over the $209.5 billion in costs incurred in 1992. Establishments in NAICS 233 

(Building and developing, including NAICS 2331) accounted for $266.6 billion, or 79.7 percent of the 

total. Establishments in NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition 

contractors) incurred costs of $5.7 billion, or 1.7 percent of the total. 

2.5.2.2 Machinery and Equipment Costs 

Machinery and equipment costs include the costs to rent or lease construction machinery and 

equipment; transportation equipment; production equipment; office equipment, furniture and fixtures; 

and scaffolding; and the costs of renting or leasing office space and buildings, which define the costs of 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

buildings. The Census Bureau also reports costs of selected purchased services, including 

communication services purchased from other companies or from other establishments of the company, 

and the costs of all repairs made to structures and equipment by outside companies or from other 

establishments of the same company. These machinery, equipment costs, and selected services costs are 

presented in Table 2-28. 

According to Table 2-28, establishments in the C&D industries spent $7.3 billion on machinery, 

equipment, and buildings in 1997. This represented a nominal increase of 43.1 percent from 1992, when 

these expenditures totaled $5.1 billion. Establishments in NAICS 234 (Heavy construction) accounted 

for $4.3 billion, or roughly 60 percent of the total. The C&D industries also spent $7.7 billion on 

communication services, repairs to buildings and other structures, and repairs to machinery and 

equipment. NAICS 234 (Heavy construction) accounted for $4.2 billion of this total. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2-27

Selected Costs in the Construction Industry (Thousands of 1997 Dollars)

NAICS Industry 

Materials, 

Components, 

and Suppliesa 

Construction 

Work 

Subcontracted 

out to Othersb 

Selected Costs of Power, Fuels, and Lubricantsc 

Total 

Selected 

Electricity Costs

Natural 

and 

Manufactured 

Gas 

Gasoline 

and 

Diesel 

Fuel 

Other, 

Including 

Lubricating 

Oils and 

Greases 

Total 

Power, 

Fuels, and 

Lubricants 

233, except 

2331 

Building, developing, and general 

contracting, except land subdivision 

and development $79,936,341 $179,427,020 $599,022 $134,485 $1,179,930 $73,637 $1,984,736 $261,348,110 

2331 Land subdivision and development $1,778,171 $3,387,700 $31,244 $9,068 $46,600 S $89,251 $5,255,122 

234 Heavy construction $36,655,772 $22,202,246 $340,172 $160,257 $2,409,752 $250,340 $3,160,521 $62,018,540 

235d Special trade contractors $3,254,362 $1,780,731 $38,952 $12,973 $540,227 $51,789 $643,942 $5,679,034 

TOTAL $121,624,646 $206,797,697 $1,009,390 $316,783 $4,176,509 $375,766 $5,878,450 $334,300,806 

a

 Costs to reporting establishments during 1997 for the purchase of all materials, components, and supplies, except fuels. Does not include industrial and other specialized

machinery and equipment such as printing presses and computer systems, and materials furnished to contractors by the owners of projects.

b Costs during 1997 for construction work subcontracted out to other contractors, not including costs of purchasing materials, components, and supplies provided to a

subcontractor for use and costs for machinery and equipment rental.

c

 Costs include fuels, lubricants, and electric energy purchased during the year from other companies or received from other establishments of the company and costs for natural

and manufactured gas, fuel oil, coal, and coke products.

d

 Covers establishments in NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only.

S Withheld because estimate did not meet publication standards on the basis of either response rate, associated relative standard error, or a consistency review.

Source: U.S. Census Bureau (2000a). 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2-28

Additional Selected Costs in the Construction Industry (Thousands of 1997 Dollars)

NAICS Description 

Machinery, Equipment, and Buildings Selected Purchased Services 

For 

Machinery 

and 

Equipmenta 

For 

Buildingsb Total 

Communication 

Servicesc 

Repairs to 

Buildings and 

Other 

Structuresd 

Repairs to 

Machinery 

and 

Equipmente Total 

233, 

except 

2331 

Building, developing, and general contracting, 

except land development and subdevelopment $1,403,930 $901,176 $2,260,517 $1,260,796 $203,102 $1,060,589 $2,521,488 

2331 Land subdivision and development S $36,251 $80,840 $54,022 $10,048 $39,290 $103,359 

234 Heavy construction $3,853,016 $444,702 $4,297,718 $647,860 $188,895 $3,349,522 $4,186,276 

235e Special trade contractors $615,405 $91,657 $707,063 $133,414 $28,471 $729,510 $891,395 

TOTAL $5,872,351 $1,473,786 $7,346,138 $2,096,092 $430,516 $5,178,911 $7,705,518 

a

 Includes all costs during 1997 for renting or leasing construction machinery and equipment, transportation equipment, production equipment, office equipment, furniture and

fixtures, scaffolding, etc.

b

 Includes all costs of renting or leasing office space and buildings.

c

 Includes all costs during 1997 for communication services purchased from other companies or from other establishments of the company.

d

 Includes the cost of all repairs made to structures and equipment by outside companies or from other establishments of the same company. Only costs required to maintain

property and equipment are reflected here.

e

 Covers establishments in NAICS 23593 (Excavation contractors) and NAICS 23594 (Wrecking and demolition contractors) only.

S Withheld because estimate did not meet publication standards on the basis of either response rate, associated relative standard error, or a consistency review.

Source: U.S. Census Bureau (2000a).

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

2.5.3 Capital Expenditures and Depreciation 

In addition to the materials costs discussed above, the Census of Construction reports on the 

capital expenditures incurred by construction establishments. Among these capital expenditures are the 

costs incurred to cover the acquisition, construction, and the major alteration of the establishment’s own 

new and used buildings and other structures, and the acquisition of machinery and equipment. Table 2-

29 presents data for total capital expenditures and depreciation for buildings, structures, machinery, and 

equipment, both new and used.34 

Table 2-29 presents total capital expenditures for NAICS 233 (Building and developing), 234 

(Heavy construction), 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors). 

Total capital expenditures (other than land) were $9.5 billion in 1997, which represented a 51.6 percent 

increase over the $4.9 billion spent in 1992. Beginning of year gross book value of depreciable assets 

totaled $70.6 billion in 1997. Of this, NAICS 233 (Building and developing, including NAICS 2331) 

accounted for $20.3 billion (28.8 percent). Establishments in NAICS 234 (Heavy construction) 

accounted for 60.0 percent of the total with $42.4 billion and establishments in NAICS 235 (Special 

trade contractors) accounted for 11.2 percent of total value with $7.9 billion. Depreciation charges 

during the year totaled $7.8 billion, with NAICS 234 (Heavy construction) accounting for $4.6 billion, or 

59.3 percent of total depreciation charges. NAICS 233 (Building, developing, and general contracting, 

including NAICS 2331) accounted for $2.2 billion (27.9 percent) and NAICS 235 (Special trades 

contractors) accounted for $1.0 billion (12.8 percent) of total depreciation charges. 

34 The 1992 Census of Construction presented considerably more detailed data on capital expenditures, first 

dividing capital costs into those for (a) buildings and structures, and (b) machinery and equipment and then further 

subdividing these costs by “new” and “used” categories. The 1997 Census of Construction reports only the 

industry’s total capital expenditure figures. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2-29

Capital Expenditures in the Construction Industry: Total (Thousands of 1997 Dollars)a,

NAICS Description 

Beginning-ofyear gross 

book value of 

depreciable 

assets 

Capital 

expenditures, 

other than 

land 

Retirements 

and disposition 

of depreciable 

assets 

End-of-year 

gross book 

value of 

depreciable 

assets 

Depreciation 

charges during 

year 

233, 

except 

2331 

Building, developing, and 

general contracting, except 

land development and 

subdevelopment $18,737,612 $2,761,153 $940,445 $20,558,320 $2,021,179 

2331 

Land subdivision and 

development $1,571,722 $276,804 $102,440 $1,746,086 $152,751 

234 Heavy construction $42,372,868 $5,313,180 $1,839,777 $45,846,272 $4,627,363 

235b Special trade contractors $7,890,728 $1,104,527 $291,243 $8,704,113 $1,001,533 

TOTAL $70,572,930 $9,455,664 $3,173,905 $76,854,791 $7,802,826 

a

 Capital expenditures refers to all costs actually incurred during 1997 which were or would be chargeable to the fixed assets

accounts of the reporting establishments and which were the type for which depreciation accounts are ordinarily maintained. 

These expenditures cover the acquisition, the construction, and the major alteration of the reporting establishment's own

buildings and other structures, and the acquisition of machinery and equipment.

b

 Covers establishments in NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only.

Source: U.S. Census Bureau (2000a). 

2.5.4 Value of Inventories 

The Census of Construction Industries presents data on establishments’ end-of-year inventories 

of materials and supplies. A total of 47,841 establishments in the C&D industries reported holding 

inventories of materials and supplies at the end of 1997. These inventories were valued at $7.0 billion at 

the end of the year. An additional 109,094 establishments reported no inventories, while 104,680 

establishments did not report their inventories. Table 2-30 presents the inventory data for C&D 

establishments. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2-30

Total Value of Inventories for Construction Industry Establishments, 1997 ($1,000)

NAICS Description 

Establishments with Inventoriesa 

Establishments without 

Inventories 

Establishments not 

Reporting 

Number 

Value of 

Construction 

Workb 

End of year 

Materials & 

Supply 

Inventory 

Beginning 

of year 

Materials & 

Supply 

Inventory Number 

Value of 

Construction 

Workb Number 

Value of 

Construction 

Workb 

233, 

except 

2331 

Building, developing, and 

general contracting, except 

land development and 

subdevelopment 33,100 $89,182,562 $5,648,406 $5,015,102 81,735 $196,519,085 76,268 $82,304,448 

2331 Land subdivision and 

development 2,248 $2,137,038 $269,847 $214,701 1,486 $2,993,955 4,452 $8,504,528 

234 Heavy construction 9,634 $50,131,852 $1,017,171 $910,164 17,864 $54,143,044 15,058 $23,566,700 

235c Special trade contractors 2,859 $8,865,177 $35,467 $61,040 8,009 $7,389,990 8,902 $4,655,603 

TOTALS 47,841 $150,316,629 $6,970,891 $6,201,007 109,094 $261,046,074 104,680 $119,031,279 

a

 Inventory includes all of the materials and supplies that are owned regardless of where they are held, excluding materials that are owned by others, but held by the reporting

establishment. 

b

 Value of construction work includes all value of construction work done during 1997 for construction work performed by general contractors and special trades contractors. 

Included is new construction, additions and alterations or reconstruction, and maintenance and repair construction work. Also included is the value of any construction work

done by reporting establishments for themselves.

c

 Covers establishments in NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only.

Source: U.S. Census Bureau (2000a). 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Among establishments in the C&D industries that reported inventories, NAICS 233 (Building, 

developing, and general contracting, including NAICS 2331) accounted for $5.9 billion or 84.9 percent 

of the total. A further $1.0 billion was reported by NAICS 234 (Heavy construction), representing 14.6 

percent, while NAICS 235 (Special trades contractors) held $35.5 million in materials and supplies (1.0 

percent). 

2.6 KEY BUSINESS INDICATORS AND RATIOS 

Table 2-31 below presents key financial characteristics for the construction industry as a whole 

(i.e., not just C&D industries). The items presented in the table are taken from Dun and Bradstreet’s 

(D&B) Industry Norms & Key Business Ratios Desk-Top Edition 1999-2000. D&B bases this report on 

more than one million financial statements of U.S. corporations, partnerships and proprietorships, in all 

size ranges, including more than 800 business sectors defined by SIC codes. Though the Census Bureau 

is now using NAICS codes for most reporting of industry data, Dun & Bradstreet continues to use SIC 

codes. Therefore, Table 2-31 differs from the rest of this profile in presenting data based on the SIC code 

system. 

In addition to various financial terms, Table 2-31 also presents a series of financial ratios for 

solvency, efficiency, and profitability. The table also notes the sample size of the financial statements 

used to estimate the values in each SIC code. The sample size for SIC 15 (General building contractors) 

is roughly three times the sample size for this SIC in 1998 (6,746 establishments versus 2,138). The 

sample size for SIC 16 (Heavy construction) also increased from 1998, from 2,135 to 2,847. The sample 

sizes for SICs 1794 (Excavation work) and 1795 (Wrecking and demolition work) are, as expected, much 

smaller than the sample sizes for the previous two SICs, at 755 and 87 establishments, respectively. 

Solvency, or liquidity, ratios are used to evaluate a company’s ability to meet short and long-term 

obligations and include the Quick Ratio, Current Ratio, Current Liability to Net Worth, Current Liability 

to Inventory, Total Liability to Net Worth , and Fixed Assets to Net Worth. The Quick Ratio is defined 

as the sum of cash and accounts receivable divided by total current liabilities and reveals the amount of 

liquid assets available to cover each dollar of current debt. The larger this ratio, the greater the liquidity. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

The Current Ratio is calculated by dividing current assets by current liabilities; this ratio measures the 

margin of safety available to cover any possible shrinkage in the value of current assets. The quotient of 

current liabilities divided by net worth is the Current Liability to Net Worth ratio and relates the funds 

that are temporarily risked by creditors with the funds permanently invested by owners. Another ratio, 

Current Liability to Inventory, is obtained by dividing current liabilities by inventory, and is an indicator 

of the extent to which a business relies on funds from disposal of unsold inventories to meet its debts. 

Total Liability to Net Worth, calculated by dividing total liabilities by net worth, can be used to 

determine the effect of long-term (funded) debt on a business when compared with the Current Liabilities 

to Net Worth ratio. The final solvency ratio, Fixed Assets to Net Worth, is calculated when fixed assets 

are divided by Net Worth and identifies the proportion of net worth that consists of fixed assets. Chapter 

Four presents the financial characteristics of model firms in the C&D industry and an analysis of the 

effects of the proposed rule on the financial health of the model firms. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2-31

Key Business Statistics and Ratios of the Construction Industry (1999)

a

SIC 15 1521 1522 1531 1541 1542 16 1611 1622 1623 1629 1794 1795 

Item 

Building 

Constn. 

General 

Contrs. 

and 

Operative 

Builders 

General 

Contrs. --

SingleFamily 

Houses 

General 

Contrs. --

Residential 

Buildings, 

Other Than 

SingleFamily 

Operative 

Builders 

General 

Contrs. --

Industrial 

Buildings and 

Warehouses 

General 

Contrs. -

Nonresidential 

Buildings, 

Other Than 

Industrial 

Buildings and 

Warehouses 

Heavy 

Constn. 

Other Than 

Building 

Constn. 

Contrs. 

Highway and 

Street 

Constn., 

Except 

Elevated 

Highways 

Bridge, 

Tunnel, and 

Elevated 

Highway 

Constn. 

Water, 

Sewer, 

Pipeline, and 

Communications and 

Power Line 

Constn. 

Heavy 

Constn., 

NEC 

Excavation 

Work 

Wrecking 

and 

Demolition 

Work 

Sample Sizeb 6,746 1,780 283 112 870 3,701 2,847 959 159 1,086 643 755 87 

Cash 245,212 102,836 250,363 425,696 309,137 323,254 277,028 333,899 385,604 238,632 247,547 132,318 137,765 

Accounts 

Receivable 374,595 112,769 364,659 318,378 579,430 532,241 459,331 536,775 461,613 444,349 384,015 247,424 371,096 

Notes 

Receivable 11,090 7,012 17,689 25,041 14,567 10,525 10,724 12,680 3,708 9,874 11,108 6,455 6,206 

Inventory 71,469 84,138 57,148 1,087,493 24,278 30,070 37,533 46,492 31,516 27,978 44,431 17,212 31,028 

Other Current 

Assets 247,675 108,094 303,429 790,579 313,992 315,737 257,368 278,954 317,010 245,215 228,504 96,818 162,587 

Total Current 

Assets 950,041 414,849 993,288 2,647,187 1,241,404 1,211,827 1,041,984 1,208,800 1,199,451 966,048 915,605 500,227 708,682 

Fixed Assets 209,477 129,129 261,248 565,210 280,004 215,002 639,846 794,596 532,060 580,945 566,501 531,423 480,315 

Other Noncurrent 72,701 40,317 106,132 364,883 97,111 76,678 105,450 109,891 122,355 98,744 104,731 44,106 52,128 

Total Assets 1,232,219 584,295 1,360,668 3,577,280 1,618,519 1,503,507 1,787,280 2,113,287 1,853,866 1,645,737 1,586,837 1,075,756 1,241,125 

Accounts 

Payable 312,984 92,903 327,921 293,337 424,052 457,066 266,305 336,013 292,911 230,403 231,678 112,954 142,729 

Bank Loans 8,626 7,596 10,885 60,814 3,237 7,518 8,936 10,566 3,708 6,538 9,521 7,530 7,447 

Notes Payable 54,218 49,665 83,001 525,860 38,844 36,084 64,342 73,965 40,785 57,601 66,647 59,167 71,985 

Other Current 

Liabilities 272,319 170,614 459,906 1,019,525 310,756 275,142 298,476 321,220 339,257 291,295 271,350 204,394 245,743 

Total Current 

Liabilities 648,147 320,778 881,713 1,899,536 776,889 775,810 638,059 741,764 676,661 585,882 579,196 384,045 467,904 

Other Long 

Term Debt 99,810 79,464 134,706 422,119 119,770 81,189 266,305 336,013 226,172 236,987 242,785 244,197 249,466 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2-31

Key Business Statistics and Ratios of the Construction Industry (1999)

a

SIC 15 1521 1522 1531 1541 1542 16 1611 1622 1623 1629 1794 1795 

Item 

Building 

Constn. 

General 

Contrs. 

and 

Operative 

Builders 

General 

Contrs. --

SingleFamily 

Houses 

General 

Contrs. --

Residential 

Buildings, 

Other Than 

SingleFamily 

Operative 

Builders 

General 

Contrs. --

Industrial 

Buildings and 

Warehouses 

General 

Contrs. -

Nonresidential 

Buildings, 

Other Than 

Industrial 

Buildings and 

Warehouses 

Heavy 

Constn. 

Other Than 

Building 

Constn. 

Contrs. 

Highway and 

Street 

Constn., 

Except 

Elevated 

Highways 

Bridge, 

Tunnel, and 

Elevated 

Highway 

Constn. 

Water, 

Sewer, 

Pipeline, and 

Communications and 

Power Line 

Constn. 

Heavy 

Constn., 

NEC 

Excavation 

Work 

Wrecking 

and 

Demolition 

Work 

Deferred Credits 2,464 1,169 5,443 28,618 1,619 3,007 7,149 10,566 11,123 4,937 3,174 3,227 4,965 

Net Worth 481,798 182,884 338,806 1,227,007 720,241 643,501 875,767 1,024,944 939,910 817,931 761,682 444,287 518,790 

Total Liability 

& Net Worth 1,232,219 584,295 1,360,668 3,577,280 1,618,519 1,503,507 1,787,280 2,113,287 1,853,866 1,645,737 1,586,837 1,075,756 1,241,125 

Net Sales 4,191,221 1,941,179 4,490,653 5,176,961 5,359,334 5,238,700 3,910,897 4,727,711 4,128,878 3,562,201 3,397,938 2,130,210 2,709,880 

Gross Profit 779,567 475,589 853,224 1,180,347 986,117 832,953 985,546 1,054,280 792,745 961,794 965,014 705,100 875,291 

Net Profit After 

Tax 138,310 77,647 157,173 62,124 182,217 157,161 175,990 203,292 156,897 167,423 152,907 104,380 124,654 

Working Capital 301,894 94,071 111,575 747,651 464,515 436,017 403,925 467,036 522,790 380,166 336,409 116,182 240,778 

RATIOS (median) 

SOLVENCY RATIOS 

Quick Ratio 

(times) 1.1 0.8 1.0 0.2 1.2 1.2 1.2 1.2 1.3 1.2 1.1 1.1 1.2 

Current Ratio 

(times) 1.5 1.4 1.5 1.4 1.6 1.5 1.6 1.6 1.8 1.7 1.6 1.4 1.6 

Current 

Liability to Net 

Worth (%) 122.3 115.5 102.7 143.2 107.7 128.1 65.7 67.1 62.9 64.2 66.6 65.5 75.1 

Current 

Liability to 

Inventory (%) 740.3 153.5 837.6 96.9 999.9 999.9 999.9 999.9 999.9 999.9 841.5 999.9 668.1 

Total Liability 

to Net Worth 

(%) 145.9 157.4 128.0 179.6 130.0 145.6 100.1 103.1 93.5 96.3 100.6 119.3 116.9 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2-31

Key Business Statistics and Ratios of the Construction Industry (1999)

a

SIC 15 1521 1522 1531 1541 1542 16 1611 1622 1623 1629 1794 1795 

Item 

Building 

Constn. 

General 

Contrs. 

and 

Operative 

Builders 

General 

Contrs. --

SingleFamily 

Houses 

General 

Contrs. --

Residential 

Buildings, 

Other Than 

SingleFamily 

Operative 

Builders 

General 

Contrs. --

Industrial 

Buildings and 

Warehouses 

General 

Contrs. -

Nonresidential 

Buildings, 

Other Than 

Industrial 

Buildings and 

Warehouses 

Heavy 

Constn. 

Other Than 

Building 

Constn. 

Contrs. 

Highway and 

Street 

Constn., 

Except 

Elevated 

Highways 

Bridge, 

Tunnel, and 

Elevated 

Highway 

Constn. 

Water, 

Sewer, 

Pipeline, and 

Communications and 

Power Line 

Constn. 

Heavy 

Constn., 

NEC 

Excavation 

Work 

Wrecking 

and 

Demolition 

Work 

Fixed Assets to 

Net Worth (%) 25.9 37.0 23.1 17.1 27.6 23.0 68.5 75.4 51.7 66.1 68.6 105.0 77.8 

EFFICIENCY RATIOS 

Collection 

Period (days) 42.0 21.5 39.1 4.8 47.1 48.2 49.6 46.4 46.7 54.6 49.3 51.5 56.2 

Sales to 

Inventory 

(times) 65.3 13.8 34.8 2.6 203.7 149.9 86.2 98.2 78.8 96.8 53.5 99.4 46.5 

Assets to Sales 

(%) 29.4 30.1 30.3 69.1 30.2 28.7 45.7 44.7 44.9 46.2 46.7 50.5 45.8 

Sales to Net 

Working Capital 

(times) 12.5 12.1 10.5 6.6 11.8 12.9 9.0 9.5 7.7 8.5 8.9 9.7 8.3 

Accounts 

Payable to Sales 

(%) 7.2 4.3 6.5 3.9 7.6 8.6 5.7 5.9 5.6 5.8 5.4 5.0 4.6 

PROFITABILITY RATIOS 

Return on Sales 

(%) 2.0 2.5 2.6 2.9 2.0 1.8 3.2 3.0 3.1 3.5 3.2 3.5 3.4 

Return on 

Assets (%) 6.5 8.0 6.7 4.4 6.5 6.0 6.6 6.5 6.4 6.9 6.6 6.7 9.0 

Return on Net 

Worth (%) 18.3 27.5 22.7 16.8 15.1 16.4 15.5 14.8 12.9 16.4 15.0 17.7 24.2 a

The dollar figures are the result of translating the common-size percentages into dollar figures. Common-size percentages are calculated for each item as a percentage of its respective aggregate

total. The dollar figures are then computed by multiplying the common-size percentages for each statement item by their respective total amounts. This detailed data is not available for NAICS 655 b

Number of establishments upon which calculations are based.

Source: Dun and Bradstreet Industry Norms & Key Business Ratios 1999-2000.

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Efficiency ratios are indicators of how effectively a company uses and controls its assets. The 

five efficiency ratios presented by D&B are Collection Period, Sales to Inventory, Asset to Sales, Sales to 

Net Working Capital, and Accounts Payable to Sales. The Collection Period, measured in number of 

days, is calculated by multiplying 365 by the quotient of accounts receivable divided by sales. This 

measure helps determine the quality of the receivables of a company when compared with selling terms 

and industry norms. Dividing annual net sales by inventory results in the Sales to Inventory ratio, an 

indicator of the rapidity with which merchandise moves and the effect of the flow of funds into the 

business. Total assets are divided by net sales to obtain the Asset to Sales ratio. This ratio relates sales 

volume to the total investment used to generate those sales. Another sales-related ratio, Sales to Net 

Working Capital, is obtained by dividing sales by net working capital. This is an indicator of whether a 

company is overtrading or, conversely, carrying more liquid assets than needed for its volume. Finally, 

dividing accounts payable by annual net sales yields the Accounts Payable to Sales ratio, which measures 

how the company is paying its suppliers in relation to the volume being transacted. 

D&B also reports three measures of profitability: Return on Sales (also known as Profit Margin), 

Return on Assets, and Return on Net Worth (also known as Return on Equity). These profitability ratios 

show how successfully a business is at earning a return for its owners. The Return on Sales ratio is 

computed by dividing net profits after taxes by annual net sales; this measure reveals the profits earned 

per dollar of sales, and ultimately is an indicator of the operation’s efficiency. The Return on Assets 

ratio, derived by dividing net profit after taxes by total assets, is a key indicator of a firm’s profitability as 

it matches operating profits with the assets available to earn a return. The final financial ratio is Return 

on Net Worth, or the value of net profit after taxes divided by net worth. This ratio can be used to 

analyze the ability of the firm to achieve an adequate return on the capital invested by the owners. 

Further information about all ratios presented in D&B can be found in Appendix 2C. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

2.7 INDUSTRY GROWTH 

Table 2-32 presents annual totals for private housing units authorized by building permits for 

1981 through 1999, by type of structure. These data show fluctuation in the number of units authorized 

each year, increasing from 985,500 units in 1981 to a peak of 1.8 million units in 1986. The period of 

1987 through 1991 was marked by a steady decrease, with a low of 948,800 units in 1991. The number 

of units authorized then began a steady increase to 1.7 million units in 1999, representing an annual 

growth rate of 9.4 percent from 1991 to 1999. Table 2-33 shows national growth in terms of value of 

housing units authorized by building permits, by type of structure. Valuation of units authorized has 

grown from $78.8 billion in 1991 to $181.2 billion in 1999 (nominal), with an annual growth rate of 16.3 

percent. 

Total value of new privately owned housing units rose steadily from 1991 to 1994. From 1994 to 

1995, total value of new privately owned housing units declined slightly, from $123.3 billion to $120.8 

billion. This decrease was realized only in the 1-unit sector, which showed a decline from $109.3 billion 

in 1994 down to $104.8 billion in 1995; the remaining sectors actually realized continued increases in 

value. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2-32

New Privately Owned Housing Units Authorized by Building Permit - Annual (Number of Housing Units), 1981-1999

Year Total Units 

Number of Units by Type of Structure 

1 Unit 2 units 3 and 4 units 5 units or more 

1981 985,500 564,300 44,600 57,200 319,400 

1982 1,000,500 546,400 38,400 49,900 365,800 

1983 1,605,200 901,500 57,500 76,100 570,100 

1984 1,681,800 922,400 61,900 80,700 616,800 

1985 1,733,300 956,600 54,000 66,100 656,600 

1986 1,769,400 1,077,600 50,400 58,000 583,500 

1987 1,534,800 1,024,400 40,800 48,500 421,100 

1988 1,455,600 993,800 35,000 40,700 386,100 

1989 1,338,400 931,700 31,700 35,300 339,800 

1990 1,110,800 793,900 26,700 27,600 262,600 

1991 948,800 753,500 22,000 21,100 152,100 

1992 1,094,900 910,700 23,300 22,500 138,400 

1993 1,199,100 986,500 26,700 25,600 160,200 

1994 1,371,600 1,068,500 31,400 30,800 241,000 

1995 1,332,500 997,300 32,200 31,500 271,500 

1996 1,425,600 1,069,500 33,600 32,200 290,300 

1997 1,441,100 1,062,400 34,900 33,600 310,300 

1998 1,612,300 1,187,600 33,200 36,000 355,500 

1999 1,663,500 1,246,700 32,500 33,300 351,100 

Source: Bureau of the Census (2000e). 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2-33

Value of New Privately Owned Housing Units Authorized by Building Permit, Annual (Millions of Dollars)

Year Total Value 

Valuation by Type of Structure 

1 unit 2 units 3 and 4 units 5 units or more 

1991 $78,772.2 $69,772.7 $1,169.6 $1,061.6 $6,818.3 

1992 $95,539.0 $87,071.5 $1,272.2 $1,126.2 $6,069.2 

1993 $106,801.0 $97,118.6 $1,478.6 $1,281.7 $6,922.0 

1994 $123,278.3 $109,294.0 $1,813.3 $1,595.7 $10,575.3 

1995 $120,810.7 $104,738.7 $1,910.4 $1,713.3 $12,448.4 

1996 $134,175.8 $116,535.0 $2,069.1 $1,861.4 $13,710.2 

1997 $141,004.4 $121,194.5 $2,304.0 $2,057.7 $15,448.2 

1998 $165,265.7 $142,240.8 $2,254.2 $2,282.0 $18,488.8 

1999 $181,245.7 $157,123.5 $2,319.9 $2,317.5 $19,485.2 

Source: Bureau of the Census (2000e). 

2.8 INTERNATIONAL COMPETITIVENESS 

Construction activities are highly localized, with most activities being performed either within 

the state the establishment is located in or within neighboring states. Some of the largest builders may 

perform work nationwide. The Census Bureau reports only construction activities within the United 

States; no data is reported on construction work by U.S. establishments that takes place outside the U.S. 

(Census, 2000a). EPA concludes that only a very small percentage of construction work done by U.S. 

construction firms is conducted outside of the U.S. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

2.9 REFERENCES 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Hirschhorn J.S., P. Souza. 2001. New Community Design to the Rescue: Fulfilling Another American 

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U.S. Census Bureau. 2000a. 1997 Economic Census: Construction, United States. Various Reports. 

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U.S. Census Bureau. 2000b. Current Construction Reports, Series C30--Value Put in Place. Available at: 

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Available at: http://www.census.gov/const.html. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

U.S. Census Bureau. 2000e. Current Construction Reports, Series C40--Building Permits. Available at: 

http://www.census.gov/ftp/pub/const/www/c40index.html. 

U.S. Census Bureau. 2000f. 1997 Economic Census, Construction: Industry Summary. Available at: 

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U.S. Census Bureau. 1998a. County Business Patterns, 1997. Available at: 

http://www.census.gov/epcd/cbp/view/cbpview.html. 

U.S. EPA. 2002a. Development Document for the Effluent Guidelines for the Construction and 

Development Point Source Category. Washington, D.C.: U.S. Environmental Protection Agency. 

EPA-821-R-02-007. Available at: http://www.epa.gov/waterscience/guide/construction/. 

U.S. EPA. 2002b. Environmental Assessment of Effluent Guidelines for the Construction and 

Development Point Source Category. Washington, D.C.: U.S. Environmental Protection Agency. 

EPA-821-R-02-009. Available at: http://www.epa.gov/waterscience/guide/construction/. 

U.S. EPA. 2001a. Our Built and Natural Environments: A Technical Review of the Interactions Between 

Land Use, Transportation, and Environmental Quality. Washington, D.C.: U.S. Environmental 

Protection Agency. EPA 231-R-01-002. Available at: http://www.smartgrowth.org. 

U.S. EPA. 2001b. Revised C&D Site Size and Permit Distribution. Memo from Jesse Pritts, U.S. EPA, 

to John Swanson and Jim Collins, Tetra Tech. Received by ERG on November 6, 2001. 

U.S. EPA. 1999. Economic Analysis of the Final Phase II Storm Water Rule. U.S. Environmental 

Protection Agency, Office of Wastewater Management. 

U.S. Small Business Administration. 1998. Statistics of U.S. Businesses: Firm Size Data [HTML Files]. 

Available at: http://www.sba.gov/advo/stats/data.html. 

Zorn P.M. 1993. The Impact of Mortgage Qualification Criteria on Households' Housing Decisions: An 

Empirical Analysis Using Microeconomic Data. Journal of Housing Economics 3(1):51-75. 

2-82
APPENDIX 2A

Additional Detailed 5-Digit NAICS Tables
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2A-1

Detailed Number of Establishments in the C&D Industry with Payroll, by Legal Form of Organization

NAICS 

Code Description 

Corporations Proprietorships Partnerships Other Total 

Number 

Percent 

of Total Number 

Percent 

of Total Number 

Percent 

of Total Number 

Percent 

of Total Number 

Percent of 

Total 

23311 

Land subdivision and 

land development 6,268 76.6% 327 4.0% 1,323 16.2% 268 3.3% 8,186 100.0% 

23321 

Single-family 

housing construction 84,437 60.8% 41,735 30.1% 7,567 5.5% 5,110 3.7% 138,850 100.0% 

23322 

Multifamily housing 

construction 5,265 69.8% 1,430 19.0% 494 6.5% 355 4.7% 7,544 100.0% 

23331 

Manufacturing and 

industrial building 

construction 5,863 80.5% 1,052 14.5% 239 3.3% 126 1.7% 7,280 100.0% 

23332 

Commercial and 

institutional building 

construction 28,910 77.2% 6,018 16.1% 1,527 4.1% 975 2.6% 37,430 100.0% 

23411 

Highway and street 

construction 8,390 74.4% 1,933 17.2% 606 5.4% 341 3.0% 11,270 100.0% 

23412 

Bridge and tunnel 

construction 1,032 87.7% 60 5.1% 66 5.6% 19 1.6% 1,177 100.0% 

23491 

Water, sewer, and 

pipeline construction 6,267 77.9% 1,214 15.1% 342 4.3% 218 2.7% 8,042 100.0% 

2A-1
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2A-1

Detailed Number of Establishments in the C&D Industry with Payroll, by Legal Form of Organization

NAICS 

Code Description 

Corporations Proprietorships Partnerships Other Total 

Number 

Percent 

of Total Number 

Percent 

of Total Number 

Percent 

of Total Number 

Percent 

of Total Number 

Percent of 

Total 

23492 

Power and 

communication 

transmission line 

construction 2,395 72.6% 625 18.9% 158 4.8% 122 3.7% 3,300 100.0% 

23493 

Industrial 

nonbuilding structure 

construction 419 78.9% 77s 14.5% 19 3.6% 16 3.0% 531 100.0% 

23499 

All other heavy 

construction 12,177 66.8% 4,493 24.6% 923 5.1% 643 3.5% 18,236 100.0% 

23593 

Excavation 

contractors 11,001 60.3% 5,529 30.3% 951 5.2% 747 4.1% 18,229 100.0% 

23594 

Wrecking and 

demolition 

contractors 1,176 76.3% 241 15.6% 97 6.3% 29 1.9% 1,542 100.0% 

s: Sampling error exceeds 40 percent. 

Source: Bureau of the Census (1997) 

2A-2 
--

--

--

--

--

--

--

--

Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2A-2

Detailed Number of Small Establishments with Payroll in the C&D Industry, By Employment Size Class

NAICS 

Code Description Total 

Establishments with less than 

5 employees 

Establishments with less 

than 10 employees 

Establishments with less 

than 20 employees 

Number 

Percent of 

Total Number 

Percent of 

Total Number 

Percent of 

Total 

23311 Land subdivision and development 8,186 S 1,011 12.4% 1,465 17.9% 

23321 Single-family housing construction 138,850 S 21,377 15.4% 28,611 20.6% 

23322 Multifamily housing construction 7,544 S 1,456 19.3% 2,238 29.7% 

23331 

Manufacturing and industrial 

building construction 7,280 3,136 43.1% 4,802 66.0% 6,063 83.3% 

23332 

Commercial and institutional 

building construction 37,430 S 7,644 20.4% 13,505 36.1% 

23411 Highway and street construction 11,270 S 1,987 17.6% 3,863 34.3% 

23412 Bridge and tunnel construction 1,177 S 212 18.0% 439 37.3% 

23491 

Water, sewer, and pipeline 

construction 8,042 2,892 36.0% 4,332 53.9% 5,976 74.3% 

23492 

Power and communication 

transmission line construction 3,300 1,432 43.4% 2,167 65.7% 2,564 77.7% 

23493 

Industrial nonbuilding structure 

construction 531 S 30 5.6% 95 17.9% 

23499 All other heavy construction 18,236 10,100 55.4% 13,542 74.3% 15,868 87.0% 

23593 Excavation contractors 18,229 S 3,642 20.0% 5,522 30.3% 

23594 

Wrecking and demolition 

contractors 1,542 700 45.4% 1,048 68.0% 1,311 85.0% 

Source: Bureau of Census (1997) 

2A-3 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2A-3

Value of Construction Work by Type of Construction (Thousands of 1997 Dollars)

Type of Construction 

Building, developing, and 

general contracting Heavy construction Special trade contractorsa Total 

Value Pct. Value Pct. Value Pct. Value Pct. 

Building construction, total $371,426,049 97.32% $5,218,782 4.08% $12,550,515 78.88% $389,195,346 74.08% 

Single-family houses $150,532,478 39.44% $840,247 0.66% $4,863,142 30.57% $156,235,867 29.74% 

Detached $133,869,882 35.08% $689,265 0.54% $4,147,573 26.07% $138,706,720 26.40% 

Attached, including townhouses 

and townhouse-type condominiums $16,662,596 4.37% $150,982 0.12% $715,569 4.50% $17,529,147 3.34% 

Apartment buildings, apartment type 

condominiums and cooperatives $19,617,644 5.14% $77,084 0.06% $611,174 3.84% $20,305,902 3.86% 

All other residential buildings $954,291 0.25% $9,661 0.01% NA 0.00% $963,952 0.18% 

Manufacturing and light industrial 

buildings $26,211,179 6.87% $1,314,909 1.03% $1,215,516 7.64% $28,741,604 5.47% 

Manufacturing and light industrial 

warehouses $10,666,086 2.79% $98,046 0.08% $429,738 2.70% $11,193,870 2.13% 

Hotels and motels $9,370,227 2.46% $85,071 0.07% $176,654 1.11% $9,631,952 1.83% 

Office buildings $40,371,389 10.58% $730,524 0.57% $1,207,915 7.59% $42,309,828 8.05% 

All other commercial buildings, nec $36,519,818 9.57% $952,333 0.74% $2,283,510 14.35% $39,755,661 7.57% 

Commercial warehouses $8,262,304 2.16% $106,978 0.08% $433,003 2.72% $8,802,285 1.68% 

Religious buildings $4,936,913 1.29% $21,500 0.02% $131,868 0.83% $5,090,281 0.97% 

Educational buildings $25,194,532 6.60% $261,157 0.20% $445,626 2.80% $25,901,315 4.93% 

Health care and institutional buildings $18,798,347 4.93% $81,173 0.06% $276,604 1.74% $19,156,124 3.65% 

Public Safety buildings $5,584,102 1.46% $129,939 0.10% NA 0.00% $5,714,041 1.09% 

Farm buildings, nonresidential $2,107,126 0.55% $52,862 0.04% NA 0.00% $2,159,988 0.41% 

Amusement, social, and recreational 

buildings $7,265,413 1.90% $42,312 0.03% NA 0.00% $7,307,725 1.39% 

Other building construction $5,034,201 1.32% $414,988 0.32% $475,764 2.99% $5,924,953 1.13% 

Nonbuilding construction, total $5,970,952 1.56% $121,763,483 95.25% $3,036,318 19.08% $130,770,753 24.89% 

Highways, streets, and related work $1,639,808 0.43% $42,628,013 33.34% $675,214 4.24% $44,943,035 8.55% 

Airport runways and related work $16,088 0.00% $1,696,575 1.33% NA 0.00% $1,712,663 0.33% 

Private driveways and parking areas $107,129 0.03% $3,722,761 2.91% $437,042 2.75% $4,266,932 0.81% 

2A-4
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2A-3

Value of Construction Work by Type of Construction (Thousands of 1997 Dollars)

Type of Construction 

Building, developing, and 

general contracting Heavy construction Special trade contractorsa Total 

Value Pct. Value Pct. Value Pct. Value Pct. 

Bridges, tunnels, and elevated highways $587,747 0.15% $10,697,254 8.37% 56,554 0.36% 11,341,555 2.16% 

Bridges and elevated highways $477,670 0.13% $8,799,646 6.88% NA 0.00% $9,277,316 1.77% 

Tunnels $110,076 0.03% $1,897,608 1.48% NA 0.00% $2,007,684 0.38% 

Sewers, water mains, and related 

facilities $211,602 0.06% $19,475,202 15.23% $988,387 6.21% $20,675,191 3.94% 

Sewers, sewer lines, septic systems, 

and related facilities $123,480 0.03% $11,642,425 9.11% $642,755 4.04% $12,408,660 2.36% 

Water mains and related facilities $88,122 0.02% $7,832,777 6.13% $325,439 2.05% $8,246,338 1.57% 

Pipeline construction other than sewer or 

water lines $31,188 0.01% $5,437,692 4.25% NA 0.00% $5,468,880 1.04% 

Power and communication transmission 

lines, cables, towers, and related facilities $160,372 0.04% $8,79,079 6.48% NA 0.00% $8,439,451 1.61% 

Power plants $24,237 0.01% $2,621,409 2.05% NA 0.00% $2,645,646 0.50% 

Power and cogeneration plants, 

except hydroelectric $11,702 0.00% $1,916,102 1.50% NA 0.00% $1,927,804 0.37% 

Power plants, hydroelectric $12,535 0.00% $705,307 0.55% NA 0.00% $717,842 0.14% 

Blast furnaces, petroleum refineries, 

chemical complexes, etc $37,950 0.01% $6,505,276 5.09% NA 0.00% $6,543,226 1.25% 

Sewage treatment and water treatment 

plants $1,790,144 0.47% $5,401,944 4.23% NA 0.00% $7,192,088 1.37% 

Sewage treatment plants $787,323 0.21% $3,110,034 2.43% NA 0.00% $3,897,357 0.74% 

Water treatment plants $1,002,821 0.26% $2,291,910 1.79% NA 0.00% $3,294,731 0.63% 

Mass transit construction $69,134 0.02% $2,127,939 1.66% NA 0.00% $2,197,073 0.42% 

Urban mass transit construction $28,929 0.01% $745,507 0.58% NA 0.00% $774,436 0.15% 

Railroad construction $40,205 0.01% $1,382,432 1.08% NA 0.00% $1,422,637 0.27% 

Conservation and development 

construction $63,574 0.02% $2,954,381 2.31% NA 0.00% $3,017,955 0.57% 

Dam and reservoir construction $18,688 0.00% $876,118 0.69% NA 0.00% $894,806 0.17% 

Dry/solid waste disposal $13,970 0.00% $1,101,556 0.86% NA 0.00% $1,115,526 0.21% 

Harbor and port facilities $66,927 0.02% $681,255 0.53% NA 0.00% $748,182 0.14% 

2A-5
--

--

--

Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2A-3

Value of Construction Work by Type of Construction (Thousands of 1997 Dollars)

Type of Construction 

Building, developing, and 

general contracting Heavy construction Special trade contractorsa Total 

Value Pct. Value Pct. Value Pct. Value Pct. 

Marine construction S – $2,240,422 – NA 0.00% $2,240,422 0.43% 

Outdoor swimming pools $17,356 0.00% $11,307 0.01% NA 0.00% $28,663 0.01% 

Water storage facilities $6,667 0.00% $289,122 0.23% NA 0.00% $295,789 0.06% 

Tank storage facilities other than water $7,298 0.00% $129,440 0.10% $84,043 0.53% $220,781 0.04% 

Fencing $4,485 0.00% S NA 0.00% $4,485 0.00% 

Recreational facilities $213,600 0.06% $2,084,069 1.63% NA 0.00% $2,297,669 0.44% 

Billboards D D – NA 0.00% D 0.00% 

Heavy military construction D D – NA 0.00% D 0.00% 

Ships $738 0.00% S – NA 0.00% $738 0.00% 

Oilfields D – D – NA 0.00% D 0.00% 

Other nonbuilding construction, nec $805,656 0.21% $2,639,358 2.06% $795,078 5.00% $4,240,092 0.81% 

Construction work, n.s.k. $4,244,630 1.11% $859,210 0.67% $323,939 2.04% $5,427,779 1.03% 

Total value of construction work $381,641,600 100.00% $127,841,600 100.00% $15,910,770 100.00% $525,393,970 100.00% 

NA = Data Not Available

a

Covers establishments in NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only.

D = Withheld to avoid disclosure.

S = Data withheld because it did not meed publication standards.

Source: Bureau of the Census (1997).

2A-6
APPENDIX 2B

Specialization Within the C&D Industry, Categorized by Value of Construction Work
--

Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2B-1

Specialization within NAICS 23311 (Land subdivision and land development), Categorized by Value of Construction Work (Thousands of 1997 Dollars)

Type of Construction 

Estabs. 

specializing 51 % 

or more 

Estabs. with 

100 % 

specialization 

Estabs. with 90 

to 99 % 

specialization 

Estabs. with 80 

to 89 % 

specialization 

Estabs. with 

70 to 79 % 

specialization 

Estabs. with 60 

to 69 % 

specialization 

Estabs. with 51 

to 59 % 

specialization 

Single-family houses, detached and 

Single-family houses, attached, including 

townhouses and townhouse-type condominiums $7,903,746 $5,705,996 $633,804 $701,844 $519,252 $162,598 $180,251 

Apartment buildings with two or more units, 

including rentals, apartment-type condominiums, 

and cooperatives $1,690,850 $1,561,253 S S $15,817 $33,114 

Hotels, motels, and tourist cabins $0 $0 $0 $0 $0 $0 $0 

Other residential buildings $0 $0 $0 $0 $0 $0 $0 

Office buildings $0 $0 $0 $0 $0 $0 $0 

Other commercial buildings such as stores, 

restaurants, and automobile service stations $0 $0 $0 $0 $0 $0 $0 

All other commercial buildings, n.e.c. $1,009,513 $935,619 D D $11,283 S $37,543 

Industrial buildings $0 $0 $0 $0 $0 $0 $0 

Warehouses $0 $0 $0 $0 $0 $0 $0 

Religious buildings $0 $0 $0 $0 $0 $0 $0 

Educational buildings $0 $0 $0 $0 $0 $0 $0 

Hospitals and institutional buildings $0 $0 $0 $0 $0 $0 $0 

Farm buildings, nonresidential $0 $0 $0 $0 $0 $0 $0 

Amusement, social, and recreational buildings, 

indoors $0 $0 $0 $0 $0 $0 $0 

Other nonresidential buildings $0 $0 $0 $0 $0 $0 $0 

Highways, streets, and related work such as 

installation of guard rails, highway signs, 

lighting, etc. $0 $0 $0 $0 $0 $0 $0 

Outdoor swimming pools $0 $0 $0 $0 $0 $0 $0 

Airport runways and related work $0 $0 $0 $0 $0 $0 $0 

Private driveways and parking areas $0 $0 $0 $0 $0 $0 $0 

Fencing $0 $0 $0 $0 $0 $0 $0 

Recreational facilities $0 $0 $0 $0 $0 $0 $0 

Tunnels $0 $0 $0 $0 $0 $0 $0 

Bridges and elevated highways $0 $0 $0 $0 $0 $0 $0 

2B-1
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2B-1

Specialization within NAICS 23311 (Land subdivision and land development), Categorized by Value of Construction Work (Thousands of 1997 Dollars)

Type of Construction 

Estabs. 

specializing 51 % 

or more 

Estabs. with 

100 % 

specialization 

Estabs. with 90 

to 99 % 

specialization 

Estabs. with 80 

to 89 % 

specialization 

Estabs. with 

70 to 79 % 

specialization 

Estabs. with 60 

to 69 % 

specialization 

Estabs. with 51 

to 59 % 

specialization 

Dam and reservoir construction $0 $0 $0 $0 $0 $0 $0 

Marine construction $0 $0 $0 $0 $0 $0 $0 

Harbor and port facilities $0 $0 $0 $0 $0 $0 $0 

Conservation and development construction $0 $0 $0 $0 $0 $0 $0 

Power and communication transmission lines, 

towers, and related facilities $0 $0 $0 $0 $0 $0 $0 

Sewers, sewer lines, septic systems, and related 

facilities $0 $0 $0 $0 $0 $0 $0 

Water mains and related facilities $0 $0 $0 $0 $0 $0 $0 

Pipeline construction other than sewer or water 

lines $0 $0 $0 $0 $0 $0 $0 

Urban mass transit $0 $0 $0 $0 $0 $0 $0 

Railroad construction $0 $0 $0 $0 $0 $0 $0 

Blast furnaces, petroleum refineries, chemical 

complexes, etc. $0 $0 $0 $0 $0 $0 $0 

Power plants, nuclear $0 $0 $0 $0 $0 $0 $0 

Power plants and cogeneration plants, except 

nuclear $0 $0 $0 $0 $0 $0 $0 

Sewage treatment plants $0 $0 $0 $0 $0 $0 $0 

Water treatment plants $0 $0 $0 $0 $0 $0 $0 

Water storage facilities $0 $0 $0 $0 $0 $0 $0 

Heavy military construction, missile sites, etc. $0 $0 $0 $0 $0 $0 $0 

Ships $0 $0 $0 $0 $0 $0 $0 

Oilfields $0 $0 $0 $0 $0 $0 $0 

Other nonbuilding construction $0 $0 $0 $0 $0 $0 $0 

Construction work, n.s.k. $0 $0 $0 $0 $0 $0 $0 

2B-2
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2B-2

Specialization within NAICS 23321 (Single-family housing construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)

Type of Construction 

Estabs. 

specializing 51 % 

or more 

Estabs. with 

100 % 

specialization 

Estabs. with 90 

to 99 % 

specialization 

Estabs. with 80 

to 89 % 

specialization 

Estabs. with 

70 to 79 % 

specialization 

Estabs. with 60 

to 69 % 

specialization 

Estabs. with 51 

to 59 % 

specialization 

Single-family houses, detached $127,870,584 $90,434,819 $14,615,758 $7,040,769 $6,600,743 $6,603,687 $2,574,808 

Single-family houses, attached, including 

townhouses and townhouse-type condominiums $12,534,326 $6,623,485 $1,292,951 $877,906 $1,074,921 $1,693,806 $971,257 

Apartment buildings with two or more units, 

including rentals, apartment-type condominiums, 

and cooperatives $0 $0 $0 $0 $0 $0 $0 

Hotels, motels, and tourist cabins $0 $0 $0 $0 $0 $0 $0 

Other residential buildings $0 $0 $0 $0 $0 $0 $0 

Office buildings $0 $0 $0 $0 $0 $0 $0 

Other commercial buildings such as stores, 

restaurants, and automobile service stations $0 $0 $0 $0 $0 $0 $0 

Industrial buildings $0 $0 $0 $0 $0 $0 $0 

Warehouses $0 $0 $0 $0 $0 $0 $0 

Religious buildings $0 $0 $0 $0 $0 $0 $0 

Educational buildings $0 $0 $0 $0 $0 $0 $0 

Hospitals and institutional buildings $0 $0 $0 $0 $0 $0 $0 

Farm buildings, nonresidential $0 $0 $0 $0 $0 $0 $0 

Amusement, social, and recreational buildings, 

indoors $0 $0 $0 $0 $0 $0 $0 

Other nonresidential buildings $0 $0 $0 $0 $0 $0 $0 

Highways, streets, and related work such as 

installation of guard rails, highway signs, 

lighting, etc. $0 $0 $0 $0 $0 $0 $0 

Outdoor swimming pools $0 $0 $0 $0 $0 $0 $0 

Airport runways and related work $0 $0 $0 $0 $0 $0 $0 

Private driveways and parking areas $0 $0 $0 $0 $0 $0 $0 

Fencing $0 $0 $0 $0 $0 $0 $0 

Recreational facilities $0 $0 $0 $0 $0 $0 $0 

Tunnels $0 $0 $0 $0 $0 $0 $0 

Bridges and elevated highways $0 $0 $0 $0 $0 $0 $0 

2B-3
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2B-2

Specialization within NAICS 23321 (Single-family housing construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)

Type of Construction 

Estabs. 

specializing 51 % 

or more 

Estabs. with 

100 % 

specialization 

Estabs. with 90 

to 99 % 

specialization 

Estabs. with 80 

to 89 % 

specialization 

Estabs. with 

70 to 79 % 

specialization 

Estabs. with 60 

to 69 % 

specialization 

Estabs. with 51 

to 59 % 

specialization 

Dam and reservoir construction $0 $0 $0 $0 $0 $0 $0 

Marine construction $0 $0 $0 $0 $0 $0 $0 

Harbor and port facilities $0 $0 $0 $0 $0 $0 $0 

Conservation and development construction $0 $0 $0 $0 $0 $0 $0 

Power and communication transmission lines, 

towers, and related facilities $0 $0 $0 $0 $0 $0 $0 

Sewers, sewer lines, septic systems, and related 

facilities $0 $0 $0 $0 $0 $0 $0 

Water mains and related facilities $0 $0 $0 $0 $0 $0 $0 

Pipeline construction other than sewer or water 

lines $0 $0 $0 $0 $0 $0 $0 

Urban mass transit $0 $0 $0 $0 $0 $0 $0 

Railroad construction $0 $0 $0 $0 $0 $0 $0 

Blast furnaces, petroleum refineries, chemical 

complexes, etc. $0 $0 $0 $0 $0 $0 $0 

Power plants, nuclear $0 $0 $0 $0 $0 $0 $0 

Power plants and cogeneration plants, except 

nuclear $0 $0 $0 $0 $0 $0 $0 

Sewage treatment plants $0 $0 $0 $0 $0 $0 $0 

Water treatment plants $0 $0 $0 $0 $0 $0 $0 

Water storage facilities $0 $0 $0 $0 $0 $0 $0 

Heavy military construction, missile sites, etc. $0 $0 $0 $0 $0 $0 $0 

Ships $0 $0 $0 $0 $0 $0 $0 

Oilfields $0 $0 $0 $0 $0 $0 $0 

Other nonbuilding construction $0 $0 $0 $0 $0 $0 $0 

Construction work, n.s.k. $0 $0 $0 $0 $0 $0 $0 

2B-4
--

Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2B-3

Specialization within NAICS 23322 (Multifamily housing construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)

Type of Construction 

Estabs. 

specializing 51 % 

or more 

Estabs. with 

100 % 

specialization 

Estabs. with 90 

to 99 % 

specialization 

Estabs. with 80 

to 89 % 

specialization 

Estabs. with 

70 to 79 % 

specialization 

Estabs. with 60 

to 69 % 

specialization 

Estabs. with 51 

to 59 % 

specialization 

Single-family houses, detached $0 $0 $0 $0 $0 $0 $0 

Single-family houses, attached, including 

townhouses and townhouse-type condominiums $0 $0 $0 $0 $0 $0 $0 

Apartment buildings with two or more units, 

including rentals, apartment-type condominiums, 

and cooperatives $12,806,889 $5,719,872 $1,913,033 $1,301,955 $1,381,979 $1,267,724 $1,222,326 

Hotels, motels, and tourist cabins $0 $0 $0 $0 $0 $0 $0 

Other residential buildings $302,387 $156,078 S $71,059 $60,965 $11,358 

Office buildings $0 $0 $0 $0 $0 $0 $0 

Other commercial buildings such as stores, 

restaurants, and automobile service stations $0 $0 $0 $0 $0 $0 $0 

Industrial buildings $0 $0 $0 $0 $0 $0 $0 

Warehouses $0 $0 $0 $0 $0 $0 $0 

Religious buildings $0 $0 $0 $0 $0 $0 $0 

Educational buildings $0 $0 $0 $0 $0 $0 $0 

Hospitals and institutional buildings $0 $0 $0 $0 $0 $0 $0 

Farm buildings, nonresidential $0 $0 $0 $0 $0 $0 $0 

Amusement, social, and recreational buildings, 

indoors $0 $0 $0 $0 $0 $0 $0 

Other nonresidential buildings $0 $0 $0 $0 $0 $0 $0 

Highways, streets, and related work such as 

installation of guard rails, highway signs, 

lighting, etc. $0 $0 $0 $0 $0 $0 $0 

Outdoor swimming pools $0 $0 $0 $0 $0 $0 $0 

Airport runways and related work $0 $0 $0 $0 $0 $0 $0 

Private driveways and parking areas $0 $0 $0 $0 $0 $0 $0 

Fencing $0 $0 $0 $0 $0 $0 $0 

Recreational facilities $0 $0 $0 $0 $0 $0 $0 

Tunnels $0 $0 $0 $0 $0 $0 $0 

Bridges and elevated highways $0 $0 $0 $0 $0 $0 $0 

2B-5
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2B-3

Specialization within NAICS 23322 (Multifamily housing construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)

Type of Construction 

Estabs. 

specializing 51 % 

or more 

Estabs. with 

100 % 

specialization 

Estabs. with 90 

to 99 % 

specialization 

Estabs. with 80 

to 89 % 

specialization 

Estabs. with 

70 to 79 % 

specialization 

Estabs. with 60 

to 69 % 

specialization 

Estabs. with 51 

to 59 % 

specialization 

Dam and reservoir construction $0 $0 $0 $0 $0 $0 $0 

Marine construction $0 $0 $0 $0 $0 $0 $0 

Harbor and port facilities $0 $0 $0 $0 $0 $0 $0 

Conservation and development construction $0 $0 $0 $0 $0 $0 $0 

Power and communication transmission lines, 

towers, and related facilities $0 $0 $0 $0 $0 $0 $0 

Sewers, sewer lines, septic systems, and related 

facilities $0 $0 $0 $0 $0 $0 $0 

Water mains and related facilities $0 $0 $0 $0 $0 $0 $0 

Pipeline construction other than sewer or water 

lines $0 $0 $0 $0 $0 $0 $0 

Urban mass transit $0 $0 $0 $0 $0 $0 $0 

Railroad construction $0 $0 $0 $0 $0 $0 $0 

Blast furnaces, petroleum refineries, chemical 

complexes, etc. $0 $0 $0 $0 $0 $0 $0 

Power plants, nuclear $0 $0 $0 $0 $0 $0 $0 

Power plants and cogeneration plants, except 

nuclear $0 $0 $0 $0 $0 $0 $0 

Sewage treatment plants $0 $0 $0 $0 $0 $0 $0 

Water treatment plants $0 $0 $0 $0 $0 $0 $0 

Water storage facilities $0 $0 $0 $0 $0 $0 $0 

Heavy military construction, missile sites, etc. $0 $0 $0 $0 $0 $0 $0 

Ships $0 $0 $0 $0 $0 $0 $0 

Oilfields $0 $0 $0 $0 $0 $0 $0 

Other nonbuilding construction $0 $0 $0 $0 $0 $0 $0 

Construction work, n.s.k. $0 $0 $0 $0 $0 $0 $0 

2B-6
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2B-4

Specialization within NAICS 23331 (Manufacturing and industrial building construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)

Type of Construction 

Estabs. 

specializing 51 % 

or more 

Estabs. with 

100 % 

specialization 

Estabs. with 90 

to 99 % 

specialization 

Estabs. with 80 

to 89 % 

specialization 

Estabs. with 

70 to 79 % 

specialization 

Estabs. with 60 

to 69 % 

specialization 

Estabs. with 51 

to 59 % 

specialization 

Single-family houses, detached $0 $0 $0 $0 $0 $0 $0 

Single-family houses, attached, including 

townhouses and townhouse-type condominiums $0 $0 $0 $0 $0 $0 $0 

Apartment buildings with two or more units, 

including rentals, apartment-type condominiums, 

and cooperatives $0 $0 $0 $0 $0 $0 $0 

Hotels, motels, and tourist cabins $0 $0 $0 $0 $0 $0 $0 

Other residential buildings $0 $0 $0 $0 $0 $0 $0 

Office buildings $0 $0 $0 $0 $0 $0 $0 

Other commercial buildings such as stores, 

restaurants, and automobile service stations $0 $0 $0 $0 $0 $0 $0 

Industrial buildings $17,409,811 $5,934,603 $1,398,775 $2,472,131 $1,713,645 $3,795,456 $2,095,200 

Warehouses $5,725,339 $1,495,030 $601,604 $662,223 $663,498 $770,299 $1,532,686 

Religious buildings $0 $0 $0 $0 $0 $0 $0 

Educational buildings $0 $0 $0 $0 $0 $0 $0 

Hospitals and institutional buildings $0 $0 $0 $0 $0 $0 $0 

Farm buildings, nonresidential $0 $0 $0 $0 $0 $0 $0 

Amusement, social, and recreational buildings, 

indoors $0 $0 $0 $0 $0 $0 $0 

Other nonresidential buildings $0 $0 $0 $0 $0 $0 $0 

Highways, streets, and related work such as 

installation of guard rails, highway signs, 

lighting, etc. $0 $0 $0 $0 $0 $0 $0 

Outdoor swimming pools $0 $0 $0 $0 $0 $0 $0 

Airport runways and related work $0 $0 $0 $0 $0 $0 $0 

Private driveways and parking areas $0 $0 $0 $0 $0 $0 $0 

Fencing $0 $0 $0 $0 $0 $0 $0 

Recreational facilities $0 $0 $0 $0 $0 $0 $0 

Tunnels $0 $0 $0 $0 $0 $0 $0 

Bridges and elevated highways $0 $0 $0 $0 $0 $0 $0 

2B-7
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2B-4

Specialization within NAICS 23331 (Manufacturing and industrial building construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)

Type of Construction 

Estabs. 

specializing 51 % 

or more 

Estabs. with 

100 % 

specialization 

Estabs. with 90 

to 99 % 

specialization 

Estabs. with 80 

to 89 % 

specialization 

Estabs. with 

70 to 79 % 

specialization 

Estabs. with 60 

to 69 % 

specialization 

Estabs. with 51 

to 59 % 

specialization 

Dam and reservoir construction $0 $0 $0 $0 $0 $0 $0 

Marine construction $0 $0 $0 $0 $0 $0 $0 

Harbor and port facilities $0 $0 $0 $0 $0 $0 $0 

Conservation and development construction $0 $0 $0 $0 $0 $0 $0 

Power and communication transmission lines, 

towers, and related facilities $0 $0 $0 $0 $0 $0 $0 

Sewers, sewer lines, septic systems, and related 

facilities $0 $0 $0 $0 $0 $0 $0 

Water mains and related facilities $0 $0 $0 $0 $0 $0 $0 

Pipeline construction other than sewer or water 

lines $0 $0 $0 $0 $0 $0 $0 

Urban mass transit $0 $0 $0 $0 $0 $0 $0 

Railroad construction $0 $0 $0 $0 $0 $0 $0 

Blast furnaces, petroleum refineries, chemical 

complexes, etc. $0 $0 $0 $0 $0 $0 $0 

Power plants, nuclear $0 $0 $0 $0 $0 $0 $0 

Power plants and cogeneration plants, except 

nuclear $0 $0 $0 $0 $0 $0 $0 

Sewage treatment plants $0 $0 $0 $0 $0 $0 $0 

Water treatment plants $0 $0 $0 $0 $0 $0 $0 

Water storage facilities $0 $0 $0 $0 $0 $0 $0 

Heavy military construction, missile sites, etc. $0 $0 $0 $0 $0 $0 $0 

Ships $0 $0 $0 $0 $0 $0 $0 

Oilfields $0 $0 $0 $0 $0 $0 $0 

Other nonbuilding construction $0 $0 $0 $0 $0 $0 $0 

Construction work, n.s.k. $0 $0 $0 $0 $0 $0 $0 

2B-8
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2B-5

Specialization within NAICS 23332 (Commercial and institutional building construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)

Type of Construction 

Estabs. 

specializing 51 % 

or more 

Estabs. with 

100 % 

specialization 

Estabs. with 90 

to 99 % 

specialization 

Estabs. with 80 

to 89 % 

specialization 

Estabs. with 

70 to 79 % 

specialization 

Estabs. with 60 

to 69 % 

specialization 

Estabs. with 51 

to 59 % 

specialization 

Single-family houses, detached $0 $0 $0 $0 $0 $0 $0 

Single-family houses, attached, including 

townhouses and townhouse-type condominiums $0 $0 $0 $0 $0 $0 $0 

Apartment buildings with two or more units, 

including rentals, apartment-type condominiums, 

and cooperatives $0 $0 $0 $0 $0 $0 $0 

Hotels, motels, and tourist cabins $5,336,593 $2,593,469 $240,813 $403,713 $931,858 $505,167 $661,573 

Other residential buildings $0 $0 $0 $0 $0 $0 $0 

Office buildings $26,385,309 $6,293,039 $5,074,920 $2,976,921 $3,531,528 $5,531,461 $2,977,440 

Other commercial buildings such as stores, 

restaurants, and automobile service stations $0 $0 $0 $0 $0 $0 $0 

All other commercial buildings, n.e.c. $27,163,363 $11,059,298 $3,048,609 $3,714,883 $3,343,257 $3,127,898 $2,869,418 

Industrial buildings $0 $0 $0 $0 $0 $0 $0 

Warehouses $4,530,491 $1,198,731 $470,726 $402,550 $609,786 $1,421,744 $426,956 

Religious buildings $1,152,216 $230,911 $36,077 $196,952 $173,876 $319,808 $194,592 

Educational buildings $15,079,182 $2,176,769 $2,024,132 $1,921,258 $3,214,962 $2,560,961 $3,181,102 

Hospitals and institutional buildings $7,772,628 $1,768,726 $844,655 $592,229 $1,359,586 $1,911,122 $1,296,310 

Public safety buildings $884,390 $254,765 $120,669 $77,181 $70,047 $298,196 $63,532 

Farm buildings, nonresidential $1,637,968 $1,077,154 $141,707 $66,058 $96,840 $163,533 $92,675 

Amusement, social, and recreational buildings, 

indoors $2,424,893 $689,938 $599,733 $411,573 S $363,722 $200,426 

Other nonresidential buildings $2,557,999 $1,446,128 $310,839 $337,232 $100,882 $276,818 $86,100 

Highways, streets, and related work such as 

installation of guard rails, highway signs, 

lighting, etc. $0 $0 $0 $0 $0 $0 $0 

Outdoor swimming pools $0 $0 $0 $0 $0 $0 $0 

Airport runways and related work $0 $0 $0 $0 $0 $0 $0 

Private driveways and parking areas $0 $0 $0 $0 $0 $0 $0 

Fencing $0 $0 $0 $0 $0 $0 $0 

Recreational facilities $0 $0 $0 $0 $0 $0 $0 

2B-9
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2B-5

Specialization within NAICS 23332 (Commercial and institutional building construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)

Type of Construction 

Estabs. 

specializing 51 % 

or more 

Estabs. with 

100 % 

specialization 

Estabs. with 90 

to 99 % 

specialization 

Estabs. with 80 

to 89 % 

specialization 

Estabs. with 

70 to 79 % 

specialization 

Estabs. with 60 

to 69 % 

specialization 

Estabs. with 51 

to 59 % 

specialization 

Tunnels $0 $0 $0 $0 $0 $0 $0 

Bridges and elevated highways $0 $0 $0 $0 $0 $0 $0 

Dam and reservoir construction $0 $0 $0 $0 $0 $0 $0 

Marine construction $0 $0 $0 $0 $0 $0 $0 

Harbor and port facilities $0 $0 $0 $0 $0 $0 $0 

Conservation and development construction $0 $0 $0 $0 $0 $0 $0 

Power and communication transmission lines, 

towers, and related facilities $0 $0 $0 $0 $0 $0 $0 

Sewers, sewer lines, septic systems, and related 

facilities $0 $0 $0 $0 $0 $0 $0 

Water mains and related facilities $0 $0 $0 $0 $0 $0 $0 

Pipeline construction other than sewer or water 

lines $0 $0 $0 $0 $0 $0 $0 

Urban mass transit $0 $0 $0 $0 $0 $0 $0 

Railroad construction $0 $0 $0 $0 $0 $0 $0 

Blast furnaces, petroleum refineries, chemical 

complexes, etc. $0 $0 $0 $0 $0 $0 $0 

Power plants, nuclear $0 $0 $0 $0 $0 $0 $0 

Power plants and cogeneration plants, except 

nuclear $0 $0 $0 $0 $0 $0 $0 

Sewage treatment plants $0 $0 $0 $0 $0 $0 $0 

Water treatment plants $0 $0 $0 $0 $0 $0 $0 

Water storage facilities $0 $0 $0 $0 $0 $0 $0 

Heavy military construction, missile sites, etc. $0 $0 $0 $0 $0 $0 $0 

Ships $0 $0 $0 $0 $0 $0 $0 

Oilfields $0 $0 $0 $0 $0 $0 $0 

Other nonbuilding construction $0 $0 $0 $0 $0 $0 $0 

Construction work, n.s.k. $0 $0 $0 $0 $0 $0 $0 

2B-10
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2B-6

Specialization within NAICS 23411 (Highway and street construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)

Type of Construction 

Estabs. 

specializing 51 % 

or more 

Estabs. with 

100 % 

specialization 

Estabs. with 90 

to 99 % 

specialization 

Estabs. with 80 

to 89 % 

specialization 

Estabs. with 

70 to 79 % 

specialization 

Estabs. with 60 

to 69 % 

specialization 

Estabs. with 51 

to 59 % 

specialization 

Single-family houses, detached $0 $0 $0 $0 $0 $0 $0 

Single-family houses, attached, including 

townhouses and townhouse-type condominiums $0 $0 $0 $0 $0 $0 $0 

Apartment buildings with two or more units, 

including rentals, apartment-type condominiums, 

and cooperatives $0 $0 $0 $0 $0 $0 $0 

Hotels, motels, and tourist cabins $0 $0 $0 $0 $0 $0 $0 

Other residential buildings $0 $0 $0 $0 $0 $0 $0 

Office buildings $0 $0 $0 $0 $0 $0 $0 

Other commercial buildings such as stores, 

restaurants, and automobile service stations $0 $0 $0 $0 $0 $0 $0 

Industrial buildings $0 $0 $0 $0 $0 $0 $0 

Warehouses $0 $0 $0 $0 $0 $0 $0 

Religious buildings $0 $0 $0 $0 $0 $0 $0 

Educational buildings $0 $0 $0 $0 $0 $0 $0 

Hospitals and institutional buildings $0 $0 $0 $0 $0 $0 $0 

Farm buildings, nonresidential $0 $0 $0 $0 $0 $0 $0 

Amusement, social, and recreational buildings, 

indoors $0 $0 $0 $0 $0 $0 $0 

Other nonresidential buildings $0 $0 $0 $0 $0 $0 $0 

Highways, streets, and related work such as 

installation of guard rails, highway signs, 

lighting, etc. $43,439,086 $15,061,825 $5,949,644 $5,659,718 $6,827,389 $5,700,890 $4,239,620 

Outdoor swimming pools $0 $0 $0 $0 $0 $0 $0 

Airport runways and related work $476,352 $206,565 – – $164,989 $87,063 $17,736 

Private driveways and parking areas $0 $0 $0 $0 $0 $0 $0 

Fencing $0 $0 $0 $0 $0 $0 $0 

Recreational facilities $0 $0 $0 $0 $0 $0 $0 

Tunnels $0 $0 $0 $0 $0 $0 $0 

Bridges and elevated highways $0 $0 $0 $0 $0 $0 $0 

2B-11
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2B-6

Specialization within NAICS 23411 (Highway and street construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)

Type of Construction 

Estabs. 

specializing 51 % 

or more 

Estabs. with 

100 % 

specialization 

Estabs. with 90 

to 99 % 

specialization 

Estabs. with 80 

to 89 % 

specialization 

Estabs. with 

70 to 79 % 

specialization 

Estabs. with 60 

to 69 % 

specialization 

Estabs. with 51 

to 59 % 

specialization 

Dam and reservoir construction $0 $0 $0 $0 $0 $0 $0 

Marine construction $0 $0 $0 $0 $0 $0 $0 

Harbor and port facilities $0 $0 $0 $0 $0 $0 $0 

Conservation and development construction $0 $0 $0 $0 $0 $0 $0 

Power and communication transmission lines, 

towers, and related facilities $0 $0 $0 $0 $0 $0 $0 

Sewers, sewer lines, septic systems, and related 

facilities $0 $0 $0 $0 $0 $0 $0 

Water mains and related facilities $0 $0 $0 $0 $0 $0 $0 

Pipeline construction other than sewer or water 

lines $0 $0 $0 $0 $0 $0 $0 

Urban mass transit $0 $0 $0 $0 $0 $0 $0 

Railroad construction $0 $0 $0 $0 $0 $0 $0 

Blast furnaces, petroleum refineries, chemical 

complexes, etc. $0 $0 $0 $0 $0 $0 $0 

Power plants, nuclear $0 $0 $0 $0 $0 $0 $0 

Power plants and cogeneration plants, except 

nuclear $0 $0 $0 $0 $0 $0 $0 

Sewage treatment plants $0 $0 $0 $0 $0 $0 $0 

Water treatment plants $0 $0 $0 $0 $0 $0 $0 

Water storage facilities $0 $0 $0 $0 $0 $0 $0 

Heavy military construction, missile sites, etc. $0 $0 $0 $0 $0 $0 $0 

Ships $0 $0 $0 $0 $0 $0 $0 

Oilfields $0 $0 $0 $0 $0 $0 $0 

Other nonbuilding construction $0 $0 $0 $0 $0 $0 $0 

Construction work, n.s.k. $0 $0 $0 $0 $0 $0 $0 

2B-12
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2B-7

Specialization within NAICS 23412 (Bridge and tunnel construction) Categorized by Value of Construction Work (Thousands of 1997 Dollars)

Type of Construction 

Estabs. 

specializing 51 % 

or more 

Estabs. with 

100 % 

specialization 

Estabs. with 90 

to 99 % 

specialization 

Estabs. with 80 

to 89 % 

specialization 

Estabs. with 

70 to 79 % 

specialization 

Estabs. with 60 

to 69 % 

specialization 

Estabs. with 51 

to 59 % 

specialization 

Single-family houses, detached $0 $0 $0 $0 $0 $0 $0 

Single-family houses, attached, including 

townhouses and townhouse-type condominiums $0 $0 $0 $0 $0 $0 $0 

Apartment buildings with two or more units, 

including rentals, apartment-type condominiums, 

and cooperatives $0 $0 $0 $0 $0 $0 $0 

Hotels, motels, and tourist cabins $0 $0 $0 $0 $0 $0 $0 

Other residential buildings $0 $0 $0 $0 $0 $0 $0 

Office buildings $0 $0 $0 $0 $0 $0 $0 

Other commercial buildings such as stores, 

restaurants, and automobile service stations $0 $0 $0 $0 $0 $0 $0 

Industrial buildings $0 $0 $0 $0 $0 $0 $0 

Warehouses $0 $0 $0 $0 $0 $0 $0 

Religious buildings $0 $0 $0 $0 $0 $0 $0 

Educational buildings $0 $0 $0 $0 $0 $0 $0 

Hospitals and institutional buildings $0 $0 $0 $0 $0 $0 $0 

Farm buildings, nonresidential $0 $0 $0 $0 $0 $0 $0 

Amusement, social, and recreational buildings, 

indoors $0 $0 $0 $0 $0 $0 $0 

Other nonresidential buildings $0 $0 $0 $0 $0 $0 $0 

Highways, streets, and related work such as 

installation of guard rails, highway signs, 

lighting, etc. $0 $0 $0 $0 $0 $0 $0 

Outdoor swimming pools $0 $0 $0 $0 $0 $0 $0 

Airport runways and related work $0 $0 $0 $0 $0 $0 $0 

Private driveways and parking areas $0 $0 $0 $0 $0 $0 $0 

Fencing $0 $0 $0 $0 $0 $0 $0 

Recreational facilities $0 $0 $0 $0 $0 $0 $0 

Bridges, tunnels and elevated highways $8,249,795 $3,472,091 $547,816 $952,468 $1,095,565 $1,623,637 $558,218 

Dam and reservoir construction $0 $0 $0 $0 $0 $0 $0 

2B-13
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2B-7

Specialization within NAICS 23412 (Bridge and tunnel construction) Categorized by Value of Construction Work (Thousands of 1997 Dollars)

Type of Construction 

Estabs. 

specializing 51 % 

or more 

Estabs. with 

100 % 

specialization 

Estabs. with 90 

to 99 % 

specialization 

Estabs. with 80 

to 89 % 

specialization 

Estabs. with 

70 to 79 % 

specialization 

Estabs. with 60 

to 69 % 

specialization 

Estabs. with 51 

to 59 % 

specialization 

Marine construction $0 $0 $0 $0 $0 $0 $0 

Harbor and port facilities $0 $0 $0 $0 $0 $0 $0 

Conservation and development construction $0 $0 $0 $0 $0 $0 $0 

Power and communication transmission lines, 

towers, and related facilities $0 $0 $0 $0 $0 $0 $0 

Sewers, sewer lines, septic systems, and related 

facilities $0 $0 $0 $0 $0 $0 $0 

Water mains and related facilities $0 $0 $0 $0 $0 $0 $0 

Pipeline construction other than sewer or water 

lines $0 $0 $0 $0 $0 $0 $0 

Urban mass transit $0 $0 $0 $0 $0 $0 $0 

Railroad construction $0 $0 $0 $0 $0 $0 $0 

Blast furnaces, petroleum refineries, chemical 

complexes, etc. $0 $0 $0 $0 $0 $0 $0 

Power plants, nuclear $0 $0 $0 $0 $0 $0 $0 

Power plants and cogeneration plants, except 

nuclear $0 $0 $0 $0 $0 $0 $0 

Sewage treatment plants $0 $0 $0 $0 $0 $0 $0 

Water treatment plants $0 $0 $0 $0 $0 $0 $0 

Water storage facilities $0 $0 $0 $0 $0 $0 $0 

Heavy military construction, missile sites, etc. $0 $0 $0 $0 $0 $0 $0 

Ships $0 $0 $0 $0 $0 $0 $0 

Oilfields $0 $0 $0 $0 $0 $0 $0 

Other nonbuilding construction $0 $0 $0 $0 $0 $0 $0 

Construction work, n.s.k. $0 $0 $0 $0 $0 $0 $0 

2B-14
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2B-8

Specialization within NAICS 23491 (Water, sewer, and pipeline construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)

Type of Construction 

Estabs. 

specializing 51 % 

or more 

Estabs. with 

100 % 

specialization 

Estabs. with 90 

to 99 % 

specialization 

Estabs. with 80 

to 89 % 

specialization 

Estabs. with 

70 to 79 % 

specialization 

Estabs. with 60 

to 69 % 

specialization 

Estabs. with 51 

to 59 % 

specialization 

Single-family houses, detached $0 $0 $0 $0 $0 $0 $0 

Single-family houses, attached, including 

townhouses and townhouse-type condominiums $0 $0 $0 $0 $0 $0 $0 

Apartment buildings with two or more units, 

including rentals, apartment-type condominiums, 

and cooperatives $0 $0 $0 $0 $0 $0 $0 

Hotels, motels, and tourist cabins $0 $0 $0 $0 $0 $0 $0 

Other residential buildings $0 $0 $0 $0 $0 $0 $0 

Office buildings $0 $0 $0 $0 $0 $0 $0 

Other commercial buildings such as stores, 

restaurants, and automobile service stations $0 $0 $0 $0 $0 $0 $0 

Industrial buildings $0 $0 $0 $0 $0 $0 $0 

Warehouses $0 $0 $0 $0 $0 $0 $0 

Religious buildings $0 $0 $0 $0 $0 $0 $0 

Educational buildings $0 $0 $0 $0 $0 $0 $0 

Hospitals and institutional buildings $0 $0 $0 $0 $0 $0 $0 

Farm buildings, nonresidential $0 $0 $0 $0 $0 $0 $0 

Amusement, social, and recreational buildings, 

indoors $0 $0 $0 $0 $0 $0 $0 

Other nonresidential buildings $0 $0 $0 $0 $0 $0 $0 

Highways, streets, and related work such as 

installation of guard rails, highway signs, 

lighting, etc. $0 $0 $0 $0 $0 $0 $0 

Outdoor swimming pools $0 $0 $0 $0 $0 $0 $0 

Airport runways and related work $0 $0 $0 $0 $0 $0 $0 

Private driveways and parking areas $0 $0 $0 $0 $0 $0 $0 

Fencing $0 $0 $0 $0 $0 $0 $0 

Recreational facilities $0 $0 $0 $0 $0 $0 $0 

Tunnels $0 $0 $0 $0 $0 $0 $0 

Bridges and elevated highways $0 $0 $0 $0 $0 $0 $0 

2B-15
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2B-8

Specialization within NAICS 23491 (Water, sewer, and pipeline construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)

Type of Construction 

Estabs. 

specializing 51 % 

or more 

Estabs. with 

100 % 

specialization 

Estabs. with 90 

to 99 % 

specialization 

Estabs. with 80 

to 89 % 

specialization 

Estabs. with 

70 to 79 % 

specialization 

Estabs. with 60 

to 69 % 

specialization 

Estabs. with 51 

to 59 % 

specialization 

Dam and reservoir construction $0 $0 $0 $0 $0 $0 $0 

Marine construction $0 $0 $0 $0 $0 $0 $0 

Harbor and port facilities $0 $0 $0 $0 $0 $0 $0 

Conservation and development construction $0 $0 $0 $0 $0 $0 $0 

Power and communication transmission lines, 

towers, and related facilities $0 $0 $0 $0 $0 $0 $0 

Sewers, sewer lines, septic systems, and related 

facilities $5,862,775 $1,760,074 $459,745 $455,130 $1,101,984 $1,470,400 $615,442 

Water mains and related facilities $3,011,687 $873,574 $165,404 $214,313 $427,597 $1,074,354 $256,446 

Pipeline construction other than sewer or water 

lines $4,250,644 $2,881,228 $257,301 $332,370 $197,666 $244,868 $337,212 

Urban mass transit $0 $0 $0 $0 $0 $0 $0 

Railroad construction $0 $0 $0 $0 $0 $0 $0 

Blast furnaces, petroleum refineries, chemical 

complexes, etc. $0 $0 $0 $0 $0 $0 $0 

Power plants, nuclear $0 $0 $0 $0 $0 $0 $0 

Power plants and cogeneration plants, except 

nuclear $0 $0 $0 $0 $0 $0 $0 

Sewage treatment plants $0 $0 $0 $0 $0 $0 $0 

Water treatment plants $0 $0 $0 $0 $0 $0 $0 

Water storage facilities $0 $0 $0 $0 $0 $0 $0 

Heavy military construction, missile sites, etc. $0 $0 $0 $0 $0 $0 $0 

Ships $0 $0 $0 $0 $0 $0 $0 

Oilfields $0 $0 $0 $0 $0 $0 $0 

Other nonbuilding construction $0 $0 $0 $0 $0 $0 $0 

Construction work, n.s.k. $0 $0 $0 $0 $0 $0 $0 

2B-16
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2B-9

Specialization within NAICS 23492 (Power and communication transmission line construction), Categorized by Value of Construction Work (Thousands of 1997

Dollars)

Type of Construction 

Estabs. 

specializing 51 % 

or more 

Estabs. with 

100 % 

specialization 

Estabs. with 90 

to 99 % 

specialization 

Estabs. with 80 

to 89 % 

specialization 

Estabs. with 

70 to 79 % 

specialization 

Estabs. with 60 

to 69 % 

specialization 

Estabs. with 51 

to 59 % 

specialization 

Single-family houses, detached $0 $0 $0 $0 $0 $0 $0 

Single-family houses, attached, including 

townhouses and townhouse-type condominiums $0 $0 $0 $0 $0 $0 $0 

Apartment buildings with two or more units, 

including rentals, apartment-type condominiums, 

and cooperatives $0 $0 $0 $0 $0 $0 $0 

Hotels, motels, and tourist cabins $0 $0 $0 $0 $0 $0 $0 

Other residential buildings $0 $0 $0 $0 $0 $0 $0 

Office buildings $0 $0 $0 $0 $0 $0 $0 

Other commercial buildings such as stores, 

restaurants, and automobile service stations $0 $0 $0 $0 $0 $0 $0 

Industrial buildings $0 $0 $0 $0 $0 $0 $0 

Warehouses $0 $0 $0 $0 $0 $0 $0 

Religious buildings $0 $0 $0 $0 $0 $0 $0 

Educational buildings $0 $0 $0 $0 $0 $0 $0 

Hospitals and institutional buildings $0 $0 $0 $0 $0 $0 $0 

Farm buildings, nonresidential $0 $0 $0 $0 $0 $0 $0 

Amusement, social, and recreational buildings, 

indoors $0 $0 $0 $0 $0 $0 $0 

Other nonresidential buildings $0 $0 $0 $0 $0 $0 $0 

Highways, streets, and related work such as 

installation of guard rails, highway signs, 

lighting, etc. $0 $0 $0 $0 $0 $0 $0 

Outdoor swimming pools $0 $0 $0 $0 $0 $0 $0 

Airport runways and related work $0 $0 $0 $0 $0 $0 $0 

Private driveways and parking areas $0 $0 $0 $0 $0 $0 $0 

Fencing $0 $0 $0 $0 $0 $0 $0 

Recreational facilities $0 $0 $0 $0 $0 $0 $0 

Tunnels $0 $0 $0 $0 $0 $0 $0 

Bridges and elevated highways $0 $0 $0 $0 $0 $0 $0 

2B-17
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2B-9

Specialization within NAICS 23492 (Power and communication transmission line construction), Categorized by Value of Construction Work (Thousands of 1997

Dollars)

Type of Construction 

Estabs. 

specializing 51 % 

or more 

Estabs. with 

100 % 

specialization 

Estabs. with 90 

to 99 % 

specialization 

Estabs. with 80 

to 89 % 

specialization 

Estabs. with 

70 to 79 % 

specialization 

Estabs. with 60 

to 69 % 

specialization 

Estabs. with 51 

to 59 % 

specialization 

Dam and reservoir construction $0 $0 $0 $0 $0 $0 $0 

Marine construction $0 $0 $0 $0 $0 $0 $0 

Harbor and port facilities $0 $0 $0 $0 $0 $0 $0 

Conservation and development construction $0 $0 $0 $0 $0 $0 $0 

Power and communication transmission lines, 

towers, and related facilities $7,598,682 $5,714,825 $596,189 $315,103 $426,416 $271,981 $274,169 

Sewers, sewer lines, septic systems, and related 

facilities $0 $0 $0 $0 $0 $0 $0 

Water mains and related facilities $0 $0 $0 $0 $0 $0 $0 

Pipeline construction other than sewer or water 

lines $0 $0 $0 $0 $0 $0 $0 

Urban mass transit $0 $0 $0 $0 $0 $0 $0 

Railroad construction $0 $0 $0 $0 $0 $0 $0 

Blast furnaces, petroleum refineries, chemical 

complexes, etc. $0 $0 $0 $0 $0 $0 $0 

Power plants, nuclear $0 $0 $0 $0 $0 $0 $0 

Power plants and cogeneration plants, except 

nuclear $0 $0 $0 $0 $0 $0 $0 

Sewage treatment plants $0 $0 $0 $0 $0 $0 $0 

Water treatment plants $0 $0 $0 $0 $0 $0 $0 

Water storage facilities $0 $0 $0 $0 $0 $0 $0 

Heavy military construction, missile sites, etc. $0 $0 $0 $0 $0 $0 $0 

Ships $0 $0 $0 $0 $0 $0 $0 

Oilfields $0 $0 $0 $0 $0 $0 $0 

Other nonbuilding construction $0 $0 $0 $0 $0 $0 $0 

Construction work, n.s.k. $0 $0 $0 $0 $0 $0 $0 

2B-18
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2B-10

Specialization within NAICS 23493 (Industrial non-building structure construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)

Type of Construction 

Estabs. 

specializing 51 % 

or more 

Estabs. with 

100 % 

specialization 

Estabs. with 90 

to 99 % 

specialization 

Estabs. with 80 

to 89 % 

specialization 

Estabs. with 

70 to 79 % 

specialization 

Estabs. with 60 

to 69 % 

specialization 

Estabs. with 51 

to 59 % 

specialization 

Single-family houses, detached $0 $0 $0 $0 $0 $0 $0 

Single-family houses, attached, including 

townhouses and townhouse-type condominiums $0 $0 $0 $0 $0 $0 $0 

Apartment buildings with two or more units, 

including rentals, apartment-type condominiums, 

and cooperatives $0 $0 $0 $0 $0 $0 $0 

Hotels, motels, and tourist cabins $0 $0 $0 $0 $0 $0 $0 

Other residential buildings $0 $0 $0 $0 $0 $0 $0 

Office buildings $0 $0 $0 $0 $0 $0 $0 

Other commercial buildings such as stores, 

restaurants, and automobile service stations $0 $0 $0 $0 $0 $0 $0 

Industrial buildings $0 $0 $0 $0 $0 $0 $0 

Warehouses $0 $0 $0 $0 $0 $0 $0 

Religious buildings $0 $0 $0 $0 $0 $0 $0 

Educational buildings $0 $0 $0 $0 $0 $0 $0 

Hospitals and institutional buildings $0 $0 $0 $0 $0 $0 $0 

Farm buildings, nonresidential $0 $0 $0 $0 $0 $0 $0 

Amusement, social, and recreational buildings, 

indoors $0 $0 $0 $0 $0 $0 $0 

Other nonresidential buildings $0 $0 $0 $0 $0 $0 $0 

Highways, streets, and related work such as 

installation of guard rails, highway signs, 

lighting, etc. $0 $0 $0 $0 $0 $0 $0 

Outdoor swimming pools $0 $0 $0 $0 $0 $0 $0 

Airport runways and related work $0 $0 $0 $0 $0 $0 $0 

Private driveways and parking areas $0 $0 $0 $0 $0 $0 $0 

Fencing $0 $0 $0 $0 $0 $0 $0 

Recreational facilities $0 $0 $0 $0 $0 $0 $0 

Tunnels $0 $0 $0 $0 $0 $0 $0 

Bridges and elevated highways $0 $0 $0 $0 $0 $0 $0 

2B-19
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2B-10

Specialization within NAICS 23493 (Industrial non-building structure construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)

Type of Construction 

Estabs. 

specializing 51 % 

or more 

Estabs. with 

100 % 

specialization 

Estabs. with 90 

to 99 % 

specialization 

Estabs. with 80 

to 89 % 

specialization 

Estabs. with 

70 to 79 % 

specialization 

Estabs. with 60 

to 69 % 

specialization 

Estabs. with 51 

to 59 % 

specialization 

Dam and reservoir construction $0 $0 $0 $0 $0 $0 $0 

Marine construction $0 $0 $0 $0 $0 $0 $0 

Harbor and port facilities $0 $0 $0 $0 $0 $0 $0 

Conservation and development construction $0 $0 $0 $0 $0 $0 $0 

Power and communication transmission lines, 

towers, and related facilities $0 $0 $0 $0 $0 $0 $0 

Sewers, sewer lines, septic systems, and related 

facilities $0 $0 $0 $0 $0 $0 $0 

Water mains and related facilities $0 $0 $0 $0 $0 $0 $0 

Pipeline construction other than sewer or water 

lines $0 $0 $0 $0 $0 $0 $0 

Urban mass transit $0 $0 $0 $0 $0 $0 $0 

Railroad construction $0 $0 $0 $0 $0 $0 $0 

Blast furnaces, petroleum refineries, chemical 

complexes, etc. $6,499,398 $3,103,223 $802,685 $683,762 $75,497 $1,520,280 $313,951 

Power plants, all $1,616,857 $1,095,143 $53,785 $216,704 $176,694 $49,333 $25,197 

Sewage treatment plants $0 $0 $0 $0 $0 $0 $0 

Water treatment plants $0 $0 $0 $0 $0 $0 $0 

Water storage facilities $0 $0 $0 $0 $0 $0 $0 

Heavy military construction, missile sites, etc. $0 $0 $0 $0 $0 $0 $0 

Ships $0 $0 $0 $0 $0 $0 $0 

Oilfields $0 $0 $0 $0 $0 $0 $0 

Other nonbuilding construction $0 $0 $0 $0 $0 $0 $0 

Construction work, n.s.k. $0 $0 $0 $0 $0 $0 $0 

2B-20
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2B-11

Specialization within NAICS 23499 (All other heavy construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)

Type of Construction 

Estabs. 

specializing 51 % 

or more 

Estabs. with 

100 % 

specialization 

Estabs. with 90 

to 99 % 

specialization 

Estabs. with 80 

to 89 % 

specialization 

Estabs. with 

70 to 79 % 

specialization 

Estabs. with 60 

to 69 % 

specialization 

Estabs. with 51 

to 59 % 

specialization 

Single-family houses, detached $0 $0 $0 $0 $0 $0 $0 

Single-family houses, attached, including 

townhouses and townhouse-type condominiums $0 $0 $0 $0 $0 $0 $0 

Apartment buildings with two or more units, 

including rentals, apartment-type condominiums, 

and cooperatives $0 $0 $0 $0 $0 $0 $0 

Hotels, motels, and tourist cabins $0 $0 $0 $0 $0 $0 $0 

Other residential buildings $0 $0 $0 $0 $0 $0 $0 

Office buildings $0 $0 $0 $0 $0 $0 $0 

Other commercial buildings such as stores, 

restaurants, and automobile service stations $0 $0 $0 $0 $0 $0 $0 

Industrial buildings $316,194 S $42,314 $61,092 $6,240 $113,838 $15,227 

Warehouses $0 $0 $0 $0 $0 $0 $0 

Religious buildings $0 $0 $0 $0 $0 $0 $0 

Educational buildings $0 $0 $0 $0 $0 $0 $0 

Hospitals and institutional buildings $0 $0 $0 $0 $0 $0 $0 

Farm buildings, nonresidential $0 $0 $0 $0 $0 $0 $0 

Amusement, social, and recreational buildings, 

indoors $0 $0 $0 $0 $0 $0 $0 

Other nonresidential buildings $0 $0 $0 $0 $0 $0 $0 

Highways, streets, and related work such as 

installation of guard rails, highway signs, 

lighting, etc. $428,206 $99,675 D S D D $50,790 

Outdoor swimming pools $0 $0 $0 $0 $0 $0 $0 

Airport runways and related work $0 $0 $0 $0 $0 $0 $0 

Private driveways and parking areas $499,123 $193,346 $40,682 $75,732 $84,589 $82,867 $21,908 

Fencing $0 $0 $0 $0 $0 $0 $0 

Recreational facilities $1,606,298 $1,185,338 $48,268 $98,438 $60,307 $112,769 $101,178 

Bridges, tunnels, and elevated highways $272,411 $64,282 $39,300 $36,403 $54,103 $39,085 $39,239 

Dam and reservoir construction $0 $0 $0 $0 $0 $0 $0 

2B-21
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2B-11

Specialization within NAICS 23499 (All other heavy construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)

Type of Construction 

Estabs. 

specializing 51 % 

or more 

Estabs. with 

100 % 

specialization 

Estabs. with 90 

to 99 % 

specialization 

Estabs. with 80 

to 89 % 

specialization 

Estabs. with 

70 to 79 % 

specialization 

Estabs. with 60 

to 69 % 

specialization 

Estabs. with 51 

to 59 % 

specialization 

Marine construction $1,728,083 $1,433,105 $108,622 $81,257 $38,123 $47,960 S 

Harbor and port facilities $0 $0 $0 $0 $0 $0 $0 

Conservation and development construction $2,215,356 $1,159,140 $229,741 $249,653 $134,677 $353,501 $88,644 

Power and communication transmission lines, 

towers, and related facilities $468,520 $368,874 S $24,608 $8,159 $11,886 S 

Sewers, sewer lines, septic systems, and related 

facilities $0 $0 $0 $0 $0 $0 $0 

Sewers, water mains and related facilities $1,420,057 $485,718 $131,224 $121,354 $220,041 $291,336 $170,385 

Pipeline construction other than sewer or water 

lines $351,404 $112,249 $78,524 $32,448 D D $78,678 

Urban mass transit $0 $0 $0 $0 $0 $0 $0 

Railroad construction $0 $0 $0 $0 $0 $0 $0 

Mass transit construction, total $1,675,367 $1,043,053 $112,182 D $107,298 D D 

Blast furnaces, petroleum refineries, chemical 

complexes, etc. $0 $0 $0 $0 $0 $0 $0 

Power plants, nuclear $0 $0 $0 $0 $0 $0 $0 

Power plants and cogeneration plants, except 

nuclear $0 $0 $0 $0 $0 $0 $0 

Sewage treatment plants $0 $0 $0 $0 $0 $0 $0 

Water treatment plants $0 $0 $0 $0 $0 $0 $0 

Sewage and water treatment plants $2,699,575 $818,096 $327,674 $255,130 $413,160 $539,916 $345,601 

Water storage facilities $0 $0 $0 $0 $0 $0 $0 

Dry/solid waste disposal $746,785 $352,148 $90,543 $53,407 $74,059 S $70,040 

Heavy military construction, missile sites, etc. $0 $0 $0 $0 $0 $0 $0 

Ships $0 $0 $0 $0 $0 $0 $0 

Oilfields $0 $0 $0 $0 $0 $0 $0 

Other nonbuilding construction $0 $0 $0 $0 $0 $0 $0 

Construction work, n.s.k. $0 $0 $0 $0 $0 $0 $0 

2B-22
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2B-12

Specialization within NAICS 23593 (Excavation contractors), Categorized by Value of Construction Work (Thousands of 1997 Dollars)

Type of Construction 

Estabs. 

specializing 51 % 

or more 

Estabs. with 

100 % 

specialization 

Estabs. with 90 

to 99 % 

specialization 

Estabs. with 80 

to 89 % 

specialization 

Estabs. with 

70 to 79 % 

specialization 

Estabs. with 60 

to 69 % 

specialization 

Estabs. with 51 

to 59 % 

specialization 

Single-family houses, detached and 

Single-family houses, attached, including 

townhouses and townhouse-type condominiums $4,056,605 $1,537,017 $594,683 $459,760 $734,403 $493,142 $237,601 

Apartment buildings with two or more units, 

including rentals, apartment-type condominiums, 

and cooperatives $296,995 $104,666 $27,862 S D $137,324 D 

Hotels, motels, and tourist cabins $0 $0 $0 $0 $0 $0 $0 

Other residential buildings $0 $0 $0 $0 $0 $0 $0 

Office buildings $379,068 $76,339 $42,754 $31,338 $128,109 $70,563 $29,965 

Other commercial buildings such as stores, 

restaurants, and automobile service stations $0 $0 $0 $0 $0 $0 $0 

All other commercial buildings, n.e.c. $1,103,861 $433,494 $84,081 $119,400 $142,382 $136,372 $188,133 

Manufacturing and light industrial buildings $482,405 $168,083 $66,232 $28,855 $79,252 $94,099 $45,883 

Manufacturing and light industrial warehouses $50,302 $14,307 $1,709 D $18,071 $9,185 D 

Commercial warehouses $103,275 $20,441 $5,074 $19,998 $35,699 S $13,556 

Religious buildings $0 $0 $0 $0 $0 $0 $0 

Educational buildings $158,777 $10,557 $42,653 $50,732 $11,804 $30,845 $12,185 

Hospitals and institutional buildings $0 $0 $0 $0 $0 $0 $0 

Farm buildings, nonresidential $0 $0 $0 $0 $0 $0 $0 

Amusement, social, and recreational buildings, 

indoors $0 $0 $0 $0 $0 $0 $0 

Other nonresidential buildings $207,614 $109,377 S $21,017 $17,709 $24,895 $29,177 

Highways, streets, and related work such as 

installation of guard rails, highway signs, 

lighting, etc. $0 $0 $0 $0 $0 $0 $0 

Outdoor swimming pools $0 $0 $0 $0 $0 $0 $0 

Airport runways and related work $0 $0 $0 $0 $0 $0 $0 

Private driveways and parking areas $341,556 $154,315 $26,982 $49,792 $26,455 $67,760 $16,253 

Fencing $0 $0 $0 $0 $0 $0 $0 

Recreational facilities $0 $0 $0 $0 $0 $0 $0 

Tunnels $0 $0 $0 $0 $0 $0 $0 

2B-23
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2B-12

Specialization within NAICS 23593 (Excavation contractors), Categorized by Value of Construction Work (Thousands of 1997 Dollars)

Type of Construction 

Estabs. 

specializing 51 % 

or more 

Estabs. with 

100 % 

specialization 

Estabs. with 90 

to 99 % 

specialization 

Estabs. with 80 

to 89 % 

specialization 

Estabs. with 

70 to 79 % 

specialization 

Estabs. with 60 

to 69 % 

specialization 

Estabs. with 51 

to 59 % 

specialization 

Bridges and elevated highways $0 $0 $0 $0 $0 $0 $0 

Dam and reservoir construction $0 $0 $0 $0 $0 $0 $0 

Marine construction $0 $0 $0 $0 $0 $0 $0 

Harbor and port facilities $0 $0 $0 $0 $0 $0 $0 

Conservation and development construction $0 $0 $0 $0 $0 $0 $0 

Power and communication transmission lines, 

towers, and related facilities $0 $0 $0 $0 $0 $0 $0 

Sewers, sewer lines, septic systems, and related 

facilities $0 $0 $0 $0 $0 $0 $0 

Water mains and related facilities $0 $0 $0 $0 $0 $0 $0 

Pipeline construction other than sewer or water 

lines $0 $0 $0 $0 $0 $0 $0 

Urban mass transit $0 $0 $0 $0 $0 $0 $0 

Railroad construction $0 $0 $0 $0 $0 $0 $0 

Blast furnaces, petroleum refineries, chemical 

complexes, etc. $0 $0 $0 $0 $0 $0 $0 

Power plants, nuclear $0 $0 $0 $0 $0 $0 $0 

Power plants and cogeneration plants, except 

nuclear $0 $0 $0 $0 $0 $0 $0 

Sewage treatment plants $0 $0 $0 $0 $0 $0 $0 

Water treatment plants $0 $0 $0 $0 $0 $0 $0 

Water storage facilities $0 $0 $0 $0 $0 $0 $0 

Heavy military construction, missile sites, etc. $0 $0 $0 $0 $0 $0 $0 

Ships $0 $0 $0 $0 $0 $0 $0 

Oilfields $0 $0 $0 $0 $0 $0 $0 

Other nonbuilding construction $0 $0 $0 $0 $0 $0 $0 

Construction work, n.s.k. $0 $0 $0 $0 $0 $0 $0 

2B-24
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2B-13

Specialization within NAICS 23594 (Wrecking and demolition contractors), Categorized by Value of Construction Work (Thousands of 1997 Dollars)

Type of Construction 

Estabs. 

specializing 51 % 

or more 

Estabs. with 

100 % 

specialization 

Estabs. with 90 

to 99 % 

specialization 

Estabs. with 80 

to 89 % 

specialization 

Estabs. with 

70 to 79 % 

specialization 

Estabs. with 60 

to 69 % 

specialization 

Estabs. with 51 

to 59 % 

specialization 

Single-family houses, detached and 

Single-family houses, attached, including 

townhouses and townhouse-type condominiums $131,122 $73,376 S $17,406 $5,488 $18,869 $7,553 

Apartment buildings with two or more units, 

including rentals, apartment-type condominiums, 

and cooperatives $0 $0 $0 $0 $0 $0 $0 

Hotels, motels, and tourist cabins $0 $0 $0 $0 $0 $0 $0 

Other residential buildings $0 $0 $0 $0 $0 $0 $0 

Office buildings $134,487 $66,668 $10,005 $27,727 $13,096 $13,996 S 

Other commercial buildings such as stores, 

restaurants, and automobile service stations $0 $0 $0 $0 $0 $0 $0 

All other commercial buildings, n.e.c. $266,265 $184,232 $13,410 $19,643 D $42,138 D 

Manufacturing and light industrial buildings $201,368 $76,279 $25,174 D $35,900 D D 

Warehouses $0 $0 $0 $0 $0 $0 $0 

Religious buildings $0 $0 $0 $0 $0 $0 $0 

Educational buildings $0 $0 $0 $0 $0 $0 $0 

Hospitals and institutional buildings $0 $0 $0 $0 $0 $0 $0 

Farm buildings, nonresidential $0 $0 $0 $0 $0 $0 $0 

Amusement, social, and recreational buildings, 

indoors $0 $0 $0 $0 $0 $0 $0 

Other nonresidential buildings $0 $0 $0 $0 $0 $0 $0 

Highways, streets, and related work such as 

installation of guard rails, highway signs, 

lighting, etc. $0 $0 $0 $0 $0 $0 $0 

Outdoor swimming pools $0 $0 $0 $0 $0 $0 $0 

Airport runways and related work $0 $0 $0 $0 $0 $0 $0 

Private driveways and parking areas $0 $0 $0 $0 $0 $0 $0 

Fencing $0 $0 $0 $0 $0 $0 $0 

Recreational facilities $0 $0 $0 $0 $0 $0 $0 

Tunnels $0 $0 $0 $0 $0 $0 $0 

Bridges and elevated highways $0 $0 $0 $0 $0 $0 $0 

2B-25
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2B-13

Specialization within NAICS 23594 (Wrecking and demolition contractors), Categorized by Value of Construction Work (Thousands of 1997 Dollars)

Type of Construction 

Estabs. 

specializing 51 % 

or more 

Estabs. with 

100 % 

specialization 

Estabs. with 90 

to 99 % 

specialization 

Estabs. with 80 

to 89 % 

specialization 

Estabs. with 

70 to 79 % 

specialization 

Estabs. with 60 

to 69 % 

specialization 

Estabs. with 51 

to 59 % 

specialization 

Dam and reservoir construction $0 $0 $0 $0 $0 $0 $0 

Marine construction $0 $0 $0 $0 $0 $0 $0 

Harbor and port facilities $0 $0 $0 $0 $0 $0 $0 

Conservation and development construction $0 $0 $0 $0 $0 $0 $0 

Power and communication transmission lines, 

towers, and related facilities $0 $0 $0 $0 $0 $0 $0 

Sewers, sewer lines, septic systems, and related 

facilities $0 $0 $0 $0 $0 $0 $0 

Water mains and related facilities $0 $0 $0 $0 $0 $0 $0 

Pipeline construction other than sewer or water 

lines $0 $0 $0 $0 $0 $0 $0 

Urban mass transit $0 $0 $0 $0 $0 $0 $0 

Railroad construction $0 $0 $0 $0 $0 $0 $0 

Blast furnaces, petroleum refineries, chemical 

complexes, etc. $0 $0 $0 $0 $0 $0 $0 

Power plants, nuclear $0 $0 $0 $0 $0 $0 $0 

Power plants and cogeneration plants, except 

nuclear $0 $0 $0 $0 $0 $0 $0 

Sewage treatment plants $0 $0 $0 $0 $0 $0 $0 

Water treatment plants $0 $0 $0 $0 $0 $0 $0 

Water storage facilities $0 $0 $0 $0 $0 $0 $0 

Heavy military construction, missile sites, etc. $0 $0 $0 $0 $0 $0 $0 

Ships $0 $0 $0 $0 $0 $0 $0 

Oilfields $0 $0 $0 $0 $0 $0 $0 

Other nonbuilding construction $0 $0 $0 $0 $0 $0 $0 

Construction work, n.s.k. $0 $0 $0 $0 $0 $0 $0 

2B-26
APPENDIX 2C

Definitions of Key Business Ratios From Dun & Bradstreet
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

SOLVENCY RATIOS 

Quick Ratio 

Cash + Accounts Receivable 

Current Liabilities 

The Quick Ratio is computed by divided cash plus accounts receivable by total current liabilities. 

Current liabilities are all the liabilities that fall due within one year. This ratio reveals the 

protection afforded short-term creditors in cash or near-cash assets. It shows the number of 

dollars of liquid assets available to cover each dollar of current debt. Any time this ratio is as 

much as 1 to 1 (1.0) the business is said to be in a liquid condition. The larger the ratio the 

greater the liquidity. 

Current Ratio 

Current Assets 

Current Liabilities 

Total current assets are divided by total current liabilities. Current assets include cash, accounts 

and notes receivable (less reserves for bad debts), advances on inventories, merchandise 

inventories and marketable securities. This ratio measures the degree to which current assets 

cover current liabilities. The higher the ratio the more assurance exists that the retirement of 

current liabilities can be made. The current ratio measures the margin of safety available to cover 

any possible shrinkage in the value of current assets. Normally a ratio of 2 to 1 (2.0) or better is 

considered good. 

Current Liabilities to Net Worth 

Current Liabilities 

Net Worth 

Current Liabilities to Net Worth is derived by dividing current liabilities by net worth. This 

contrasts the funds that creditors temporarily are risking with the funds permanently invested by 

the owners. The smaller the net worth and the larger the liabilities, the less security for the 

creditors. Care should be exercised when selling any firm with current liabilities exceeding twothirds (66.6 percent) of net worth. 

2C-1 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Current Liabilities to Inventory 

Current Liabilities 

Inventory 

Dividing current liabilities by inventory yields another indication of the extent to which the 

business relies on funds from disposal of unsold inventories to meet its debts. This ratio 

combines with Net Sales to Inventory to indicate how management controls inventory. It is 

possible to have decreasing liquidity while maintaining consistent sales-to-inventory ratios. 

Large increases in sales with corresponding increases in inventory levels can cause an 

inappropriate rise in current liabilities if growth isn’t made wisely. 

Total Liabilities to Net Worth 

Total Liabilities 

Net Worth 

Obtained by dividing total current plus long-term and deferred liabilities by net worth. The effect 

of long-term (funded) debt on a business can be determined by comparing this ratio with Current 

Liabilities to Net Worth. The difference will pinpoint the relative size of long-term debt, which, 

if sizable, can burden a firm with substantial interest charges. In general, total liabilities 

shouldn’t exceed net worth (100 percent) since in such cases creditors have more at stake than 

owners. 

Fixed Assets to Net Worth 

Fixed Assets 

Net Worth 

Fixed assets are divided by net worth. The proportion of net worth that consists of fixed assets 

will very greatly from industry to industry but generally a smaller proportion is desirable. A high 

ratio is unfavorable because heavy investment in fixed assets indicates that either the concern has 

a low net working capital and is overtrading or has utilized large funded debt to supplement 

working capital. Also, the larger the fixed assets, the bigger then annual depreciation charge that 

must be deducted from the income statement. Normally, fixed assets over 75 percent of net 

worth indicate possible over-investment and should be examined with care. 

2C-2 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

EFFICIENCY RATIOS 

Collection Period 

Accounts Receivable 

Sales x 365 

Accounts receivable are divided by sales and then multiplied by 365 days to obtain this figure. 

The quality of the receivables of a company can be determined by this relationship when 

compared with selling terms and industry norms. IN some industries where credit sales are not 

the normal way of doing business, the percentage of cash sales should be taken into 

consideration. Generally, where most sales are for credit, any collection period more than onethird over normal selling terms (40.0 for 30-day terms) is indicative of some slow-turning 

receivables. When comparing the collection period of one concern with that of another, 

allowances should be made for possible variations in selling terms. 

Sales to Inventory 

Annual Net Sales 

Inventory 

Obtained by dividing annual net sales by inventory. Inventory control is a primate management 

objective since poor controls allow inventory to become costly to store, obsolete or insufficient 

to meet demands. The sales-to-inventory relationship is a guide to the rapidity at which 

merchandise is being moved and the effect on the flow of funds into the business. This ratio 

varies widely between lines of business and a company’s figure is only meaningful when 

compared with industry norms. Individual figures that are outside either the upper or lower 

quartiles for a given industry should be examined with care. Although low figures are usually the 

biggest problem, as they indicate excessively high inventories, extremely high turnovers might 

reflect insufficient merchandise to meet customer demand and result in lost sales. 

Asset to Sales 

Total Assets 

Net Sales 

Assets to sales is calculated by dividing total assets by annual net sales. This ratio ties in sales 

and the total investment that is used to generate those sales. While figures vary greatly from 

industry to industry, by comparing a company’s ratio with industry norms it can be determined 

2C-3 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

whether a firm is overtrading (handling an excessive volume of sales in relation to investment) or 

undertrading (not generating sufficient sales to warrant the assets invested). Abnormally low 

percentages (above the upper quartile) can indicate overtrading which may lead to financial 

difficulties if not corrected. Extremely high percentages (below the lower quartile) can be the 

result of overly conservative or poor sales management, indicating a more aggressive sales policy 

may need to be followed. 

Sales to Net Working Capital 

Sales

Net Working Capital

Net Sales are divided by net working capital (net working capital is current assets minus current 

liabilities). This relationship indicates whether a company is overtrading or conversely carrying 

more liquid assets than needed for its volume. Each industry can vary substantially and it is 

necessary to compare a company with its peers to see if it is either overtrading on its available 

funds or being overly conservative. Companies with substantial sales gains often reach a level 

where their working capital becomes strained. Even if they maintain an adequate total investment 

for the volume being generated (Assets to Sales), that investment may be so centered in fixed 

assets or other noncurrent items that it will be difficult to continue meeting all current 

obligations without additional investment or reducing sales. 

Accounts Payable to Sales 

Accounts Payable 

Annual Net Sales 

Computed by dividing accounts payable by annual net sales. This ratio measures how the 

company is paying its suppliers in relation to the volume being transacted. An increasing 

percentage, or one larger than the industry norm, indicates the firm may be using suppliers to 

help finance operations. This ratio is especially important to short-term creditors since a high 

percentage could indicate potential problems in paying vendors. 

2C-4 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

PROFITABILITY RATIOS 

Return on Sales (Profit Margin) 

Net Profit After Taxes 

Annual Net Sales 

Obtained by dividing net profit after taxes by annual net sales. This reveals the profits earned per 

dollar of sales and therefore measures the efficiency of the operation. Return must be adequate 

for the firm to be able to achieve satisfactory profits for its owners. This ratio is an indicator of 

the firm’s ability to withstand adverse conditions such as falling prices, rising costs and declining 

sales. 

Return on Assets 

Net Profit After Taxes 

Total Assets 

Net profit after taxes divided by total assets. This ratio is the key indicator of profitability for a 

firm. It matches operating profits with the assets available to earn a return. Companies efficiently 

using their assets will have a relatively high return while less well-run businesses will be 

relatively low. 

Return on Net Worth (Return on Equity) 

Net Profit After Taxes 

Net Worth 

Obtained by dividing net profit after tax by net worth. This ratio is used to analyze the ability of 

the firm’s management to realize an adequate return on the capital invested by the owners of the 

firm. Tendency is to look increasingly to this ratio as a final criterion of profitability. Generally, 

a relationship of at least 10 percent is regarded as a desirable objective for providing dividends 

plus funds for future growth. 

2C-5 
APPENDIX 2D

Summary Statistics for the C&D Industry, By NAICS Code
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 2D-1. 

Summary Statistics for the C&D Industry

NAICS Description 

Number 

of 

Establishments 

Number of 

Employees 

Annual 

Payroll 

($1000) 

Number of 

Construction 

Workers 

Annual 

Payroll -

Construction 

Workers 

($1000) 

Value 

of 

Construction 

Work ($1000) 

Value of 

Construction 

Work 

Subcontracted 

In ($1000) 

Net Value of 

Construction 

Work 

Value Added 

($1000) 

23 Construction 656,448 5,664,853 174,184,608 4,332,737 119,676,792 845,543,552 237,691,136 612,209,024 383,845,728 

233 

Building, developing, and 

general contracting 199,289 1,342,953 42,546,112 885,939 23,135,832 381,641,600 15,724,829 198,826,896 120,322,720 

2331 

Land subdivision and land 

development 8,186 41,827 1,509,773 10,977 254,247 13,635,521 272,860 10,247,820 9,154,633 

233110 

Land subdivision and land 

development 8,186 41,827 1,509,773 10,977 254,247 13,635,521 272,860 10,247,820 9,154,633 

2332 Residential housing construction 146,394 629,886 16,731,210 407,801 8,762,123 161,286,076 5,260,611 100,124,176 56,374,697 

233210 

Single-family housing 

construction 138,850 570,990 14,964,583 367,719 7,739,858 146,798,768 4,985,452 92,802,168 52,585,924 

233220 

Multifamily housing 

construction 7,544 58,896 1,766,627 40,082 1,022,265 14,487,308 275,159 7,322,008 3,788,773 

2333 

Nonresidential building 

construction 44,709 671,238 24,305,128 467,161 14,119,463 206,720,022 10,191,358 88,454,894 54,793,388 

233310 

Manufacturing and industrial 

building construction 7,280 143,066 5,128,967 107,180 3,322,347 33,514,342 2479077 17202078 10429844 

233320 

Commercial and institutional 

building construction 37,430 528,173 19,176,160 359,981 10,797,116 173,205,680 7712281 71252816 44363544 

234 Heavy construction 42,557 880,400 30,291,850 710,898 22,218,582 127,841,600 28,386,274 105,639,352 68,775,976 

2D-1
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

NAICS Description 

Number 

of 

Establishments 

Number of 

Employees 

Annual 

Payroll 

($1000) 

Number of 

Construction 

Workers 

Annual 

Payroll -

Construction 

Workers 

($1000) 

Value 

of 

Construction 

Work ($1000) 

Value of 

Construction 

Work 

Subcontracted 

In ($1000) 

Net Value of 

Construction 

Work 

Value Added 

($1000) 

2341 

Highway, street, bridge & tunnel 

construction 12,447 325,742 11,374,785 265,267 8,473,898 58,011,325 13,657,005 46,274,086 27,477,466 

234110 Highway and street construction 11,270 277,979 9,527,626 227,066 7,095,139 48,472,284 12,246,944 39,102,084 22,983,910 

234120 Bridge and tunnel construction 1,177 47,764 1,847,160 38,201 1,378,759 9,539,041 1,410,061 7,172,002 4,493,556 

2349 Other heavy construction 30,107 554,655 18,917,062 445,630 13,744,685 69,830,272 14,729,269 59,365,265 41,298,511 

234910 

Water, sewer, and pipeline 

construction 8,042 162,566 5,522,281 134,023 4,087,007 22,204,058 5,233,440 19,126,738 12,280,098 

234920 

Power and communication 

transmission line construction 3,300 74,050 2,387,432 60,880 1,748,715 7,849,436 1,312,622 6,741,945 5,201,423 

234930 

Industrial nonbuilding structure 

construction 531 98,555 3,722,363 79,473 2,734,020 9,255,216 966,283 8,129,656 6288698 

234990 All other heavy construction 18,236 219,486 7,284,989 171,254 5,174,943 30,521,562 7,216,924 25,366,926 17,528,292 

235 Special trade contractors 414,602 3,441,500 101,346,648 2,735,901 2,940,440 336,060,352 193,580,032 307,742,752 194,747,056 

235930 Excavation contractors 18,229 116,237 3,353,874 92,830 2,525,857 13,746,608 8,745,278 12,216,146 9,086,184 

235940 

Wrecking and demolition 

contractors 1,542 18,820 592,176 14,486 414,583 2,164,162 1,099,814 1,913,892 1,732,366 

2D-2
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

a

An establishment is a single physical location at which business is conducted. It is not necessarily identical with a company or enterprise, which may consist of one establishment or more.

b

Value of construction work includes all value of construction work done during 1992 for construction work performed by general contractors and special trades contractors. Included is new

construction, additions and alterations or reconstruction, and maintenance and repair construction work. Also included is the value of any construction work done by the reporting

establishments for themselves. This value is not available for SIC 655, instead estimates of annual revenue from the Census of Financial, Insurance, and Real Estate Industries is used. The

measure includes 'reported revenues, which include revenues from all business activities, including amounts received for work subcontracted out to others. c

Employment comprises all full-time and part-time employees on the payrolls of construction establishments, who worked or received pay for any part of the pay period including the 12th of

March, May, August, and November. Included are all persons on paid sick leave, paid holidays, and paid vacations during these pay periods. Officers of corporations are included, but

proprietors and partners of unincorporated firms are not. All employees is the sum of all employees during the pay periods including the 12th of March, May, August, and November, divided

by 4.

d

Payroll includes the gross earnings paid in the calendar year 1992 to all employees on the payroll of construction establishments. It includes all forms of compensation such as salaries,

wages, commissions, bonuses, vacation allowances, sick leave pay, prior to such deductions as employees' Social Security contribution, withholding taxes, group insurance, union dues, and

savings bonds.

e

Construction workers include all workers up through the working supervisor level directly engaged in construction operations, such as painters, carpenters, plumbers, and electricians. 

Included are journeymen, mechanics, apprentices, laborers, truck drivers and helpers, equipment operators, and on-site recordkeepers and security guards.

f

Construction worker payroll includes gross earnings paid in the calendar year 1992 to all construction workers only.

g

Net value of construction work is derived for each establishment by subtracting the costs for construction work subcontracted to others from the value of construction work done.

h

Value added, derived for each establishment, is equal to dollar value of business done less the costs of construction work subcontracted to others and costs for materials, components,

supplies, and fuels.

i

Value of construction work subcontracted in from others includes the value of construction work during 1992 for work done by reporting establishments as subcontractors.

j

Covers establishments in SICs 1794 (Excavation Work) and 1795 (Wrecking and Demolition Work) only.

k

Covers establishments in SICs 6552 (Land Subdividers and Developers, Except Cemeteries) and 6553 (Cemetery Subdividers and Developers) only. 

S Withheld because estimate did not meet publication standards on the basis of either the response rate, associated relative standard error, or a consistency review.

NA These values are not included in the Census of Financial, Insurance, and Real Estate Industries and therefore are unavailable for SIC 655.

2D-3 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

CHAPTER THREE

DESCRIPTION OF PROPOSED RULE AND REGULATORY OPTIONS

Chapter One provides a summary of the Phase I and Phase II National Pollutant Discharge 

Elimination System (NPDES) Storm Water Regulations and the Construction General Permit (CGP) for 

the construction industry. This chapter describes the effluent limitation guidelines and standards 

program (Section 3.1), the technology alternatives for the proposed effluent limitation guidelines (Section 

3.2), and the regulatory options that EPA is proposing for the C&D industry (Section 3.3). 

3.1 EFFLUENT LIMITATION GUIDELINES AND STANDARDS 

The Federal Water Pollution Control Act, passed in 1972 (CWA, 33 U.S.C. §1251 et seq.), 

establishes a comprehensive program to “restore and maintain the chemical, physical, and biological 

integrity of the Nation's waters” (§101(a)), often referred to as “fishable, swimmable” status. The statute 

was amended in 1987 to include requirements for a comprehensive program to address storm water 

discharges. Moreover, EPA is authorized under section 301, 304, 306, and 307 of the CWA to establish 

effluent limitation guidelines and pretreatment standards for industrial dischargers. EPA is authorized to 

publish the following standards: 

# Best Practicable Control Technology Currently Available (BPT). Under section 

304(b)(1), these rules apply to direct dischargers. BPT limitations are generally based on 

the average of the best existing performances by plants of various sizes, ages, and unit 

processes within a point source category or subcategory. 

# Best Available Technology Economically Achievable (BAT). Under section 304(b)(2), 

these rules apply to direct discharges of toxic and nonconventional1

 pollutants. 

1

 Toxic pollutants are listed in Table 1 of U.S.C 1317 Section 307(a)(1) and currently include 64 pollutants 

and their organic and inorganic compounds. This list includes arsenic, DDT, lead, and mercury. Nonconventional 

pollutants are any pollutants that are not statutorily listed (not covered by the list of toxic or conventional pollutants) 

or which are poorly understood by the scientific community. 

3-1 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

# Best Conventional Pollutant Control Technology (BCT). Under section 304(b)(4), 

these rules apply to direct discharges of conventional pollutants.2 BCT limitations are 

generally established using a two-part cost-reasonableness test. BCT replaces BAT for 

control of conventional pollutants. 

# Pretreatment Standards for Existing Sources (PSES). Under section 307. Analogous to 

BAT controls, these rules apply to existing indirect dischargers (i.e., dischargers to 

publicly owned treatment works (POTWs). 

# New Source Performance Standards (NSPS). Under section 306(b), these rules apply 

to discharges of toxic and nonconventional pollutants and apply to new direct 

dischargers. 

# Pretreatment Standards for New Sources (PSNS). Under section 307. Analogous to 

NSPS controls, these rules apply to new source indirect dischargers (i.e., dischargers to 

publicly owned treatment works (POTWs). 

Under the proposed effluent limitation guidelines (ELG), EPA is proposing BAT, BPT, BCT and 

NSPS guidelines and standards for erosion and sediment control (ESC) during the active construction 

phase. 

3.2 REQUIREMENTS UNDER THE EXISTING CONSTRUCTION GENERAL PERMIT 

The CGP, published in 1992 and revised in 1998, directs NPDES permittees to prepare a storm 

water pollution prevention plan (SWPPP) for certain construction activities. The CGP also calls for 

installation of temporary sediment basins for construction sites with disturbed area of 10 acres or more. 

The permit lists a variety of options and goals for other ESCs, but none are required. A description of 

ESCs, if any, is to be contained in the SWPPP. Options and goals for post-construction storm water best 

management practices (BMPs) are also contained in the CGP, but none are required. As with ESCs, 

selected BMPs, if any, are to be described in the SWPPP. 

The C&D industry ELG would build upon and complement the CGP by adding inspection and 

certification (I&C) requirements for active construction ESCs. As described below, under one option 

2

 Conventional pollutants include biochemical oxygen demand (BOD), total suspended solids (TSS), fecal 

coliform, pH, and oil and grease. 

3-2 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

EPA would add the I&C requirements for sites of one acre or more in size, while under another option 

the I&C requirements would apply to sites of 5 acres and above. This second option would also codify in 

the Code of Federal Regulations (CFR) the requirements found in the CGP. These options are described 

more fully below. 

3.3 SUMMARY OF REGULATORY OPTIONS/TECHNOLOGY ALTERNATIVES 

EPA is co-proposing two regulatory alternatives, along with a “no regulation” option, for a total 

of three regulatory options. EPA has defined the baseline for the proposed rule as full compliance with 

the current Phase I NPDES storm water regulations and the future Phase II regulations. If any additional 

costs are incurred by dischargers under the existing storm water regulations the costs will be added to the 

baseline assumption. Table 3-1 summarizes the regulatory options. Throughout the analysis presented in 

this report, EPA treats the baseline as “Option 3.” 

Table 3-1. Summary of Regulatory Options Being Co-Proposed by EPA 

Option Description Regulatory Mechanism Applicability 

Option 1 Inspection and 

Certification of 

Construction Site Erosion 

and Sediment Controls 

Amendment to NPDES 

storm water permitting 

regulations 

Sites of 1 acre or more 

Option 2 “Codification” of the 

Construction General 

Permit (CGP) 

plus Inspection and 

Certification 

Requirements 

Effluent limitation 

guidelines 

Sites of 5 acres or more 

Option 3 No Regulation (Baseline) N/A All sites 

3-3
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

3.3.1 Option 1 

Option 1 would amend 40 CFR Part 122, the section of the CFR covering NPDES permitting, 

adding a new paragraph (t) section to §122.44 entitled Inspection and Certification for Construction Site 

Storm Water Discharges. These requirement in this section would include: 

(1) Site log book. The permittee for a point source discharge under § 122.26(b)(14)(x) or 

§ 122.26(b)(15) shall maintain a record of site activities in a site log book. The site log 

book shall be maintained as follows: 

(i) A copy of the site log book shall be maintained on site and be made available to the 

permitting authority upon request; 

(ii) In the site log book, the permittee shall certify, prior to the commencement of 

construction activities, that any plans required by the permit meet all Federal, State, 

Tribal and local erosion and sediment control requirements and are available to the 

permitting authority; 

(iii) The permittee shall have a qualified professional (knowledgeable in the principles and 

practices of erosion and sediment controls, such as a licensed professional engineer, or 

other knowledgeable person) conduct an assessment of the site prior to groundbreaking 

and certify in the log book that the appropriate best management practices (BMPs) 

described in plans required by the permit have been adequately designed, sized and 

installed to ensure overall preparedness of the site for initiation of groundbreaking 

activities. The permittee shall record the date of initial groundbreaking in the site log 

book. The permittee shall also certify that any inspection, stabilization and BMP 

maintenance requirements of the permit have been satisfied within 48 hours of actually 

meeting such requirements; and 

(iv) The permittee shall post at the site, in a publicly-accessible location, a summary of the 

site inspection activities on a monthly basis; 

(2) Site Inspections. The permittee or designated agent of the permittee (such as a 

consultant, subcontractor, or third-party inspection firm) shall conduct regular 

inspections of the site and record the results of such inspection in the site log book in 

accordance with paragraph (t)(1) of this section. 

(i) After initial groundbreaking, permittees shall conduct site inspections at least every 14 

calendar days and within 24 hours of the end of a storm event of 0.5 inches or greater. 

These inspections shall be conducted by a qualified professional. During each 

inspection, the permittee or designated agent shall record the following information: 

3-4 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

(A) Indicate on a site map the extent of all disturbed site areas and drainage 

pathways. Indicate site areas that are expected to undergo initial disturbance or 

significant site work within the next 14 days; 

(B) Indicate on a site map all areas of the site that have undergone temporary or 

permanent stabilization; 

(C) Indicate all disturbed site areas that have not undergone active site work during 

the previous 14 days; 

(D) Inspect all sediment control practices and note the approximate degree of 

sediment accumulation as a percentage of the sediment storage volume (for 

example 10 percent, 20 percent, 50 percent, etc.). Note all sediment control 

practices in the site log book that have sediment accumulation of 50 percent or 

more; and 

(E) Inspect all erosion and sediment control BMPs and note compliance with any 

maintenance requirements such as verifying the integrity of barrier or diversion 

systems (e.g., earthen berms or silt fencing) and containment systems (e.g., 

sediment basins and sediment traps). Identify any evidence of rill or gully 

erosion occurring on slopes and any loss of stabilizing vegetation or 

seeding/mulching. Document in the site log book any excessive deposition of 

sediment or ponding water along barrier or diversion systems. Note the depth of 

sediment within containment structures, any erosion near outlet and overflow 

structures, and verify the ability of rock filters around perforated riser pipes to 

pass water. 

(ii) Prior to filing of the Notice of Termination or the end of permit term, a final site erosion 

and sediment control inspection shall be conducted by the permittee or designated agent. 

The inspector shall certify that the site has undergone final stabilization as required by 

the permit and that all temporary erosion and sediment controls (such as silt fencing) not 

needed for long-term erosion control have been removed. 

Option 1 would also amend §122.44(i)(4) to exclude construction activities from requirements 

for monitoring of storm water discharges. 

Option 1 would apply to sites of one acre or more in size. 

3.3.2 Option 2 

Option 2 would add a new section to the effluent limitation guidelines section of the CFR, i.e., 

Part 450—Construction and Development Point Source Category. This section would essentially codify 

3-5 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

in the CFR the provisions of the CGP (see Section 3.2), and in addition would add the provisions for I&C 

introduced under Option 1 (Section 3.3.1). Option 2 would amend 40 CFR 122(i)(3) to specify that 

discharges from construction activity are instead governed by Part 450. 

40 CFR Part 450, Subpart A describes applicability and provides definitions. Subpart B would 

establish the ESC requirements based on application of BPT, BAT, BCT, and NSPS. 

Part 450 would apply to construction and development activities subject to an NPDES permit 

under the definition of “construction activity” at 40 CFR 122.26(b)(14)(x). Section 450.11 establishes 

some general definitions for the following terms: BMPs, commencement of construction, final 

stabilization, groundbeaking, new source, operator, perimeter controls, qualified professional, runoff 

coefficient, and stabilization. 

Section 450.21 would establish effluent limitations reflecting best practicable technology 

currently available (BPT), as follows:3 

Except as provided in 40 CFR 125.30 through 125.32, any existing point source subject to this 

subpart must achieve the following effluent limitations representing the application of the best 

practicable control technology currently available (BPT). Permittees with operational control over 

construction plans and specification, including the ability to make modifications to those plans and 

specifications (e.g., developer or owner), must ensure the project specifications that they develop meet 

the minimum requirements of a SWPPP required by § 450.21(d). 

(a) General Erosion and Sediment Controls. Each SWPPP shall include a description of 

appropriate controls designed to retain sediment on site to the extent practicable. These 

general erosion and sediment controls shall be included in the SWPPP developed 

pursuant to paragraph (d) of this section. The SWPPP must include a description of 

interim and permanent stabilization practices for the site, including a schedule of when 

the practices will be implemented. Stabilization practices may include: 

(1) Establishment of temporary or permanent vegetation; 

3

 Parts 450.22, 450.23, and 450.24 would establish identical requirements for BAT, BCT, and NSPS, 

respectively. 

3-6 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

(2) Mulching, geotextiles, or sod stabilization; 

(3) Vegetative buffer strips; 

(4) Protection of trees and preservation of mature vegetation. 

(b) Sediment Controls. The SWPPP must include a description of structural practices to 

divert flows from exposed soils, store flows, or otherwise limit runoff and the discharge 

of pollutants from exposed areas of the site to the degree attainable. 

(1) For common drainage locations that serve an area with 10 or more acres 

disturbed at one time, a temporary (or permanent) sediment basin that provides 

storage for a calculated volume of runoff from a 2 year, 24-hour storm from 

each disturbed acre drained, or equivalent control measures, shall be provided 

where attainable until final stabilization of the site. Where no such calculation 

has been performed, a temporary (or permanent) sediment basin providing 3,600 

cubic feet of storage per acre drained, or equivalent control measures, shall be 

provided where attainable until final stabilization of the site. When computing 

the number of acres draining into a common location it is not necessary to 

include flows from off-site areas and flows from on-site areas that are either 

undisturbed or have undergone final stabilization where such flows are diverted 

around both the disturbed area and the sediment basin. 

(2) In determining whether a sediment basin is attainable, the operator may consider 

factors such as site soils, slope, available area on site, etc. In any event, the 

operator must consider public safety, especially as it relates to children, as a 

design factor for the sediment basin, and alternative sediment controls shall be 

used where site limitations would preclude a safe basin design. 

(3) For portions of the site that drain to a common location and have a total 

contributing drainage area of less than 10 disturbed acres, the operator should 

use smaller sediment basins and/or sediment traps. 

(4) Where neither a sediment basin nor equivalent controls are attainable due to site 

limitations, silt fences, vegetative buffer strips or equivalent sediment controls 

are required for all down slope boundaries of the construction area and for those 

side slope boundaries deemed appropriate as dictated by individual site 

conditions. 

(c) Pollution Prevention Measures. The SWPPP shall include the following pollution 

prevention measures: 

(1) Litter, construction chemicals, and construction debris exposed to storm water 

shall be prevented from becoming a pollutant source in storm water discharges 

(e.g., screening outfalls, picked up daily); and 

(2) A description of construction and waste materials expected to be stored on-site 

with updates as appropriate, and a description of controls to reduce pollutants 

3-7 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

from these materials including storage practices to minimize exposure of the 

materials to storm water, and spill prevention and response. 

(d) Storm Water Pollution Prevention Plan. Operators subject to this Part shall compile 

Storm Water Pollution Prevention Plans (SWPPPs) prior to groundbreaking at any 

construction site. In areas where EPA is not the permit authority, operators may be 

required to prepare documents that may serve as the functional equivalent of a SWPPP. 

Such alternate documents will satisfy the requirements for a SWPPP so long as they 

contain the necessary elements of a SWPPP. A SWPPP shall incorporate the following 

information: 

(1) A narrative description of the construction activity, including a description of the 

intended sequence of major activities that disturb soils on the site (major 

activities include grubbing, excavating, grading, and utilities and infrastructure 

installation, or any other activity that disturbs soils for major portions of the 

site); 

(2) A general location map (e.g., portion of a city or county map) and a site map. 

The site map shall include descriptions of the following: 

(i) Drainage patterns and approximate slopes anticipated after major 

grading activities; 

(ii) The total area of the site and areas of disturbance; 

(iii) Areas that will not be disturbed; 

(iv) Locations of major structural and nonstructural controls identified in the 

SWPPP; 

(v) Locations where stabilization practices are expected to occur; 

(vi) Locations of off-site material, waste, borrow or equipment storage areas; 

(vii) Surface waters (including wetlands); and 

(viii) Locations where storm water discharges to a surface water; 

(3) A description of available data on soils present at the site; 

(4) A description of BMPs to be used to control pollutants in storm water discharges 

during construction as described elsewhere in this section; 

(5) A description of the general timing (or sequence) in relation to the construction 

schedule when each BMP is to be implemented; 

3-8 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

(6) An estimate of the pre-development and post-construction runoff coefficients of 

the site; 

(7) The name(s) of the receiving water(s); 

(8) Delineation of SWPPP implementation responsibilities for each site owner or 

operator; 

(9) Any existing data that describe the storm water runoff characteristics at the site. 

(e) Updating the SWPPP. The operator shall amend the SWPPP and corresponding erosion 

and sediment control BMPs whenever: 

(1) There is a change in design, construction, or maintenance that has a significant 

effect on the discharge of pollutants to waters of the United States which has not 

been addressed in the SWPPP; or 

(2) Inspections or investigations by site operators, local, State, Tribal or Federal 

officials indicate that the SWPPP is proving ineffective in eliminating or 

significantly minimizing pollutant discharges. 

(f) Site Log Book/Certification. The operator shall maintain a record of site activities in a 

site log book, as part of the SWPPP. The site log book shall be maintained as follows: 

(1) A copy of the site log book shall be maintained on site and be made available to 

the permitting authority upon request; 

(2) In the site log book, the operator shall certify, prior to the commencement of 

construction activities, that the SWPPP prepared in accordance with paragraph 

(d) of this section meets all Federal, State and local erosion and sediment control 

requirements and is available to the permitting authority; 

(3) The operator shall have a qualified professional conduct an assessment of the 

site prior to groundbreaking and certify in the log book that the appropriate 

BMPs and erosion and sediment controls described in the SWPPP and required 

by paragraphs (a), (b), (c) and (d) of this section have been adequately designed, 

sized and installed to ensure overall preparedness of the site for initiation of 

groundbreaking activities. The operator shall record the date of initial 

groundbreaking in the site log book. The operator shall also certify that the 

requirements of paragraphs (g), (h) and (i) of this section have been satisfied 

within 48 hours of actually meeting such requirements; 

(4) The operator shall post at the site, in a publicly-accessible location, a summary 

of the site inspection activities on a monthly basis. 

(g) Site Inspections. The operator or designated agent of the operator (such as a consultant, 

subcontractor, or third-party inspection firm) shall conduct regular inspections of the site 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

and record the results of such inspection in the site log book in accordance with 

paragraph (f) of this section. 

(1) After initial groundbreaking, operators shall conduct site inspections at least 

every 14 calendar days and within 24 hours of the end of a storm event of 0.5 

inches or greater. These inspections shall be conducted by a qualified 

professional. During each inspection, the operator or designated agent shall 

record the following information: 

(i) On a site map, indicate the extent of all disturbed site areas and drainage 

pathways. Indicate site areas that are expected to undergo initial 

disturbance or significant site work within the next 14-day period; 

(ii) Indicate on a site map all areas of the site that have undergone temporary 

or permanent stabilization; 

(iii) Indicate all disturbed site areas that have not undergone active site work 

during the previous 14-day period; 

(iv) Inspect all sediment control practices and note the approximate degree of 

sediment accumulation as a percentage of the sediment storage volume 

(for example 10 percent, 20 percent, 50 percent, etc.). Record all 

sediment control practices in the site log book that have sediment 

accumulation of 50 percent or more; and 

(v) Inspect all erosion and sediment control BMPs and record all 

maintenance requirements such as verifying the integrity of barrier or 

diversion systems (earthen berms or silt fencing) and containment 

systems (sediment basins and sediment traps). Identify any evidence of 

rill or gully erosion occurring on slopes and any loss of stabilizing 

vegetation or seeding/mulching. Document in the site log book any 

excessive deposition of sediment or ponding water along barrier or 

diversion systems. Record the depth of sediment within containment 

structures, any erosion near outlet and overflow structures, and verify the 

ability of rock filters around perforated riser pipes to pass water. 

(2) Prior to filing of the Notice of Termination or the end of permit term, a final site 

erosion and sediment control inspection shall be conducted by the operator or 

designated agent. The inspector shall certify that the site has undergone final 

stabilization using either vegetative or structural stabilization methods and that 

all temporary erosion and sediment controls (such as silt fencing) not needed for 

long-term erosion control have been removed. 

(h) Stabilization. The operator shall initiate stabilization measures as soon as practicable in 

portions of the site where construction activities have temporarily or permanently ceased, 

but in no case more than 14 days after the construction activity in that portion of the site 

has temporarily or permanently ceased. This requirement does not apply in the following 

instances: 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

(1) Where the initiation of stabilization measures by the 14th day after construction 

activity temporarily or permanently ceased is precluded by snow cover or frozen 

ground conditions, stabilization measures shall be initiated as soon as 

practicable; 

(2) Where construction activity on a portion of the site is temporarily ceased, and 

earth-disturbing activities will be resumed within 21 days, temporary 

stabilization measures need not be initiated on that portion of the site. 

(3) In arid areas (areas with an average annual rainfall of 0 to 10 inches), semi-arid 

areas (areas with an average annual rainfall of 10 to 20 inches), and areas 

experiencing droughts where the initiation of stabilization measures by the 14th 

day after construction activity has temporarily or permanently ceased is 

precluded by seasonably arid conditions, the operator shall initiate stabilization 

measures as soon as practicable. 

(i) Maintenance. Sediment shall be removed from sediment traps or sediment ponds when 

design capacity has been reduced by 50 percent. 

Option 2 would apply to sites of five acres or more. 

3.3.3 Option 3 

Option 3 is the “no regulation” option. Storm water runoff from construction and development 

activities would continue to be managed in accordance with the requirements of the CGP. There would 

be no incremental compliance requirements and consequently no incremental compliance costs or 

benefits. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

CHAPTER FOUR

ECONOMIC IMPACT ANALYSIS METHODOLOGY

4.1 OVERVIEW OF ECONOMIC IMPACT ANALYSIS METHODOLOGY 

This chapter presents EPA’s methodology for analyzing the economic impacts of the proposed 

erosion and sediment control (ESC) regulations for the construction and development (C&D) industry. 

EPA has employed a number of different methods for assessing the economic impacts of the proposed rule. 

These include models that analyze impacts at the level of the individual construction project, the individual 

firm, national construction markets, and the national economy as a whole. The analysis considers impacts 

on the firms in the C&D industry who would be complying with the regulations, on those who purchase 

the output of the C&D industry, and on those who would be responsible for implementing the proposed 

rule. 

The analysis is based upon engineering cost estimates developed by EPA. The engineering costs 

reflect the costs to comply with requirements related to erosion and sediment controls (ESCs) employed 

over a relatively short period (generally less than one year) during which land is being converted from an 

undeveloped to a developed state. The engineering costs also include the costs associated with meeting 

any paperwork requirements triggered by the proposed rule, including any requirements related to the 

permitting of construction and development projects, and incremental inspection and certification 

requirements for ESCs. 

The outline of the chapter is as follows: 

• Section 4.2 presents EPA’s analysis of the impacts of the proposed rule on model C&D 

projects. Here EPA develops pro forma financial analyses for representative projects and 

analyzes the impact of the incremental regulatory costs on project viability. The section 

includes a description of the model projects, model project analysis methodology, data 

sources, and assumptions used in the model project analysis. The model project analysis 

results are presented in Chapter Five, Section 5.2. 

• Section 4.3 presents EPA’s analysis of the impacts of the proposed rule on model C&D 

firms. This section uses data on the financial condition of representative firms to examine 

the impact of the incremental compliance requirements on the model firm’s financial 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

condition. This section also describes how the model firm analysis is used to evaluate 

economic achievability and barrier to entry considerations for the proposed rule, and to 

conduct the firm closure analysis and small entity impact analysis. This section includes a 

description of the model firms, model firm analysis methodology, data sources, and 

assumptions used in the model firm analysis. The model firm analysis results, including 

those from the economic achievability, barrier to entry, closure, and employment loss 

analyses, are presented in Chapter Five, Sections 5.4 through 5.6. 

• Section 4.4 presents EPA’s methodology for estimating the national compliance costs of 

the proposed rule. These costs are estimated starting with the per-acre compliance costs 

estimated by EPA. The per-acre costs are applied to national estimates of the amount of 

land converted to developed status annually. National compliance cost estimates are 

presented in Chapter Five, Section 5.3. 

• Section 4.5 describes EPA’s partial equilibrium market model analysis. This section 

considers the impact of the incremental compliance requirements on consumers of the 

construction industry’s output, in particular the impacts on home buyers and on housing 

affordability. The section includes a description of the market model methodology, data 

sources, and assumptions used in the market models. The market modeling results are 

presented in Chapter Five, Section 5.6. 

• Section 4.6 expands the analysis to consider the net impacts of the proposed rule on the 

national economy. While the compliance costs would reduce output in the construction 

industry there may be an offsetting increase in spending related to ESCs and inspection 

and certification. EPA uses input-output analysis to trace the implications of these 

spending shifts on the national economy. The result is an overall estimate of the impact 

on macroeconomic variables such as output and national employment. The results of the 

national economic impact analysis are presented in Chapter Five, Section 5.7. 

• Section 4.7 considers the impacts on governmental units associated with establishing or 

modifying permitting programs to reflect the requirements in the proposed rule as well as 

new or increased costs related to permit processing. The results of the government cost 

impact analyses are presented in Chapter Five, Section 5.8. 

4.1.1 Compliance and Baseline Assumptions 

In this analysis EPA assumes that the proposed rule would impact markets that have already fully 

implemented existing regulations related to storm water controls for C&D activities. EPA assumes that all 

states, tribal lands, and territories comply with the existing regulations or have equivalent programs. These 

programs are assumed to include all of the requirements affecting C&D activities that were part of the 

national storm water Phase I and Phase II NPDES storm water regulations. Since the Phase II regulations 

are not scheduled to be fully implemented until 2003, however, EPA acknowledges that 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

current market conditions may not fully reflect the baseline that would apply at the time the proposed rule 

comes into force. Specifically, EPA notes that the baseline market conditions assumed in this analysis 

(including baseline financial conditions for affected firms) may not fully reflect the implementation of 

Phase II NPDES storm water requirements. For this reason, EPA has conducted a supplemental analysis 

that reflects less than 100 percent implementation of the Phase II NPDES storm water rule in the baseline. 

The supplemental baseline analysis is presented in Appendix 5C of this report. 

4.1.2 Cost Pass Through Assumptions 

EPA has incorporated into each of the impact analyses described below specific assumptions about 

the incidence of the compliance costs. This section describes generally EPA’s conclusions about cost 

incidence for the proposed regulation and then outlines the specific assumptions made for each impact 

analysis. 

In general, EPA believes that developers and builders faced with an increase in costs due to new 

ESC requirements would have an incentive to pass on all or some of the increased cost to the project 

owner. (This is referred to as cost pass through, or CPT). The extent to which the costs can be passed 

through in practice would depend on market conditions. The demand elasticity of the project owner (i.e., 

the sensitivity of the purchase decision to incremental changes in price) would be influenced by two main 

factors: 

• The magnitude of the cost increase relative to the overall cost of the project. For example, 

on a large office project or even a high end single-family home, the buyer may put up little 

resistance if the cost increase is small relative to the overall cost of the project. 

• The availability and price of substitutes. If the cost increase affects all suppliers and all 

substitutes equally, then the project owner is less likely to resist an incremental price 

increase. 

Since the proposed rule would be national in scope and the compliance costs would be similar 

within a given geographic region (assuming similar sites), the compliance costs should affect the buyer’s 

alternate suppliers roughly equally. This suggests that if the costs are small relative to the total cost of 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

the project, demand should be relatively inelastic and the builder would be able to pass all or most of the 

cost increase on to the buyer. 

Another factor facilitating cost pass through for builders is that project owners often plan for 

unexpected cost changes by building contingencies into their budgets. A common mechanism in new 

residential construction, for example, is for the home buyer to absorb an unexpected cost increase at one 

stage of construction by reducing costs on a later stage. This might be done, for example, by selecting 

less expensive flooring material, deferring finishing of a basement, or opting to build a garage at a later 

date. 

This line of reasoning, which suggests demand is generally inelastic, presumes that the “good” 

the buyer is purchasing is “new construction.” In most markets, however, the owner can also elect to buy 

from an inventory of existing homes, office or retail space, or industrial facilities available for sale, or to 

rent from a corresponding inventory of rental properties. To the extent that existing construction and 

rental property serves as a perfect or even partial substitute for new construction, the buyer’s demand 

elasticity would also be influenced by conditions in the existing construction and rental markets. 

Existing homes and existing office, retail or industrial space would not be affected by the 

proposed regulation. Cost increases that differentially affect new construction may cause some buyers to 

choose existing construction over new, i.e., they could elect to buy or rent rather than build. The strength 

of demand for new relative to existing construction depends on the relative availability, suitability, and 

price of each type of construction. Buyers choosing new over existing construction often do so for 

reasons related to location, the ability to match their specific needs, expected length of tenure, and greater 

certainty about a structure’s condition and future maintenance requirements. Demand for new 

construction is also highly influenced by the availability, quality, and age of existing construction. In 

geographic areas or market segments where the existing inventory is weak or unsuitable, demand for new 

construction would be stronger. 

Evidence from the literature suggests that in residential construction, regulatory-related costs are 

usually passed on to consumers (e.g., Luger and Temkin 2000), and this general observation was echoed 

during EPA’s focus group sessions with members of NAHB. Industry literature points out that in the 

recent past, a variety of market forces have shifted the new construction market towards larger, more 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

expensive homes (NAHB 2001a). Other things equal, demand in the higher end of the housing market 

tends to be more inelastic. Efforts to model the housing sector have shown that new construction is more 

affected by changes in household formation and income than marginal changes in price (Hirsch 1994). 

Given this evidence, EPA believes overall that demand in the single-family housing sector is relatively 

inelastic. 

In the other sectors modeled (multifamily housing, commercial, industrial), EPA believes 

demand to be relatively inelastic as well. In the non-residential sectors, interest rates, regional economic 

performance and outlook, and changing technological needs are important drivers of building demand. 

As shown in the subsequent chapter, the change in costs relative to total project costs in these markets are 

relatively small and unlikely to influence the purchase decision, given the greater significance of these 

other factors. 

EPA notes that under certain conditions developers might also attempt to pass regulatory costs 

back to land owners. In a depressed market, builders may argue successfully that a regulatory cost 

increase would make a particular project unprofitable unless the land costs can be reduced. For example, 

if the land owner is convinced that a residential subdivision project would not go ahead because home 

buyers would not absorb an unexpected increase in sales price, they may be willing to accept a lower 

price per acre for raw land. The ability of developers to pass such costs back would likely depend on the 

land owner’s experience in land development projects, their knowledge of the local real estate market, 

and in particular their understanding of the regulation and its likely cost. While some evidence of cost 

pass-back to land owners exists for fixed and readily identifiable regulatory costs, such as development 

impact fees (Luger and Temkin 2000), it is unclear whether a builder’s claim that costs would be higher 

due to the types of requirements imposed by the proposed rule would induce land owners to make 

concessions. 

In the sections below, EPA has made differing assumptions concerning whether compliance 

costs are passed through to buyers, and to what extent. In the model project analyses in Section 4.2, for 

example, EPA analyzes results under the extreme conditions of zero and 100 percent CPT. This enables 

EPA to examine the impacts under worst-case assumptions with respect to builders (zero CPT), as well 

as to owners (100 percent CPT). 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

In other parts of the impact analysis EPA introduces more realistic assumptions about actual 

market conditions. For example, it is generally thought that the long run supply of new construction is 

almost perfectly elastic, as resources can shift easily into the industry. When empirical elasticity 

estimates are used to estimate actual cost pass through, the combination of inelastic demand and highly 

elastic supply results in relatively high cost pass through rates, on the order of 85 percent. In the model 

firm and closure analysis (Section 4.3), EPA analyzes the impacts under conditions of zero CPT (worstcase) as well as under the most realistic estimates of actual CPT. In the market models (Sections 4.5 and 

4.6) EPA uses only the estimates of actual CPT. 

4.1.3 Operation and Maintenance Costs 

In order to remain effective all of the ESCs should be maintained. The engineering costs for 

ESCs include costs for operating and maintaining the controls. The controls used during the active phase 

of construction are assumed to be in place for one year and therefore should be maintained throughout 

the period. 

4.1.4 Impacts Associated With NSPS 

Under Option 2, EPA is proposing to define a “new source” under Part 450 as: “any source of 

storm water discharge associated with construction activity that results in the disturbance of at least five 

acres total land area that itself will produce an industrial source from which there may be a discharge of 

pollutants regulated by some other new source performance standard elsewhere under subchapter N.”1 

This definition would mean that the land-disturbing activity associated with constructing a particular 

facility would not itself constitute a "new source" unless the results of that construction would yield a 

"new source" regulated by other new source performance standards. For example, construction activity 

that is intended to build a new pharmaceutical plant covered by 40 CFR 439.15 would be subject to new 

source performance standards under § 450.24. At the same time, EPA is seeking comment on whether 

1

 All new source performance standards promulgated by EPA for categories of point sources are codified in 

subchapter N. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

no sources regulated under Option 2 should be deemed “new sources” on the grounds that construction 

activity itself is outside the scope of those activities intended to be covered by Section 306 of the Clean 

Water Act (CWA).2 

Under the proposed definition, EPA believes that the NSPS standards could trigger a National 

Environmental Policy Act (NEPA) review process for those C&D activities permitted by EPA. To assess 

the potential impact of such a result, EPA examined NPDES construction permitting data for 19 states 

fully or partially administered by EPA. In 2000, the number of permits administered by EPA was 8,563. 

EPA believes, however, that by the time the proposed C&D rule is finalized the states of Florida, Maine, 

and Texas (currently fully administered by EPA) will have assumed permitting authority for construction 

activities. In 2000, the number of permits administered by EPA excluding these three states was 1,454. 

The NPDES permitting data does not include sufficient detail to indicate the number of sources 

that could be new sources covered by CWA Section 306. EPA notes, however, that in a 1999 study of 14 

jurisdictions, slightly under one percent of construction permits were for industrial facilities (EPA, 1999; 

see Table 4-15). Based on this, EPA believes that the number of construction permits for new sources 

(regulated under Subchapter N) that would be administered by EPA is likely to be small. At this time, 

therefore, EPA has not estimated any potential costs for NEPA review as part of this economic analysis. 

4.2 IMPACTS ON MODEL PROJECTS 

EPA has analyzed the impacts of the proposed rule by developing financial models of 

representative C&D projects. These models evaluate whether the additional costs of complying with the 

proposed regulation would make the model project unprofitable and vulnerable to abandonment or 

closure. In the absence of an industry survey, the economic models are based on EPA’s best available 

data and assumptions concerning construction project characteristics, and are designed to depict as 

accurately as possible the change in cash flow resulting from compliance with the proposed rule for 

typical projects, representative of the type required to comply with the proposed rule. The models 

developed reflect the range of C&D projects typically undertaken by industry participants. 

2

 "The term 'new source' means any source, the construction of which is commenced . . ." 33 U.S.C. sec. 

1316(a)(2)(emphasis added). 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

4.2.1 Description of Model Project Approach 

EPA selected the model project types by analyzing data on the output of the C&D industry. The 

industry output reflects both the diversity of the industry itself and the diversity of the U.S. economy 

overall. To illustrate this diversity, EPA notes that the Census of Construction assigns construction 

projects to one of 17 building and 32 nonbuilding construction categories (see Appendix 2A, Table 2A-3). 

In terms of economic value, building construction projects accounted for $371.4 billion (97.3 percent of 

total construction revenues) in 1997, while nonbuilding construction projects accounted for only $5.9 

billion (1.5 percent).3 

The largest single category of construction activity, accounting for $150.5 billion (39.4 percent of 

the total), was single-family home construction. This was followed by office buildings at $40.3 billion 

(10.6 percent of the total), all other commercial buildings at $36.5 billion (9.6 percent of the total), 

manufacturing and light industrial buildings at $26.2 billion (6.8 percent of the total), educational 

buildings at $25.1 billion (6.6 percent of the total), and multifamily housing at $19.6 billion (5.1 percent of 

the total). Based on this review, EPA developed models for four types of development projects that reflect 

the range of projects undertaken by the industry and that would fall within the ambit of the proposed rule. 

These included: 

• A residential development of single-family homes 

• A residential development of multifamily housing units 

• A commercial development (enclosed shopping center) 

• An industrial development (industrial park) 

Furthermore, for each class of project , EPA has developed models that correspond to a range of 

project sizes. In each case, there are versions of the model for projects of 1, 3, 7.5, 25, 70, and 200 acres. 

The combination of four project types and six project size classes results in a total of 24 model projects. 

EPA’s models for these projects assess their vulnerability to shutdown or closure by predicting the 

cash flow changes that would result from the incremental costs that project developers would incur in 

3

 Another $4.2 billion (1.1 percent of the total) was not specified by kind. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

complying with the proposed rule. The models establish the baseline financial conditions for each 

representative project and assess the significance of the change in cash flow that results from the 

incremental compliance costs. The model project characteristics are based on best available data and 

reasonable assumptions about development activities and project financing. 

4.2.2 Treatment of Nonbuilding Construction Projects 

As noted above, an estimated $5.9 billion in nonbuilding construction is put in place each year. 

This total includes highways, roads and streets ($1.6 billion); sewage and water treatment facilities ($1.7 

billion); bridges, tunnels, and elevated highways ($587 million); sewers and water mains ($211 million); 

power and communication lines and towers ($160 million); and private driveways and parking areas 

($100 million). While considerable in absolute value, such nonbuilding construction activity represents 

less than two percent of the total value of construction completed. Estimates of the land area disturbed as 

a result of nonbuilding construction activity are not available. 

EPA has not developed engineering costs applicable to nonbuilding construction projects, due to 

the diversity of the activities covered under this category and the relatively small share of overall 

construction activity it accounts for.4 By way of analysis, EPA has developed a reduced form model 

project for highway construction and analyzed the likely magnitude of the costs and impacts using the 

highway model. This analysis is presented in Section 4.2.7. 

4.2.3 Description of Model Projects 

To develop the model projects, EPA focused first on the single-family residential model project. 

As noted above, single-family residential construction represents the highest value category of 

construction, and information about the construction and development process for single-family homes is 

4

 The national costs of the proposed rule, however, do account for the costs borne for these types of 

projects. See Section 4.4. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

readily available.5 EPA was able to develop a relatively detailed model for the single-family 

development and then adjusted the model parameters as necessary to reflect differences in the other 

project categories. In general, EPA believes that projects in the other categories follow a roughly similar 

development path, and has thus used a similar general structure for all of the models. 

Since many of the data elements and modeling assumptions are based on the single-family 

residential model, this model is discussed in detail below. Many of the assumptions and data elements 

defined for this model were applied directly or modified only slightly for use in the other models. The 

discussion of the other three project types focuses primarily on those assumptions or methods that differ 

from those employed in the single-family residential model. 

4.2.3.1 Residential Single-family Development 

The model single-family residential project or site is an undeveloped parcel zoned for singlefamily residential housing. The number of housing units built would depend on the size of the model 

project.6 The location of the site is unspecified, and for this reason EPA has used national-level data 

wherever possible. In this case, the site is assumed to be controlled by a developer-builder (sometimes 

referred to in the industry as merchant builders or operative builders). The developer-builder is 

responsible for all aspects of the project, from land acquisition through permitting, subdivision of the 

parcel, installation of any ESCs, and construction and marketing of all completed housing units. EPA 

recognizes that there are many variations on how a particular site may be developed, but believes this 

model project to be representative of a large number of projects actually undertaken each year in the 

U.S.7 

5

 For example, EPA was able to obtain input to the single-family residential model from representatives of 

the National Association of Home Builders (NAHB), a prominent C&D industry association. Input from NAHB 

assisted EPA in identifying cost elements associated with each stage of project development. 

6

 Model projects were developed for sites of 1, 3, 7.5, 25, 70, and 200 acres. 

7

 Other common scenarios involve the developer selling all or some of the finished lots to builders. The 

developer may or may not retain lots in the development to complete and sell. See Figure 2-4, for example. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

The starting point for the project is the acquisition of the parcel, which is assumed to be purchased 

or optioned from another land owner.8 The development and construction process, as modeled, is assumed 

to proceed through three phases, characterized as follows: 

• Land acquisition—The developer-builder puts together the necessary financing to 

purchase the parcel. When lenders are involved, they may require certain documentation, 

such as financial statements, tax returns, appraisals, proof of the developer’s ability to 

obtain necessary zoning, evaluations of project location, assessments of the capacity of 

existing infrastructure, letters of intent from city/town to install infrastructure, 

environmental approvals, etc. To satisfy these factors, the developer may incur costs 

associated with compiling this data. 

• Land development—The developer-builder obtains all necessary site approvals and 

prepares the site for the construction phase of the project. Costs incurred during this stage 

are divided among soft costs for architectural and engineering services, legal work, 

permits, fees, and testing, and hard costs, such as land clearing, installing utilities and 

roads, and preparing foundations or pads. The result of this phase is a legally subdivided 

parcel with finished lots ready for construction. 

• Construction—The developer-builder undertakes the actual construction of the housing 

units. A substantial portion of this work may be subcontracted out to specialty 

subcontractors (foundation, framing, roofing, plumbing, electrical, painting, etc.). 

Marketing of the development generally begins prior to the start of this phase, hence the 

developer-builder may also incur some marketing costs at this time. Housing units may 

come under sales agreement at any time prior to, during, or after completion of 

construction. 

While the length of each phase and the overall length of the project may vary considerably, EPA 

assumes, for modeling purposes, that the time elapsed from acquisition of the parcel through development 

and construction totals 36 months. Focus groups with NAHB in Dallas provided estimates that ranged 

from 13 to 63 months. While acknowledging there will be wide variation in the duration of each phase, 

EPA further assumes that each phase—land acquisition, development, and construction—takes 12 months. 

EPA presently lacks detailed data on the exact timing of ESC installation during project 

development. EPA assumes that ESCs installed to control runoff during the active phase of construction 

8

 Options involve payments from the developer to a land owner to secure the rights to develop the land for 

a specified period of time, usually while a more complete assessment of project viability is undertaken. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

are put in place early in the development phase and are maintained throughout the construction phase. 

Thus, the capital costs for such ESCs would generally be incurred early in the project, and the structures 

would be maintained in place for the duration of the project. The costs for removing the ESCs would be 

incurred at project completion.9 These general assumptions aside, in this analysis EPA has used the 

simplifying assumption that the costs for all ESCs are incurred at the beginning of the project. EPA 

acknowledges that capital costs would actually be incurred some time after the start of the project, and 

that as a result, the costs would be discounted back to their present value. In making this assumption, 

EPA is thus overstating the magnitude of the true costs incurred, since costs incurred in the future would 

have a lower present value. 

EPA understands that land development projects involve significant cash outflows early on to 

finance land acquisition, development, and construction, with revenues generally received only after 

completed houses are sold to buyers. For this reason, EPA assumes that the integrated developer-builder 

assumed here would be motivated to have several projects underway at one time. Cash inflows from the 

sale of completed units in one development can offset cash outflows associated with the earlier stages of 

development on another project. For simplicity, EPA assumes that the developer-builder involved in the 

model project has three projects underway so that in any given year the developer-builder incurs all of 

the costs—and earns all of the revenues—associated with completing the land acquisition, development, 

and construction phases of a project, even though these may occur on different projects. 

Additional assumptions and sources for data used in the model project analysis are presented 

below. The model project is developed using assumptions about the types and magnitude of costs 

incurred during various phases of the project, the sources for these funds (i.e., the amounts borrowed 

versus the amounts provided from the developer-builder’s equity), and the expected profit margins 

earned by the developer-builder from each phase of the project. EPA is seeking comments on these 

assumptions as well as any additional data that may enable the Agency to more accurately model such 

impacts at the project level. 

9

 In practice, some ESCs installed to control runoff during the construction phase that are then converted to 

permanent BMPs to control post-construction flows. These structures would not need to be removed. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Assumptions regarding the various cost elements incurred during each phase of the residential 

single-family development are described in detail in Section 4.2.5. 

4.2.3.2 Residential Multifamily Development 

The model multifamily residential development is an apartment building or complex. The 

project is assumed to be developed in a similar fashion to the single-family model development described 

above: a single developer-builder is responsible for all site acquisition, site preparation, construction, and 

marketing of the project; the project timeline is similar, i.e., three years from start to finish; and the 

project proceeds through the same project phases. Similarly, the developer-builder is assumed to have 

several projects underway to help balance cash flows. This assumption makes it possible to examine the 

impacts of a three year project on a single year’s cashflow for the affected business. Data sources and 

inputs specific to the model multifamily development are discussed in Section 4.2.5. 

4.2.3.3 Commercial Development 

The commercial development is assumed to be an enclosed retail shopping or office area. 

Depending on the size of the model project, it could range from a small stand-alone retail outlet to a 

large, enclosed mall or office complex. As with the residential projects, a single developer-builder is 

assumed to be responsible for all site acquisition, site preparation, construction, and marketing of the 

project. The project timeline is assumed to be the same as for the residential projects, i.e., three years 

from start to finish, and to proceed through the same project phases. Similarly, the developer-builder is 

assumed to have several projects underway to help balance cash flows. This assumption makes it 

possible to examine the impacts of a three year project on a single year’s cashflow for the affected 

business. Again, the particular data sources used and inputs to this model project are discussed further in 

Section 4.2.5. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

4.2.3.4 Industrial Development 

The industrial development is assumed to be an industrial park or a stand-alone manufacturing 

facility. As with the residential and commercial projects, a single developer-builder is assumed to be 

responsible for all site acquisition, site preparation, construction, and marketing of the project. The 

project timeline is assumed to be the same as for the residential and commercial projects, i.e., three years 

from start to finish, and to proceed through the same project phases. Similarly, the developer-builder is 

assumed to have several projects underway to help balance cash flows. This assumption makes it 

possible to examine the impacts of a three year project on a single year’s cashflow for the affected 

business. A detailed discussion of data sources and inputs, which are similar to those used for the model 

commercial development, follows in Section 4.2.5. 

4.2.4 Cost Pass Through Assumptions 

For modeling purposes, EPA has analyzed the impacts of the regulatory options on each model 

development project under two extreme alternatives: 100 percent cost pass through (CPT) and zero 

percent CPT. As explained in Section 4.2, this allows EPA to show the impacts under worst-case 

conditions for builders (zero percent CPT) and worst-case conditions for owners (100 percent CPT). 

Under the 100 percent CPT scenario, a fixed percentage is assumed for the developer-builder’s profit 

margin and the model calculates the final sales price that each buyer would be asked to pay after the 

compliance costs have been passed through. Under the zero CPT scenario, a fixed percentage is assumed 

for the developer-builder’s profit under baseline conditions and the change in profit is calculated under 

each regulatory option, with the sale price of each housing unit remaining the same. Section 4.2.5 

contains further details on the assumed profit levels and other inputs. 

4.2.5 Inputs to the Model Project Analysis 

As noted above, the representative projects take place in three phases: land acquisition, site 

development, and construction. The process of obtaining options on land to be developed (a common 

but not universal step that occurs in the very early stages of development), has been combined with the 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

“land acquisition” activities for simplicity. Assumptions regarding the various costs that are incurred 

during each phase of the project are summarized in Table 4-1 below. 

Table 4-1. Costs Incurred at Various Stages of a Residential Construction Project 

Project Phase Cost Elements 

Land Acquisition 

• Raw land (purchase or option) 

• Interest on land acquisition loan 

• Opportunity cost of capital 

Development 

• Engineering 

• Due diligence 

• Land development 

• Storm water controls 

• Contingency 

• Impact fees 

• Interest on development loan 

• Opportunity cost of capital 

• Overhead 

Building Construction 

• Lot cost (if sold to a builder; includes land acquisition 

and development costs plus profit to the developer) 

• Construction cost 

• Builder overhead 

• Interest on construction loan 

• Opportunity cost of capital 

• Real estate and marketing fees 

Overall, EPA has used more than two dozen different modeling parameters, although not all 

project types encompass all of these parameters. Since the project location is not specified, national 

estimates are used where possible. Participants in the NAHB focus group meetings in Chicago assisted 

EPA with identifying ranges for a number of cost elements for the hypothetical residential construction 

project, developing estimates for raw land costs, engineering costs, and construction costs, among others. 

Some of the estimates proposed during the NAHB Chicago meetings are used in the model project, 

especially where actual national-level data has not yet been identified, and may reflect market conditions 

in that part of the country. Table 4-2 presents the assumptions used in the single-family residential 

model, along with the data source(s) used. Appendix 4A contains a similar table outlining the data 

parameters and sources for all four model project types. A more detailed discussion of selected 

parameters and data sources used for the project models is contained in Appendix 4B. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 4-2. Model Parameters and Data Sources 

Model Parameter Source 

1, 3, 7.5, 25, 

70, and 200 

size of parcel, in acres EPA assumption 

$40,000 cost of raw land, per acre Estimate from NAHB Chicago focus groups, based on experience of the 

Chicago-area participants. See Appendix 4B for further discussion. 

0.33 size of lot, in acres Census Report C25 (Characteristics of New Housing, 1999) reports a 

mean lot size for new single-family homes sold of 12,910 square feet, 

which represents a density of close to 3 lots per acre (evenly distributed 

with 1/3 acre lots). (The median lot size is 8,750 square feet, which 

implies a density of almost 5 lots per acre.) 

2.67 approximate density (number 

of lots per acre) 

Calculated based on impervious surface ratios from “Chesapeake Bay 

Watershed Impervious Cover Results by Land Use Polygons,” to account 

for impervious surface area. Total number of lots (density x site size) is 

rounded to nearest whole number. 

$2,500 due diligence costs, per acre Based on $100,000 in total due diligence costs for a hypothetical 40-acre 

development discussed by the NAHB Chicago focus group participants. 

Participants considered the costs associated with all necessary 

environmental and engineering assessments, usually done prior to land 

acquisition. During these assessments the developer works to identify any 

potential future problems or liabilities. See Appendix 4B for further 

discussion. 

$25,000 land development costs, per lot Estimate from NAHB Chicago focus groups. This figure includes any 

construction activities related to land development (e.g., infrastructure 

costs). 

6% engineering costs, as percent of 

land development costs 

Estimate from NAHB Chicago focus groups. 

10% overhead costs, as percent of 

development costs 

Estimate from NAHB Chicago focus groups. 

10% contingency, as percent of land 

development costs (before 

impact fees) 

Estimate from NAHB Chicago focus groups. 

$15,000 impact fees, per lot Estimate from NAHB Chicago focus groups. See Appendix 4B for further 

discussion. 

7% real estate and marketing fees, 

as percent of house sales price 

Estimate from NAHB Chicago focus groups. 

2,310 average square footage of new 

house 

From Census Report C25, the average size of new single-family homes 

sold in 1999 and conventionally financed was 2,310 square feet 

$53.80 cost of house construction, per 

square foot 

From NAHB’s website, construction costs for a generic single-family 

house are $124,276. $124,276 ÷ 2,310 sq. ft. = $53.80 per sq. ft. 

(NAHB 2001b). See Appendix 4B for further discussion. 

65% percent of total land cost that a 

developer can finance for land 

acquisition 

Loan-to-value ratio as written in the Real Estate Lending Rules. See 

Appendix 4B for further discussion. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 4-2. Model Parameters and Data Sources 

Model Parameter Source 

75% percent of total development 

costs that a developer can 

finance for this stage 

Loan-to-value ratio as written in the Real Estate Lending Rules. See 

Appendix 4B for further discussion. 

80% percent of total building 

construction cost that a builder 

can finance 

Loan-to-value ratio as written in the Real Estate Lending Rules. See 

Appendix 4B for further discussion. 

7.5% loan interest rate for 

builder/developer 

EPA estimate. 

3 term of land acquisition loan, 

years 

EPA assumption. Assumes that the land acquisition loan is paid off over 

the life of the project, which in this case is 3 years. 

1 term of development loan, 

years 

EPA assumption. Assumes that the land development loan term is equal 

to the length of the development phase of the project, which in this case is 

1 year. 

1 term of construction loan, years EPA assumption. Assumes that the construction loan term is equal to the 

length of the construction phase of the project, which in this case is 1 

year. 

10% assumed baseline profit on land 

development 

NAHB Chicago focus group estimated 12-14 percent; 10 percent is an 

EPA assumption. See Appendix 4B for further discussion. 

10% assumed baseline pre-tax profit 

on construction 

NAHB Chicago focus groups estimated 8 to 12 percent pre-tax at time of 

sale. R.S. Means also uses 10 percent as a profit assumption in their Cost 

Data series. 

4.2.6 Model Project Analysis Approach 

The model project defines the baseline financial performance of the residential subdivision 

project prior to the promulgation of the proposed rule. The baseline case is assumed to incorporate the 

costs of full compliance with the existing Phase I and future Phase II NPDES storm water regulations. 

The model is set up to then assess the incremental impact of additional requirements imposed under the 

proposed effluent guidelines. 

4.2.6.1 Baseline Model Project Performance 

Table 4-3 presents the model project analysis under baseline conditions, that is prior to adding in 

compliance costs associated with the proposed regulatory requirements. The model estimates the final 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

sales price per housing unit using the assumptions discussed above. The model incorporates built-in 

targets for profit margins on both the development and construction portions of the project, as well as 

other assumptions that affect the target sales price for each unit. As seen, using the assumptions 

discussed here, the calculated sales price for each unit is $283,093. EPA notes that this is higher than the 

national mean sales price for conventionally-financed new single-family housing units, which was 

$234,900 in 2000 (FHFB 2001). EPA attributes the difference to assumptions in the model that may 

reflect higher-priced housing markets. Despite this likely bias, EPA believes that the model is 

sufficiently well-calibrated to allow comparison of the impacts of alternative storm water control costs on 

the model project financials. 

It is important to note that while the model recognizes that projects are developed over time, the 

model does not fully account for the time value of money. Assumptions have been made regarding the 

duration of each stage of development in order to determine the period for any loans taken on by the 

developer, i.e., three years for land acquisition loan, one year for development loan, one year for 

construction loan. These assumptions influence the debt carrying costs incurred by the developer. What 

the model does not account for, however, is the fact that some costs are incurred in years two and three 

(e.g., construction costs are incurred three years out) and therefore should be discounted back to the base 

year, which is the year the project starts. The discount factors for costs incurred two and three years in 

the future are 0.873 and 0.816, respectively, assuming a seven percent discount rate. This means that any 

adjustments made to reflect the time value of money would reduce the overall project costs, but to a 

fairly limited degree.10 

4.2.6.2 Results of Model Project Analysis 

The model incorporates the costs of incremental regulatory costs via the shaded line item shown 

in Table 4-3. These engineering cost estimates are specific to both the type of project and project size. 

As these costs are added to the other costs incurred during development, the financing requirements in 

the development stage also increase. Table 4-4 shows the baseline project data and illustrates how the 

10 These comments apply to the baseline costs incurred for project development, but do not apply to the 

incremental regulatory costs. EPA has discounted all regulatory costs that wold be incurred in the future back to the 

baseline year, in accordance with EPA and OMB guidance for conducting regulatory impact analysis. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

project financials change in response to the regulatory costs associated with Option 1 under the proposed 

regulation. 

As seen, the incremental controls for the option shown in the example, $483, would raise the 

calculated sales price on each housing unit from $283,093 to $283,137, a difference of $44. This 

represents 0.02 percent of the baseline sales price. When the $44 per lot cost passed on to the buyer is 

compared with the contractor’s per-lot cost of controls (i.e., $483 ÷ 20 lots = $24.15), the calculated cost 

“multiplier” for this model project is in the range of 1.814. The cost multiplier is determined by taking 

the calculated increase in house sales price (over baseline) and dividing it by the actual per-lot cost of 

storm water controls incurred by the builder. In this example, all costs are passed on to the buyer (100 

percent CPT). In Chapter Five, EPA presents the results for all combinations or regulatory options under 

both the 100 percent and zero CPT assumption. Under the zero CPT assumption, the builder would 

absorb the $24.15 in compliance costs on each lot. The impact would be reflected in a decrease in the 

builder profit, and the sales price of the housing unit would remain the same. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 4-3. Baseline Economic Model of Hypothetical 7.5 Acre Residential Development 

Project Cost Element Value 

Land Acquisition (7.5 acre parcel) 

Raw land 

Interest on land acquisition 

Opportunity cost of capital 

Land acquisition costs 

$300,000 

$29,955 

$16,129 

$346,084 

Land development (7.5 acre parcel) 

Engineering 

Due diligence 

Land development 

ESC engineering costs 

Contingency 

Impact fees 

Interest on development loan 

Opportunity cost of capital 

Overhead [a] 

Land development costs 

$30,000 

$18,750 

$500,000 

$0 

$50,000 

$300,000 

$50,555 

$16,852 

$78,079 

$1,044,235 

Land acquisition + land development costs 

Profit on land acquisition and development 

Total—Land acquisition and development 

$1,390,319 

$154,480 

$1,544,799 

Construction Costs (per lot) 

Finished lot cost 

Construction cost 

Interest on construction loan 

Opportunity cost of capital 

Builder overhead [a] 

Total costs to builder 

Marketing fees 

Profit on construction costs 

House sales price (calculated) 

$77,240 

$124,276 

$12,091 

$3,023 

$18,338 

$234,968 

$19,817 

$28,309 

$283,093 

Incremental Regulatory Impacts 

Change in sales price per lot 

Costs as percent of sales price 

Multiplier 

$0 

0.00% 

0.00 

[a] Overhead in both the development and construction stages is calculated as total overhead (based on 10

percent of development or construction costs) less the opportunity cost of capital. This was done to avoid

double-counting the opportunity cost of capital.

Source: EPA estimates. See also Table 4-2 for model parameters and data sources.

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 4-4. Illustration of Impact of Incremental Storm Water Control Requirements on Model 

Project Under Proposed Rule Option 1—100 Percent Cost Pass Through Scenario 

Project Cost Element Baseline Option 1 

Land Acquisition (7.5 acre parcel) 

Raw land 

Interest on land acquisition 

Opportunity cost of capital 

Land acquisition costs 

$300,000 

$29,955 

$16,129 

$346,084 

$300,000 

$29,955 

$16,129 

$346,084 

Land Development (7.5 acre parcel) 

Engineering 

Due diligence 

Land development 

ESC engineering costs 

Contingency 

Impact fees 

Interest on development loan 

Opportunity cost of capital 

Overhead [a] 

Land development costs 

$30,000 

$18,750 

$500,000 

$0 

$50,000 

$300,000 

$50,555 

$16,852 

$78,079 

$1,044,235 

$30,000 

$18,750 

$500,000 

$483 

$50,000 

$300,000 

$50,582 

$16,861 

$78,121 

$1,044,796 

Land acquisition + land development costs 

Profit on land acquisition and development 

Total—Land acquisition and development 

$1,390,319 

$154,480 

$1,544,799 

$1,390,880 

$154,542 

$1,545,422 

Construction Costs (per lot) 

Finished lot cost 

Construction cost 

Interest on construction loan 

Opportunity cost of capital 

Builder overhead [a] 

Total costs to builder 

Marketing fees 

Profit 

House sales price (calculated) 

$77,240 

$124,276 

$12,091 

$3,023 

$18,338 

$234,968 

$19,817 

$28,309 

$283,093 

$77,271 

$124,276 

$12,093 

$3,023 

$18,341 

$235,004 

$19,820 

$28,314 

$283,137 

Incremental Regulatory Impacts 

Change in sales price per lot 

Costs per lot as % of baseline sales price 

Multiplier [b] 

$0 

0.00% 

0.000 

$44 

0.02% 

1.814 

[a] Overhead in both the development and construction stages is total overhead (based on 10 percent of 

development or construction costs) minus the opportunity cost of capital. This was done to avoid doublecounting of the opportunity cost. 

[b] [Incremental regulatory costs per lot x number of lots] ÷ [engineering costs] 

Source: EPA estimates. See also Table 4-2 for model parameters and data sources. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

4.2.7 Model Nonbuilding Project Analysis 

As noted in Section 4.2.2, nonbuilding construction such as roads, highways, bridges, etc. s a 

sizeable activity but overall represents less than two percent of the total value of construction completed 

each year. To assess the potential impacts of the proposed rule on such activities EPA has developed a 

model highway construction project and used this model to assess the proposed rule’s costs and impacts. 

EPA believes the model captures and reflects the likely magnitude and significance of the impacts of the 

proposed rule on the nonbuilding construction sector overall. 

From the highway engineering literature, EPA assumed that the typical four-lane interstate 

roadway is configured as follows: two travel lanes of 24 feet each, one 20-foot median between the travel 

lanes, and 10 foot buffer on each side of the highway (Wright, 1996). EPA assumed that the combined 

width of the road surface, median, and buffers, 88 feet, represents the typical disturbed area for new 

highway construction. One mile of new highway would therefore represent 10.67 acres in disturbed 

area.11 

To develop representative baseline costs for the model highway project, EPA examined data 

from the Federal Highway Administration’s (FHWA’s) Highway Statistics publication. Table FA-10 

(“Obligation of Federal-Aid Highway Funds for Highway Improvements”) of the Highway Statistics 

series shows the number of miles, federal funds obligated, and total cost for approved projects in a 

number of highway improvement categories and roadway functional classifications. Improvement 

categories include new construction, relocation, widening, and bridge work, among others. Roadway 

functional classifications include arterials, collectors, and local roads, both rural and urban. Arterials are 

further divided into interstate, other freeways and expressways, other principal arterials, and minor 

arterials. 

EPA aggregated the mileage and cost for the following improvement categories: new 

construction, relocation, reconstruction with added capacity, and major widening. EPA further used only 

data for urban interstates and other freeways and expressways, since other functional classifications may 

11 The disturbed area is 88 feet or 0.0167 miles wide (88 ÷ 5,280 feet). One mile of roadway therefore 

disturbs 0.0167 square miles, or 10.67 acres (0.0167 x 640 acres/square mile). 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

include projects that do not closely match the model project characteristics. Since highway and road 

funding can fluctuate from year to year, EPA estimated the average miles and average cost over the 

period 1995-2000. Table 4-5 shows these data, with all dollar values expressed in 1997 dollars.12 Once 

all dollar amounts were expressed in constant year dollars, EPA summed the number of miles, federal 

funds, and total costs across the two functional classifications and four improvement types to generate an 

overall estimate of total cost and miles affected. The total cost was then divided by the miles affected to 

generate a weighted average cost per mile over all relevant improvement types and functional 

classifications. Table 4-5 shows the weighted average cost is $5.4 million per mile. 

Some caveats should be noted about the data from the “Highway Statistics” series, and as used in 

EPA’s impact model. First, the dollar amounts used represent obligated funds, rather than actual finished 

project cost. Therefore, the final project cost (as well as the actual payment to private sector contractors 

carrying out the work) may be different than the costs reported here (Benedict 2002).13 Second, the costs 

reported in Table FA-10 of “Highway Statistics” are for multi-year projects (Benedict 2002). This does 

not present a serious problem for the analysis because the costs provide consistent estimates of projectlevel costs and affected miles with which to calculate a project-level cost per mile. The fact that project 

completion may span multiple years is not particularly relevant for this analysis. These caveats aside, 

this is the most complete and well-documented set of data available on the cost for highway construction 

projects nationwide.14 The results of this analysis are presented in Sections 5.2 and 5.4. 

12 Values were converted to 1997 equivalents using data from Table PT-1 of the Highway Statistics 

publication, “Price Trends for Federal-Aid Highway Construction” (FHWA, 2001a). 

13 Actual costs may be higher due to unforeseen construction problems. However, to the extent this occurs, 

it will lessen the impacts of the proposed rule as modeled. Higher costs per mile will decrease the average number 

of miles constructed per year. Fewer miles constructed results in fewer acres disturbed, and therefore lower 

compliance costs. 

14 EPA previously has used an estimate of $24.61 million per mile as an estimate for highway project cost 

(weighted rural and urban average; FHWA 2001b). This figure, from the FHWA Office of Program Administration, 

may reflect many improvement types and other costs that EPA determined should not be included in this analysis. It 

also contains significant costs for land acquisition, engineering, design, and other work that would not be paid to the 

contractor for actual construction. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 4-5. Obligation of Federal-Aid Highway Funds for Selected Highway Improvements 

and Functional Classifications - 1995 to 2000. (Thousands of 1997 dollars) 

Type of 

Improvement 

Urban 

Interstate Total

Other 

Freeways and 

Expressways 

New Construction 

Number Of Miles 

Federal Funds 

Total Cost 

Cost per Mile 

175 

$1,231,171 

$1,393,799 

$7,984 

277 

$1,226,600 

$1,584,583 

$5,714 

452 

2,457,771 

2,978,382 

$6,591 

Relocation 

Number Of Miles 

Federal Funds 

Total Cost 

Cost per Mile 

17 

$243,936 

$272,084 

$16,062 

46 

$213,422 

$270,509 

$5,924 

63 

457,358 

542,593 

$8,668 

Reconstruction-Added 

Capacity 

Number Of Miles 

Federal Funds 

Total Cost 

Cost per Mile 

536 

$2,206,338 

$2,680,896 

$5,001 

331 

$1,330,439 

$1,674,158 

$5,062 

867 

3,536,778 

4,355,055 

$5,024 

Major Widening 

Number Of Miles 

Federal Funds 

Total Cost 

Cost per Mile 

307 

$1,086,999 

$1,273,760 

$4,152 

192 

$800,507 

$1,041,609 

$5,429 

499 

1,887,507 

2,315,369 

$4,643 

Total 

Number Of Miles 

Federal Funds 

Total Cost 

Cost per Mile 

1,034 

$4,768,445 

$5,620,539 

$5,434 

846 

$3,570,968 

$4,570,860 

$5,406 

1,880 

8,339,413 

10,191,398 

$5,421 

Source: Based on FHWA 1996-2001, Highway Statistics 1995-2000, Table FA-10. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

4.3 IMPACTS ON MODEL ESTABLISHMENTS 

In this section EPA presents the methodology used to analyze the establishment-level impacts of 

the proposed rule. Section 4.3.1 outlines the impact analysis for a model establishment undertaking a 

model project. Section 4.3.2 generalizes and extends this model establishment analysis to estimate the 

industry-wide closure impacts and employment losses due to the proposed regulatory options. Finally, 

Section 4.3.3 analyzes whether the proposed rule could present a barrier preventing new firms from 

entering a market, thereby protecting existing firms from competition. 

4.3.1 Model Establishment Analysis 

This section presents the inputs to the model establishment analysis, discusses the development 

of balance sheet and income statement information, and develops the methodology for assessing potential 

regulatory impacts in terms of changes in model establishment financial ratios. 

4.3.1.1 Inputs to the Model Establishment Analysis 

EPA began by identifying data to characterize the typical financial conditions of model 

businesses in the construction and development industry. This data is used to develop a financial model 

of the firm, and to analyze the impacts of the regulatory options on firm financial conditions. The 

sections below present the methodology used to analyze financial impacts on a model firm, and then 

extend the methodology to project facility closures and employment losses. 

The Bureau of the Census recently published a profile of the residential homebuilding industry 

that allows analysts and others to examine data in ways that were not previously available (Rappaport 

and Cole 2000). In particular, the study presents data by size of builder, where the builder’s size is 

defined in terms of the number of housing units completed (previously such breakdowns were available 

only on the basis of employment size or revenue size). EPA used this profile to develop financial 

snapshots of typical residential home builders. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

From the profile, EPA determined the average value of construction work (revenues) completed 

by builders of various sizes based on the number of housing units started in 1997. EPA combined the 

average construction revenue data for such builders with more detailed financial data on the 

homebuilding industry from Dun and Bradstreet (2000) (D&B). The D&B data was then scaled to the 

size of the builder in the Census profile, using the ratio of revenues to total assets. 

4.3.1.2 Balance Sheet and Income Statement for Model Establishment 

Table 4-6 presents the balance sheet and income statement for a model firm in the single-family 

residential construction sector. EPA constructed the model firm financial statement using D&B’s 1999 -

2000 Industry Norms and Key Business Ratios, and the Census special report on the homebuilding 

industry. The basic approach was to calculate the ratio of key components of the balance sheet and 

income statement to net sales, and then scale the value of these components to the size of the model firm. 

The model firm financials shown in Table 4-6 are based on a firm with $1.99 million in revenues, which 

is the average for homebuilders in the 10 to 24 home per year size class (one of the size classes defined in 

the Census report). 

For the single-family and multifamily residential construction sectors, EPA constructed a series 

of model facilities, one for each housing unit starts class. A financial statement for each model firm was 

generated from these revenue estimates using the method discussed above and illustrated in Table 4-6. 

The Census special study covers the single-family and multifamily construction sectors, but does not 

cover the commercial and industrial building construction sectors. To construct model facilities for these 

sectors, EPA used 1997 Census of Construction data which is available by employment size class. First, 

EPA determined the employment class in each sector corresponding to the median sized firm in terms of 

revenues. This employment class became the basis for a single model facility for each sector. For both 

the commercial and industrial sectors, median revenues were in the 50 to 99 employee class. Within that 

employment class, EPA then calculated revenues, employment, and costs per establishment in order to 

further characterize the model facility. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

For the four construction sectors analyzed, EPA used D&B’s “typical” establishment balance 

sheet data from the following four-digit SIC industries:15 

• Single-family residential construction: SIC 1531 

• Multifamily residential construction: SIC 1522 

• Manufacturing and industrial building construction: SIC 1541 

• Commercial and institutional building construction: SIC 1542 

• Highway and street construction: SIC 1611 

For the model establishment presented in Table 4-6, revenues were determined from Census 

data. All other components are determined by the percentages taken from the D&B “typical” balance 

sheet for SIC 1531. The ratio of revenues (net sales) to total assets is used to determine total assets (and 

therefore total liabilities); the dollar value of the remaining components are derived using the percentages 

in the right hand column. 

15 Although most of the data used in this economic analysis is reported on an NAICS basis, the most recent 

D&B report still uses the SIC system for reporting purposes. EPA believes the SIC-based data from D&B can be 

applied to the corresponding NAICS industries, since there is a high degree of overlap in the industry definitions. 

4-27 
1

2

3

4

5

6

7

8

9

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 4-6. Model Single-Family Residential Construction Firm Financial Data 

Sources: D&B 2000; Census 2000c; CCH 1999. 

Line Item Dollars Percent 

Assets 

Cash $163,390 11.9% 

Accounts Receivable $122,199 8.9% 

Notes Receivable $9,611 0.7% 

Inventory $417,399 30.4% 

Other Current $303,438 22.1% 

Total Current Assets $1,016,037 74.0% 

Fixed Assets $216,938 15.8% 

Other Non-current $140,049 10.2% 

Total Assets $1,373,023 100.0% 

Liabilities 

10 Accounts Payable $112,588 8.2% 

11 Bank Loans $23,341 1.7% 

12 Notes Payable $201,834 14.7% 

13 Other Current $391,312 28.5% 

14 Total Current Liabilities $729,075 53.1% 

15 Other Long Term $162,017 11.8% 

16 Deferred Credits $10,984 0.8% 

17 Net Worth $470,947 34.3% 

18 Total Liabilities & Net Worth $1,373,023 100.0% 

Operating Income 

19 Net Sales $1,987,009 100.0% 

20 Gross Profit $453,038 22.8% 

21 Net Profit After Tax $23,844 1.2% 

22 Working Capital $286,962 

4.3.1.3 Methodology for Analysis of Regulatory Impacts on Model Establishment 

For each model firm, EPA examined the economic impacts of each regulatory option on four 

different financial ratios: (1) Gross Profit, (2) Current, (3) Debt to Equity, and (4) Return on Net Worth. 

Industry publications cite these financial ratios as particularly relevant to the construction industry 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

(Kone, 2000; Benshoof, 2001). Two of the ratios examined are based on operating income (gross profit, 

and return on net worth), and two are based on the balance sheet statement (current, and debt to equity). 

Based on literature reviews, industry focus group input, and econometric evidence, EPA believes 

the level of CPT to customers to be high in the construction industry. Complete, or 100 percent CPT 

implies zero direct impacts on the construction industry. Complete CPT in the residential sector, for 

example, essentially results in all compliance costs being capitalized into the cost of the house, which is 

then assumed to be paid for over 30 years as part of the homebuyer’s mortgage. In this analysis, EPA has 

taken a conservative approach that results in a “worst-case” scenario, and is based on the opposite 

extreme – zero CPT. That is, EPA assumed all compliance costs are borne by the developer-builder. 

EPA also examined more realistic scenarios incorporating the effects of partial CPT on the 

builder. EPA used a market model approach to estimate CPT (i.e., the ratio of the increase in market 

price to incremental compliance costs) for each of the four construction sectors analyzed. EPA’s 

estimates of CPT range from a low of 85 percent for the manufacturing and industrial building sector to a 

high of 92 percent for the multifamily residential housing sector. Assuming positive CPT, builders incur 

compliance costs multiplied by one minus the CPT percentage; the remaining costs are passed through to 

customers in the form of higher prices.16 Thus, for each compliance cost estimate, EPA examines 

impacts two ways: first assuming zero CPT, second, assuming positive CPT. 

EPA assumes that compliance costs affect each model firm’s balance sheet in the following 

manner. Construction costs are typically financed with a short term construction loan. The value of the 

loan tends to run about 80 percent of the value of the project, with the developer providing the remainder 

of the capital. The simplified balance sheet presented in Table 4-7 illustrates how a construction loan 

equal to $Q affects the construction firm’s balance sheet if the lending institution requires the builder to 

finance 20 percent of the cost of the loan. 

16 Assume, for example, that the market analysis shows that housing prices increase by $0.80 of every 

dollar in increased construction costs per unit built, then CPT is 80 percent. If the proposed regulation adds $200 in 

construction costs per house, the builder incurs impacts from $40 in increased costs not offset by increased revenues 

[(1 - 0.8)*$200], while the house buyer pays an additional $160 (0.8*$200) for the house. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

The loan reduces current assets by the amount of capital the builder is required to pay but 

increases noncurrent assets by the total value of the project; long term debt is increased by the amount of 

the loan (0.80Q). The baseline balance sheet financial ratios for the model firm will be calculated on the 

basis of the center column, while the post-regulatory financial ratios will be calculated on the basis of the 

right hand column. The value of Q was set equal to the incremental capital compliance costs of the 

proposed rule. EPA used the same framework for all four sectors analyzed. 

Table 4-7. Impact of Compliance Costs on Developer-Builder’s Balance Sheet 

Line item Baseline Post Loan 

Current Assets $A $A - .20Q 

Noncurrent assets $B $B + Q 

Total Assets $A + $B $A + $B + .80Q 

Current Liabilities $D $D 

Long Term Debt $E $E + .80Q 

Net Worth $F $F 

Debt plus Equity $D + $E + $F $D + $E + $F + .80Q 

Note: Q equals incremental compliance costs. 

4.3.1.4 Analysis of Financial Ratios for Model Establishment 

Few financial ratios have clearly defined critical values that indicate whether a firm is performing 

well or poorly. Furthermore, analysts often find that a firm can perform well in one financial category 

(debt management, for example), yet poorly in another (perhaps rate of return). Lacking such hard and 

fast rules for interpreting financial ratios, analysts tend to emphasize trends over time, comparisons 

among competitors, or comparisons between industries, rather than a single critical value for any 

particular ratio. The sections below briefly describe the four ratios examined for this analysis. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Gross Profit Ratio 

The gross profit ratio measures the ratio of pretax operating profit to revenues: 

gross profit ratio ’ gross profit ’ (net sales & operating costs) 

net sales net sales 

Gross profits are line item 20 on the model firm balance sheet and income statement (Table 4-6) 

while net sales are line item 19. This ratio measures the decline in pretax operating income relative to the 

firm’s volume of business. Under the worst-case scenario (zero CPT), the post compliance gross profit 

ratio for the model firm would be: 

gross profit ratio ’ (net sales & operating costs & pre&tax compliance costs) 

net sales 

An increase in compliance costs decreases the value of the gross profit ratio; the firm is relatively worse 

off. 

Return on Net Worth 

Return on net worth measures the rate of return from the firm relative to the owner’s investment: 

return on net worth ’ net profit after tax 

net worth 

Net profit after tax is line item 21 on the model firm balance sheet and income statement (Table 

4-6) while net worth is line item 17. Should the rate of return on this line of business fall too much, then 

investors have better opportunities for their capital; they would start investing their capital in other 

industries instead of construction, and the construction industry would contract. Compliance costs 

reduce net profit, and therefore reduce return on net worth: 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

return on net worth ’ (net profit after tax & post&tax compliance costs) 

net worth 

EPA multiplied compliance costs by one minus the effective tax rate to estimate post-tax 

compliance costs. To determine the effective tax rate, EPA assumed taxable income was equal to gross 

profit (line item 20 on Table 4-6); EPA used Federal corporate tax rates plus the average state corporate 

tax rate (6.6 percent) for the specified level of taxable income. Note that return on net worth is a much 

more sensitive ratio than the other ratios considered above because it is calculated on a post-tax basis. 

As can be observed in line item 21, post-tax profits are a much smaller percent of net sales than gross 

profit. 

Current Ratio 

The current ratio is defined as: 

current ratio ’ current assets 

current liabilities 

Current assets are line item 6 on the model firm balance sheet and income statement (Table 4-6) 

while current liabilities are line item 14. The current ratio is a liquidity ratio that measures the 

availability of cash and near cash assets to meet short-term obligations. Clearly if current liabilities 

exceed current assets (i.e., the current ratio is less than one), the firm cannot meet all its short-term 

financial obligations. Although the current ratio has a well defined critical threshold, detrimental 

financial impacts can occur before the ratio falls below one. Again, using EPA’s conservative worst-case 

assumption to estimate the impact of the proposed rule on the model firms’s finances, the post-regulatory 

current ratio is: 

current ratio ’ (current assets & .20 × pre&tax compliance costs) 

current liabilities 

An increase in compliance costs decreases the value of the current ratio; the firm is relatively worse off. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Debt Management 

The debt to equity ratio is a ratio that measures how much a firm’s financing has been borrowed 

from creditors: 

total debt debt to equity ratio ’ 

owner equity 

Total debt is the sum of line items 14 (current liabilities), 15 (other long term liabilities), and 16 (deferred 

credits) on the model firm balance sheet and income statement (Table 4-6), while owner equity is line 

item 17 (net worth). The debt to equity ratio presents amount of capital borrowed relative to that 

supplied by the owners. If, for example, the debt to equity ratio is 1.9, then $1.90 has been borrowed for 

every $1 of capital provided by the owners. If the debt to equity ratio becomes too high, creditors would 

be reluctant to lend further capital unless the owners provide more equity. Incremental compliance costs 

mean that the builder would increase long term debt by the amount of the loan (0.80 × capital cost). Thus 

the post compliance debt to equity ratio is calculated as: 

debt to equity ratio ’ (total debt % 0.80 × pre&tax compliance costs) 

net worth 

An increase in compliance costs increases the value of the debt to equity ratio and the firm is relatively 

worse off. 

4.3.1.5 Compliance Cost Inputs into Financial Ratio Analysis 

EPA estimated engineering compliance costs based on project size, climatic, geographical, and 

other characteristics. To project economic impacts using these costs, EPA determined the costs incurred 

by each model establishment, then converted these compliance costs to costs per establishment based on 

the following formula: 

costs per establishment ’ (costs per acre) × (acres per start) × (starts per establishment) 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

EPA estimated average compliance costs per acre based on project size. These are a weighted average of 

engineering costs by environmental region (see section 4.4.3 for details of the weighted average of 

compliance costs per acre calculation, and section 4.6.2. for discussion of regional characteristics and 

compliance costs). 

For the single-family residential, commercial, and manufacturing construction sectors, the 

estimated number of units started per establishment is essentially identical to the number of buildings 

started. For the multifamily residential construction sector, however, Census reports the number of units 

started, but each building contains a number of units. EPA therefore estimated the average number of 

units per building to convert units started to buildings started. 

Using data from 1999 and 2000, EPA examined the number of units built in various building 

classes (e.g., 35,500 units in buildings containing 2 to 4 units, 48,000 units in buildings containing 5 to 9 

units) to construct a weighted average (U.S. Census Bureau 2000b). Assuming the midpoint of each 

building class interval represents the average number of units per building in each class (e.g., apartment 

buildings in the 2 to 4 units per building class contain an average of 3 apartments per building), EPA 

divided total units per class by the midpoint of the class to estimate the number of multi-unit buildings in 

each class. EPA then calculated a weighted average of units per building using the class midpoints 

weighted by the estimated number of buildings constructed in each class. Using this approach, EPA 

estimated an overall average of 10.8 units per multi-family residential building nationwide. 

EPA used a variety of sources to estimate average acres per start. For single-family residential 

construction, EPA based its estimate of acres per start on the median lot size from the Census report 

Characteristics of New Housing (U.S. Census Bureau, 2000a). For multifamily residential, commercial, 

and industrial sectors, EPA combined data on the typical “building” footprint from R.S. Means (2000) 

with the ratio of building footprint to site size from the Center for Watershed Protection (CWP, 2001) to 

estimate average acres per start. 

For the model highway and street construction contractor, EPA used data from Dun & 

Bradstreet, the 1997 Census of Construction, and the 1995-2000 editions of the Federal Highway 

Administration’s (FHWA’s) Highway Statistics publication. EPA used 1997 Census data to construct a 

model highway and street construction establishment based on median revenues for establishments in 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

NAICS 234110. Using the same methodology EPA developed distributions of financial ratios for Dun & 

Bradstreet data for SIC 1611 (highway and street construction). To estimate the number of acres 

disturbed, and hence, total establishment compliance costs, ERG estimated miles of highway constructed 

per year by dividing model establishment revenues by the estimated cost per mile constructed, $5.4 

million, which was derived in Table 4-5.17 

4.3.2 Extension of Model Facility Analysis to Project Industry Closures 

EPA extended the model facility framework described here to project closures and employment 

losses resulting from the proposed regulation. The primary analysis, based upon analysis of financial 

ratios, is presented in Section 4.3.2.1. EPA also conducted a sensitivity analysis, comparing the results 

of the primary analysis to an estimate of closures and employment losses using an alternative approach 

based on cashflow changes. This alternative approach is outlined in Section 4.3.2.2. The results of the 

primary analysis are in Section 5.5, while the sensitivity analysis is presented in Appendix 5B. Before 

explaining these methodologies, however, EPA first presents information on how the number of affected 

establishments and employees was determined for use in this analysis. 

4.3.2.1 Estimation of Affected Establishments and Employment 

The proposed rule contains three regulatory options, each of which would apply to sites of 

varying sizes. Option 1 applies to sites of one acre or larger, Option 2 applies to sites of five acres or 

larger, and Option 3 (no regulation option) applies to all sites. To accurately reflect the number of 

entities affected under each option, EPA has adjusted the closure and employment loss methodology to 

account for the number of establishments affected under each option. This section describes the process 

used to make these adjustments. 

EPA again used data from the Census special study of the home building industry (Rappaport 

and Cole, 2000) to obtain the number of establishments by housing unit starts class. EPA concluded that 

17 As described in Section 4.2.7, EPA estimated that one mile of highway will disturb 10.67 acres of land. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

this data provided the best source for estimating the number of establishments and employees potentially 

affected under each option. Using the estimated density of 2.67 single-family housing units per acre (see 

Table 4-2), establishments starting between one and four single-family housing units per year were 

excluded under Option 1 because they are unlikely to disturb more than one acre on a given project.18 

Establishments in both the 1-4 and 5-9 housing unit starts per year categories were similarly excluded 

under Option 2, since the maximum number of housing units, nine, equates to only 3.3 acres.19 This 

makes it unlikely many builders in these size classes disturb more than five acres on an individual project 

basis. The Census report estimates that 50,661 single-family builders start between one and four housing 

units per year, while another 12,708 builders start between five and nine units per year. EPA further 

concluded that 1,904 multifamily builders starting between two and nine multifamily units per year are 

unlikely to disturb more than five acres on a given project, and excluded these from the universe of 

establishments potentially affected under Option 2. Affected employment is determined in the same 

manner as affected establishments. The Census study reports the number of employees in each housing 

unit start category, and this number is subtracted as above under each option. 

The adjustments above were made for the residential construction industries only. There are two 

reasons for this: (1) the Census special study only covers single-family and multifamily residential 

construction establishments; and (2) EPA believes that commercial and industrial building establishments 

are overall more likely to disturb five acres or more during the course of each project. Therefore, no 

adjustments are made to the nonresidential building establishment and employment counts. 

Table 4-8 shows the establishment count adjustment for each option, while Table 4-9 shows the 

adjustment to employment. 

18 Using the density of 2.67 units per acre, four housing units per year equates to a maximum of 1.5 acres. 

This makes it unlikely a large percentage of establishments in the 1-4 housing units per year category disturb more 

than one acre at a time on a regular basis. 

19 Again, this would be the maximum land area disturbed in a year. The maximum disturbed on an 

individual project could be even less. 

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-- --

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 4-8. Number of Establishments in the Construction and Development Industry Adjusted for 

Regulatory Option Coverage 

Industry Baseline [a] 

Option 1 Option 2 

Adjustment for 1 

acre exclusion 

Adjusted 

Number 

Adjustment for 5 

acre exclusion 

Adjusted 

Number 

Single-family 84,731 (50,661) 34,070 (12,708) 21,362 

Multifamily 4,603 4,603 (1,904) 2,699 

Commercial 39,810 39,810 39,810 

Industrial 7,742 7,742 7,742 

Potentially affected 

establishments 136,886 86,225 71,613 

[a] Previously adjusted for remodeling establishments and land development establishments. See Section 2.3.5

for discussion of this adjustment.

Figures may not add to totals due to rounding.

Source: Rappaport and Cole (2000) and EPA estimates.

Table 4-9. Employment in the Construction and Development Industry Adjusted for Regulatory 

Option Coverage 

Industry Baseline [a] 

Option 1 Option 2 

Adjustment for 1 

acre exclusion 

Adjusted 

Number 

Adjustment for 5 

acre exclusion 

Adjusted 

Number 

Single-family 340,874 (128,940) 211,933 (41,940) 169,993 

Multifamily 35,160 35,160 (6,064) 29,096 

Commercial 549,567 549,567 549,567 

Industrial 148,861 148,861 148,861 

Potentially 

affected employees 1,074,462 945,521 897,517 

[a] Previously adjusted for remodeling establishments and land development establishments. See Section 2.3.5

for discussion of this adjustment.

Figures may not add to totals due to rounding.

Source: Rappaport and Cole (2000) and EPA estimates.

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

4.3.2.2 Closure and Employment Impacts Based on Financial Ratio Analysis 

To assess the impacts on firm closures, EPA first selected a criterion for determining when a 

facility is considered “impacted” by the proposed rule. As discussed above, financial ratios rarely have 

well-defined thresholds that correlate with financial health or distress. On previous effluent guidelines 

(e.g., MP&M), EPA has defined the critical value for financial stress as that value of a financial ratio that 

defines the poorest performing 25 percent of firms (i.e., the lowest quartile). EPA then assumes that a 

facility is financially stressed if its pre-regulatory financial ratio lies above the lowest quartile for that 

ratio, but its post-regulatory ratio falls in that lowest quartile range.20 

To estimate the number of establishments in each industry that would be financially distressed by 

the proposed regulation, EPA first approximated a cumulative distribution function for each financial 

ratio based on D&B data. Figure 4-1 illustrates the current ratio cumulative distribution function for SIC 

1531, used to analyze single-family residential construction. The baseline curve represents the preregulatory cumulative distribution function. This curve indicates that 25 percent of establishments have a 

current ratio below 1.1 (1.1 thus becoming the critical value for determining financial distress), 25 

percent of establishments have a current ratio greater than 1.1 but less 1.4 (the median), 25 percent have 

a current ratio greater than 1.4 but less than 2.9, and 25 percent have a current ratio greater than 2.9.21 

20 For example, according to D&B, 25 percent of establishments in SIC 1531 have a current ratio less than 

1.1, and 75 percent have a current ratio greater than 1.1. If an establishment’s pre-regulatory current ratio is greater 

than 1.1, but its post-regulatory current ratio is less than 1.1, EPA would classify the firm as financially distressed. 

21 The minimum and maximum values for the current ratio are not provided by D&B. For completeness 

EPA selected “reasonable” values to represent the end points of the curve. This has no effect on the analysis 

because the lowest and highest ranges are not used in the analysis. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

EPA then calculates the post-regulatory current ratio for the quartile values. This shifts the 

cumulative distribution function for the current ratio to the left. Using the post-regulatory curve in this 

example, approximately 40 percent of establishments now have current ratios less than or equal to the 

critical value of 1.1. Thus, about 15 percent of establishments in this sector incur incremental financial 

Figure 4-1 

Pre - and Post-regulatory Cumulative Distribution Function for Current 

Ratio 

SIC 1531: Ope rative Builde rs 

0.00 

0.10 

0.20 

0.30 

0.40 

0.50 

0.60 

0.70 

0.80 

0.90 

1.00 

0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 

Current Ratio 

Probability 

Baseline 

Postregulatory 

Critical Value 

distress due to compliance costs (i.e., 40 percent below 1.1 on the post regulatory curve minus 25 percent 

below 1.1 in the baseline). 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

A firm that exhibits or experiences financial distress under a single measure of financial 

performance would not necessarily always shut down. Therefore, EPA constructed similar cumulative 

distribution functions for the debt to equity, and return on net worth ratios, then estimated the probability 

of incremental financial distress under each measure.22 To assess the economic achievability of the 

proposed rule, EPA assumes that the probability of establishment closure due to incremental compliance 

costs is equal to the average probability of incremental financial distress under each of the three financial 

ratios: current, debt to equity, and return on net worth. Multiplying this probability by the number of 

establishments in the sector, EPA obtains an estimate of the number of establishments projected to close 

due to the proposed regulation. Intuitively, EPA is making an implicit assumption that establishments 

incurring financial distress under one ratio are also incurring distress under the other two ratios. If an 

establishment is distressed under multiple measures of financial health, it is highly likely the 

establishment will close.23 Employment losses are estimated by multiplying the number of 

establishments projected to close by the average number of employees per establishment. 

Finally, to project sector-wide impacts, EPA aggregated closure and employment impacts over all 

combinations of model establishments and project sizes examined. Thus, closures for a single sector are 

calculated as a weighted average where the weights are determined by: (1) the relative frequency of 

establishments represented by each model in the sector, and (2) the relative frequency of a particular 

project size among all projects performed by the sector. EPA also adjusted the universe of affected 

establishments to reflect the regulatory coverage of each option. Thus, for Option 1 (which applies to 

sites of one acre or greater) EPA excluded establishments in the 1-4 housing starts category on the 

assumption that few of these small builders are likely to disturb more than one acre per project. Similarly, 

where Option 2 would apply to sites of five acres or more, EPA excluded establishments in both the 1-4 

22 D&B does not provide quartile values for the gross profit ratio. 

23 A strict interpretation of this implicit assumption would result in EPA always selecting the smallest 

probability of incremental financial distress from among the three measure. However, EPA determined this was not 

analytically desirable because the results would always be determined by the least sensitive measure of distress. 

Therefore, EPA selected an average of the three probabilities to measure closure rates. Note that in reality, 

establishments may incur distress under one ratio, but not under another, thus being less likely to close. It is 

possible that the set of establishments incurring distress under the current ratio, for example, is completely separate 

from the set of establishments incurring distress under the debt to equity ratio. However, EPA has no information 

on which to base an estimate of such joint probabilities. Assuming the sets of establishments incurring distress are 

identical results in a more conservative estimate of closures. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

and 5-9 housing starts class. Assuming the national average of density of 2.67 houses per acre (see Table 

4-2) a five acre site would support an average of 13.3 housing units. 

4.3.2.3 Closure and Employment Impacts Based on Cashflow Analysis 

As a check on the financial ratio-based approach to projecting establishment closure impacts, 

EPA developed a cashflow model and constructed a statistical distribution of establishments around each 

representative model. This allowed EPA to estimate the probability that establishments would have 

insufficient cashflow to afford the estimated compliance costs. 

Modern financial theory states that an investment should not be undertaken if cashflow is 

expected to be negative after the investment is undertaken (Brealy and Myers, 1996; Brigham and 

Gapenski, 1997). In the context of this proposed rule, if compliance costs exceed cashflow, then postregulatory cashflow would be negative. Under these circumstances EPA projects that the establishment 

would close; EPA has used this standard for projecting establishment closures for a number of past 

effluent guidelines (e.g., Transportation Equipment Cleaning, Industrial Laundries, Iron and Steel). 

Basing the cashflow analysis on the model facilities only means that all establishments 

represented by a particular model would be projected to remain open if the model establishment earns 

cashflow exceeding compliance costs, and all would close if the model establishment’s cashflow is less 

than estimated compliance costs. In reality, the model establishment represents a family of 

establishments, some with greater cashflow than the model, some with less cashflow than the model. 

Thus, there is some probability that establishments would close due to compliance costs even if the 

model establishment’s cashflow exceeds compliance costs. By developing a probability distribution for 

each model establishment’s cashflow with known mean and variance, EPA can estimate this probability. 

Multiplying the probability that compliance costs exceed cashflow (i.e., that post-regulatory cashflow is 

negative) by the number of establishments represented by the model, EPA obtains the projected number 

of closures for that option. To develop the cashflow distribution, EPA first estimated the mean and 

variance of cashflow associated with each model establishment. EPA based its estimate of mean 

cashflow on the 1997 Census of Construction. EPA calculated average revenues, payroll, material costs, 

and work subcontracted out to others within each model class (starts class for single and multifamily 

residential, employment class for commercial and manufacturing sectors) by dividing each Census value 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

by the number of establishments in the class. EPA then estimated taxable income per model 

establishment as: revenues minus payroll, material costs, and work subcontracted out to others. 

Adjusting taxable income for taxes and interest payments results in estimated model establishment 

cashflow. EPA applied Federal corporate tax rates, plus the average state corporate tax rate to 

establishment income. EPA assumed interest payments comprise 25 percent of taxable income. 

EPA based its estimate of the variance of each model establishment’s cashflow distribution on 

the U.S. Small Business Administration’s “births and deaths” database, a special tabulation prepared for 

SBA by Census (SBA 1999). EPA calculated the ratio of establishment closures to total establishments 

for the 1989 to 1998 time period at the four-digit SIC level from this database.24 Assuming these 

establishments were closing because their cashflow was less than zero, EPA used the model mean and 

the assumption of a normal distribution to estimate the variance for the distribution that would result in a 

probability of zero cashflow (or less) equal to the closure rate estimated from the births and deaths 

database. 

With estimated mean, variance, and assumed distribution of cashflow for each model 

establishment, it is a straightforward exercise to estimate the probability of closure due to the proposed 

rule. Figure 4-2 illustrates how this analysis was conducted. The “estimated normal” curve represents 

the distribution of a model establishment with mean cashflow of $1 million, and a variance set so that 

the probability of cashflow less than zero is about 17 percent (as determined from SBA’s “births and 

deaths” database). The critical value is equal to estimated compliance costs — in this example set equal 

to $400,000.25 

Figure 4-2 shows that based on this distribution, about 27 percent of establishments earn 

cashflow less than estimated compliance costs. However, 17 percent of establishments had negative 

cashflow prior to incurring the compliance costs (i.e., the “baseline closures”). Therefore, about 10 

percent of establishments in this example would be projected to close due to the regulation (e.g., 27 

24 Note that the level of detail in the database was sufficient to allow EPA to estimate separately the closure 

rates for small and large business establishments. 

25 This large estimated compliance cost was selected only for the purposes of making the figure clear and 

does not reflect actual anticipated compliance costs. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Figure 4-2 

Baseline Distribution Function 

with Bounds for Facility Cashflow 

0.00 

0.25 

0.50 

0.75 

1.00 

$0 $1,000 $2,000 $3,000 $4,000 

Cashflow (x $1,000) 

Probability 

Estimated Normal 

Lower Bound 

Upper Bound 

Critical Value 

percent with cashflow less than compliance costs minus the 17 percent with cashflow less than zero). If 

150 establishments are in this model class, and the average employment per establishment is 20 workers 

in this class, than EPA would project 15 establishments would close and 300 employees would lose their 

jobs due to the regulation. 

Because of the uncertainties inherent in estimating cashflow and variance for this analysis, EPA 

estimated a range of closure and employment impacts. EPA created upper and lower bounds to its 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

estimated cashflow distribution by multiplying the distribution’s variance by plus/minus 25 percent. This 

creates the bands observed around the estimated normal distribution in Figure 4-2. Therefore, although 

the methodology follows the logic outlined above, EPA reports an upper and lower bound for projected 

closures based on bands around the actual estimated variance of cashflow. The results of this analysis 

are presented in Appendix 5A. 

4.3.3 Analysis of Barriers to Entry 

Barriers to entry are typically assumed to occur if the cost of complying with a regulation 

substantially increases the firm start-up costs. For example, if a rulemaking required that all facilities 

invest substantially in a wastewater treatment system, then an entrepreneur might be discouraged from 

starting an enterprise. The increased capital cost serves as a barrier to new entry to the industry. 

The situation in the construction industry is somewhat different than that outlined above. In 

terms of the capital expense needed to start a firm, the proposed rule has little direct impact. The 

proposed rule does not require a firm to purchase and install any capital equipment, and thus the level of 

capital expenditures required to start up a firm are not directly affected by the proposed rule. 

Landis (1986; see section 2.4.1.4.2 for details) identifies two significant classes of barrier to 

entry specific to the construction industry that are not related to capital equipment: (1) entry costs to 

participate in a given market (e.g., local development fees or abnormally high land costs), and (2) input 

cost differentials (e.g., the new entrant must pay a higher price for inputs than existing firms). These 

barriers to entry, however, also appear unaffected by the proposed rule. To the extent that either of these 

barriers already exist in any given market, they would not be differentially impacted by the proposed rule. 

As the model establishment analysis shows, the proposed rule might increase borrowing to 

finance building projects. This could affect a potential industry entrant indirectly in that it may need 

marginally more start-up capital in order to obtain the somewhat larger short-term construction loan to 

undertake a project. Once again, however, the new entrant would still face essentially the same 

requirements that existing firms face to secure a loan. Thus, new entrants should not be differentially 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

affected by the proposed rule in such a way that they would be unable to compete effectively with 

existing firms. 

To examine the potential for barriers to entry, EPA calculated the ratio of estimated compliance 

costs to each model establishment’s current assets and total assets. If these ratios are small, then EPA 

concludes that the proposed rule would have little effect on the ability of a new entrant to find financing 

for a project. Note that in this analysis EPA compares total compliance costs to assets. This step 

probably overestimates impacts. It is more likely that a new entrant would need to provide only 20 

percent of the incremental compliance costs and would obtain the remaining 80 percent from 

conventional construction loan financing sources (see Section 4.3.1.3) — as would an existing firm. 

4.4 NATIONAL COMPLIANCE COSTS 

As noted above, EPA developed engineering costs for four categories of land use (single-family 

residential, multifamily residential, commercial, and industrial) and six project size categories (1, 3, 7.5, 

25, 70, and 200 acres). Estimates of the national costs of the effluent guidelines regulations are obtained 

by multiplying the per-acre costs developed for each land use and size class combination by the number 

of acres of each type estimated to be developed each year; taking into account the applicability of each 

option in terms of site size. 

Estimates of the number of acres developed nationally per year are available from the U.S. 

Department of Agriculture’s (USDA’s) National Resources Inventory (NRI). This source does not, 

however, identify the type of development or subsequent nature of the land use, nor the distribution of 

acreage by site size. The following sections describe the NRI estimates and EPA’s approach to 

distributing the developed acreage by type of development and site size. 

4.4.1 National Estimates of Disturbed Acreage 

The NRI, a program of the USDA’s Natural Resources Conservation Service, is designed to track 

changes in land cover and land use over time. The inventory, conducted every five years, covers all non4-45
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Federal land in the United States (75 percent of the U.S. total). The program captures land use data from 

some 800,000 statistically selected locations. From 1992 to 1997, an average of 2.24 million acres per 

year was converted from nondeveloped to developed status (USDA, 2000). Table 4-10 shows the 

allocation of this converted land area by type of land or land cover. As seen, land previously classified as 

forest land accounted for 41.9 percent of the total, while land previously classified as cropland accounted 

for 25.6 percent and land previously classified as pastureland accounted for 17.4 percent. No further 

breakdown by type of converted land use is available. 

EPA assumes that some of the 2.24 million acres converted from an undeveloped to developed 

state each year would be exempt from the requirements of the proposed rule due to small-site or low-soilloss-potential waivers. Based on the engineering analysis of sites likely to be eligible for such waivers, 

EPA has reduced the acreage subject to active construction controls to 2.18 million acres (U.S. EPA, 

2002). 

In the following section EPA develops estimates of the distribution of this acreage by type of 

development and by project size. EPA also estimates the amount of acreage potentially excluded from 

coverage under the site size exclusions specified for Option 1 and Option 2 (i.e., below one and below 5 

acres, respectively). With the resulting estimates of acreage distributed by project type and size class, 

EPA can then apply the appropriate per-acre engineering costs to obtain estimates of national costs. 

4.4.2 Distribution of Acreage by Project Type 

To allocate the NRI acreage, EPA has estimated the distribution of acres developed by type of 

development in the following way. In the first step, EPA multiplied the number of building permits 

issued annually by estimates of the average site size. Thus for single-family residential construction, 

EPA multiplied the number of new single-family homes authorized by building permit by the average lot 

size for new single-family construction. Estimates for other types of construction are based on 

extrapolations from the Census permit data and EPA estimates of average project size. In the second 

step, EPA adjusts the estimates of acres converted to reconcile any differences between the total number 

of acres accounted for using this approach and the total acres developed estimated by the NRI. Finally, 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

EPA allocates the total by type of construction, site size, and region and adjusts each regional value to an 

integer to ensure that only whole sites are considered. 

Table 4-10. Acres Converted from Undeveloped to Developed Statea (1992-1997) 

Type of land 

Acres Converted to Development 

1992-1997 (000) 

annual average 

Percent contribution 

by type of land 

Cropland 574.8 25.6% 

Conservation Reserve Program land 1.5 0.1% 

Pastureland 391.2 17.4% 

Rangeland 245.9 11.0% 

Forest land 939 41.9% 

Other rural land 89.1 4.0% 

Water areas and federal land 1.8 0.1% 

Total 2,243.4 100.0% 

a

 NRI defines developed land as a combination of the following land cover/use categories large urban and built-up areas, 

small built-up areas, and rural transportation land. These are defined as follows: 

• Large urban and built-up areas. A land cover/use category composed of developed tracts of at least 10 

acres—meeting the definition of urban and built-up areas.b 

• Small built-up areas. A land cover/use category consisting of developed land units of 0.25 to 10 acres, which meet 

the definition of urban and built-up areas.b 

• Rural transportation land. A land cover/use category which consists of all highways, roads, railroads and associated 

right-of-ways outside urban and built-up areas; also includes private roads to farmsteads or ranch headquarters, 

logging roads, and other private roads (field lanes are not included). b Urban and built up areas are in turn defined as: 

• Urban and built-up areas. A land cover/use category consisting of residential, industrial, commercial, and 

institutional land; construction sites; public administrative sites; railroad yards; cemeteries; airports; golf courses; 

sanitary landfills; sewage treatment plants; water control structures and spillways; other land used for such purposes; 

small parks (less than 10 acres) within urban and built-up areas; and highways, railroads , and other transportation 

facilities if they are surrounded by urban areas. Also included are tracts of less than 10 acres that do not meet the 

above definition but are completely surrounded by Urban and built-up land. Two size categories are recognized in 

the NRI: areas of 0.25 acre to 10 acres, and areas of at least 10 acres. 

Source: USDA, 2000. 

Single-family residential 

Census data indicate that in recent years the number of new single-family housing units 

authorized has averaged just over 1.0 million units per year (see Table 4-11). As seen in Table 4-12, the 

average lot size for new single-family housing units is 13,553 square feet, or 0.31 acres (1 acre = 43,560 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

square feet). Using the average lot size, however, would underestimate the total acreage converted for 

single-family residential projects because this acreage does not include common areas of developments 

that are not counted as part of the owner’s lot—streets, sidewalks, parking areas, storm water 

management structures, and open spaces. 

To account for this, EPA examined data obtained from a survey of municipalities conducted in 

support of the Phase II NPDES storm water rule (EPA, 1999). This survey identified 14 communities 

that consistently collected project type and size data as part of their construction permitting programs.26 

EPA’s review of permitting data from these communities covered 855 single-family developments 

encompassing 18,134 housing units. The combined area of these developments was 11,460 acres. This 

means that each housing unit accounted for 0.63 acres (11,460 acres ÷ 18,134 units = 0.63 acres per 

unit). This estimate, essentially double the average lot size, appears to more than account for the 

common areas and undeveloped areas in a typical single-family residential development. For this reason, 

EPA averaged the Census estimate of the national average lot size (0.31 acres) and the Phase II NPDES 

storm water estimate of 0.63 acres per unit to arrive at an estimate of 0.47 acres per unit. This number 

was multiplied by the average number of single-family housing units authorized by building permit, 1.04 

million, to arrive at an estimate of 490,231 acres (see Table 4-15). 

Table 4-11. New Single-Family and Multifamily Housing Units Authorized, 1995-1997 

Year 

All 

Housing Units 

Single-Family 

Housing Units 

Multifamily 

Housing Units 

1995 1,332,549 997,268 335,281 

1996 1,425,616 1,069,472 356,144 

1997 1,441,136 1,062,396 378,740 

1995-1997 avg 1,399,767 1,043,045 356,722 

Source: Census 2000b. Series C40 New Privately Owned Housing Units Authorized. 

26 The communities were: Austin, TX; Baltimore County, MD; Cary, NC; Ft. Collins, CO; Lacey, WA; 

Loudoun County, VA; New Britain, CT; Olympia, WA; Prince George’s County, MD; Raleigh, NC; South Bend, 

IN; Tallahassee, FL; Tuscon, AZ; and Waukesha, WI. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 4-12. Average and Median Lot Size for New Single-Family Housing Units Sold, 1995-1997 

Year 

Average Lot Size 

(Square Feet) 

Median Lot Size 

(Square Feet) 

1995 13,290 9,000 

1996 13,705 9,100 

1997 13,665 9,375 

1995-1997 avg 13,553 9,158 

Source: Census 2000a. Series C25 Characteristics of New Housing: 

Multifamily Residential 

For residential construction other than single-family housing, EPA divided the average number of 

units authorized over 1995-1997 (356,722, from Table 4-11) by the average number of units per new 

multifamily building. The average number of units per building was obtained by examining the 

distribution of units by unit size class in Census data (U.S. Census Bureau, 2000b). This report shows 

the number of units by building size class (2 to 4 units, 5 to 9 units, 10 to 19 units, 20 or more units).27 

EPA estimated the number of buildings in each size class (using data for 1999 and 2000) by dividing the 

number of units in each class by the average number of units. The total number of units were then 

divided into the estimated number of buildings to arrive at the average number of units across all building 

size classes. When this was done, the average number of units was estimated to be 10.8. 

EPA next examined data on the average site size for multifamily residential developments. The 

Center for Watershed Protection reports estimates from one survey in which the footprint for multifamily 

buildings occupied an average of 15.6 percent of the total site (CWP, 2001). EPA assumed that the 

average-sized multifamily building (10.8 units) would have two floors and that each unit occupies the 

national average of 1,095 square feet (NAHB, 2002). The total square footage accounted for by living 

space is thus 11,826 square feet. Multiplying by a factor of 1.2 to account for common areas and other 

non-living space (utility rooms, hallways, stairways), and dividing by 2 to reflect the assumption of a 2-

27 The average number of units was derived using data for 1999 and 2000, since data for prior years was not 

available at this level of building size detail. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

story structure, EPA obtained a typical building footprint of 7,096 square feet (11,826 x 1.2 ÷ 2 = 7,096). 

Combining this with the CWP estimate of the building footprint share of total site size (15.6 percent), the 

average site size was estimated to be 42,485 square feet (7,096 ÷ 0.156 = 45,487), or just over one acre 

(1.04 acres). 

EPA compared the average site size obtained using this approach with data from the 14 

community study referenced above. That study’s review of permitting data identified 286 multifamily 

developments covering a total of 3,476 acres. The average site size, 12.1 acres, is considerably higher 

than that obtained above. EPA has no indication that the permits reviewed in these communities are for 

projects of a larger than average size. For purposes of this analysis, EPA has taken the midpoint of the 

estimates, 6.5 acres, as the average size of multifamily projects. This number was multiplied by the 

average number of multifamily housing developments authorized by building permit, 35,672, to arrive at 

an estimate of 231,868 acres (see Table 4-15). 

Nonresidential construction 

EPA lacked current data on the number of nonresidential construction and development projects 

authorized annually because the Census Bureau ceased collecting data on the number of permits issued 

for such projects in 1995. EPA therefore used regression analysis to forecast the number of 

nonresidential building permits issued in 1997, based on the historical relationship between residential 

and nonresidential construction activity (see Section 4.5.3). Using this approach, EPA estimates that a 

total of 426,024 nonresidential permits were issued in 1997. These represent a variety of project types, 

including commercial and industrial, institutional, recreational, as well as nonresidential, nonbuilding 

projects such as parks and road and highway projects. 

EPA first combined a number of nonresidential project types into a larger “commercial” 

category, which included hotels and motels, retail and office projects, and religious, public works, and 

educational projects.28 EPA’s reasoning for including the latter categories under the commercial category 

28 The commercial category included: hotels/motels, amusement, religious, parking garages, service 

stations, hospitals, offices, public works, educational, stores, other nonresidential buildings. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

is based on engineering judgment that storm water management practices would be similar across each 

project type. The total estimated number of commercial permits in 1997 was 254,566 (59.7 percent of 

the nonresidential total). EPA retained the industrial category, which totaled 12,140 permits (2.8 

percent), separately. Storm water management practices for such sites generally differ from those for 

commercial or residential sites. The residual, 159,318 permits (37.4 percent), are nonbuilding, 

nonresidential projects that include parks, bridges, roads, and highways. EPA accounts for these projects 

in the steps described further below. 

For the commercial and industrial categories, EPA reviewed the project size data collected from 

the 14-community study referenced earlier (EPA, 1999). This study identified 817 commercial sites 

occupying 5,514 acres and 115 industrial sites occupying 689 acres. The average site size is 6.75 and 

5.99 acres, respectively. 

EPA also reviewed estimates from CWP (2001) on the average percent of commercial and 

industrial sites taken up by the building footprint. These percentages, 19.1 and 19.6 respectively, were 

multiplied across the model project site sizes of 1, 3, 7.5, 25, 70, and 200 acres to estimate the size of 

building on each site, assuming single-story buildings in each case. These estimates are shown in Table 

4-13. 

Table 4-13. Average Building Square Footage 

Project Size 

(Acres) Commercial Industrial 

1 8,320 8,555 

3 24,960 25,666 

7.5 62,400 64,164 

25 207,999 213,880 

70 582,397 598,863 

200 1,663,992 1,711,037 

Estimates were obtained by multiplying the site size in square feet by the percentage of the site estimated to be

occupied by the building footprint, based on data from CWP (2001). 

Source: EPA estimates.

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

As seen in the table, the average building size corresponding to the 6- to 7- acre sites estimated 

from the 14-community study are in the 60,000 square feet range. EPA next examined R.S. Means 

(2000), which provides cost data for “typical” commercial and industrial buildings. As part of the cost 

data, Means identifies the typical range of building sizes based on a database of actual projects. Table 4-

13 shows the typical size and size range for a variety of building types that would fall into either the 

commercial or industrial categories. While some of the building types correspond with the estimated 

average of 60,000 square feet, these appear high for other categories, such as low-rise office and 

supermarkets, warehouses, and elementary schools. EPA believes generally that there are more small 

projects than large ones. As a result, EPA inferred that this approach would suggest an average building 

size of 25,000 square feet, which implies an average site size of 3 acres, based on Table 4-14. 

Table 4-14. Typical Building Sizes and Size Ranges by Type of Building 

Building Category/Type 

Typical Size 

(Gross Square Feet) 

Typical Range 

(Gross Square Feet) 

Low High 

Commercial - Supermarkets 20,000 12,000 30,000 

Commercial - Department Store 90,000 44,000 122,000 

Commercial - Low-Rise Office 8,600 4,700 19,000 

Commercial - Mid-Rise Office 52,000 31,300 83,100 

Commercial - Elementarya 41,000 24,500 55,000 

Industrial - Warehouse 25,000 8,000 72,000 

a

 For purposes of this analysis EPA combines a number of building types, including educational, under the

commercial category.

Source: R.S. Means (2000).

To reconcile the estimates obtained from the two approaches, EPA has taken the midpoint of the 

estimates. For commercial development, EPA assumes an average site size of 4.87 acres (the average of 

6.75 and 3.0 acres) and for industrial development EPA assumes an average site size of 4.50 acres (the 

average of 5.99 and 3.0 acres). 

The resulting average project sizes were then multiplied by the estimated number of commercial 

and industrial permits to obtain an estimate of the total acreage developed for these project categories. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 4-15 shows the results of this “bottom-up” approach to estimating the number of acres of land 

developed. The overall estimate of the amount of land developed is 2.01 million acres per year. 

Residential single-family development accounts for 24.4 percent of the total, multifamily development 

for 11.5 percent of the total, commercial for 61.4 percent, and industrial for 2.7 percent. 

Table 4-15. National Estimates of Land Area Developed Per Year, Based on Building Permit Data 

Type of Construction 

Permits 

Average 

Site Sizea 

Acres Disturbed 

Number 

Pct. of 

Total Number Pct. of total 

Residential Single-family 1,043,045 77.5% 0.47 490,231 24.4% 

Multifamily 35,672 2.7% 6.5 231,868 11.5% 

Nonresidential Commercialb 254,566 18.9% 4.9 1,234,645 61.4% 

Industrial 12,140 0.9% 4.5 54,630 2.7% 

Total 1,345,423 100.0% 2,011,374 100.0% 

a

 For single-family residential, this is the average of the average lot size for new construction in 1999 (Census

1999) and the average obtained in EPA (1999). For all other categories, the site sizes are EPA assumptions based

on representative project profiles contained in R.S. Means (2000) and the 14-community survey conducted in

support of the Phase II NPDES storm water rule (EPA 1999). See also Tables 4-7 and 4-8. b

 A number of project types were grouped together to form the “commercial” category, including: hotels/motels,

amusement, religious, parking garages, service stations, hospitals, offices, public works, educational, stores, other

nonresidential buildings. 

The estimate of total acreage developed, 2.01 million acres, can be compared with the estimate 

provided by the NRI. From Table 4-10, NRI estimates that a total of 2.24 million acres are converted 

from undeveloped to developed status each year. As noted above, some acreage would not be covered by 

the proposed rule or site size limitations due to waivers. The estimated acreage subject to the proposed 

rule 2.18 million acres.29 

EPA considers the estimate of 2.01 million acres (Table 4-15) to be close to the estimates 

obtained from NRI. Areas not accounted for in EPA’s estimates include those converted as a result of 

29 This is technically the acreage covered under Option 1, which affects sites of one acre or more in size. 

Estimates of the acreage covered under Option 2, which affects sites of five acres or more, are made in Section 

4.4.4. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

road, highway, bridge, park, monument, and other nonbuilding construction projects.30 EPA has not 

developed engineering costs applicable to these types of projects, but assumes that the builders and 

developers of these areas would face compliance costs, i.e., the acres should not be excluded from the 

analysis. For the purpose of developing national compliance costs, therefore, EPA has allocated the 

entire NRI acreage, adjusted for waivers, according to the distribution shown in the final column of Table 

4-16.31 

Table 4-16. National Estimates of Land Area Disturbed Based on National Resources Inventory Totals 

Type of Construction 

Acres Based on Permits Data 

Adjusted NRI 

Acreageb Numbera Pct. of Total 

Residential Single-family 490,231 24.4% 533,878 

Multifamily 231,868 11.5% 252,182 

Nonresidential Commercialc 1,234,645 61.4% 1,332,476 

Industrial 54,630 2.7% 57,523 

Total 2,011,374 100.0% 2,176,058 

a

 From Table 4-15.

b

 This column distributes the total acreage estimated in NRI to be converted on an annual basis (adjusted for waivers)

according to the distribution by type of development estimated through analysis of permits data. See also Tables 4-11 through

4-14.

c

 A number of project types were grouped together to form the “commercial” category, including: hotels/motels, amusement,

religious, parking garages, service stations, hospitals, offices, public works, educational, stores, other nonresidential buildings.

4.4.3 Distribution of Acreage by Project Size 

The next step in the national compliance cost analysis is to allocate the number of acres in each 

of the four land use categories according to project size. The project size distribution is based on the 

survey of municipalities conducted in support of the Phase II NPDES storm water rule (EPA, 1999). 

This survey identified 14 communities that consistently collect project type and size data as part of their 

30 As noted above, EPA estimates there are approximately 159,000 such projects permitted each year. 

31 This distribution implies that the acres not accounted for from the NRI (see Table 4-10) will be costed at 

the weighted average cost across the single-family residential, multifamily residential, commercial, and industrial 

categories. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

construction permitting programs. Table 4-17 shows the distribution by project size for each land use 

category. 

Following allocation to project size class, EPA also allocated the acreage to one of 19 ecoregions, based on geographical information system (GIS) modeling. Non-linearity of installation costs 

made it inaccurate to consider partial sites. So, these totals were adjusted to ensure that only whole sites 

would be considered for each category of type, site size, and region. Further detail on this step in the 

analysis can be found in the Development Document (U.S. EPA, 2002). 

The final step in the national compliance cost analysis is to multiply the number of acres in each 

eco-region, size class, and land use category by the applicable cost per acre. These costs are shown in 

Chapter Five. 

4.4.4 Estimates of Acreage Covered by Option 2 

Table 4-16 above shows the distribution of acreage affected under Option 1 of the proposed rule, 

which would apply to sites of one acre or larger. The additional acreage excluded under the site size 

limitations of Option 2 (five acres) was obtained by estimating the acreage in sites above one acre and 

below five acres in size. The 3-acre size class represents projects greater than 1 acre and less than 5 

acres. This category was subtracted from the matrix of acreage by region, type, and size class as 

allocated by the GIS. As shown in Table 4-17, the 14-community study (EPA, 1999) found that 6.0 

percent of acreage developed for single-family housing was assigned to sites in the 3-acre size class. 

EPA estimated that, after rounding, roughly 6.1 percent of acreage converted to single-family housing 

units would be excluded under Option 2. EPA made similar estimates of the acreage converted to multifamily, commercial, and industrial uses that would be excluded under Option 2. Table 4-18 shows the 

distribution of acreage affected under Option 2 of the proposed rule. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 4-17. Distribution of Permits by Site Size 

Site Size (Acres) No. of Permits Acres by Size Pct. Acres by Size 

Single-Family Residential 

1 266 266 2.3% 

3 228 684 6.0% 

7.5 138 1,035 9.0% 

25 175 4,375 38.2% 

70 30 2,100 18.3% 

200 15 3,000 26.2% 

Total 852 11,460 100.0% 

Multifamily Residential 

1 43 43 1.2% 

3 100 300 8.6% 

7.5 61 458 13.2% 

25 71 1,775 51.1% 

70 10 700 20.1% 

200 1 200 5.8% 

Total 286 3,476 100.0% 

Commercial 

1 266 266 4.8% 

3 356 1,068 19.4% 

7.5 86 645 11.7% 

25 91 2,275 41.3% 

70 16 1,260 22.9% 

200 0 0 0.0% 

Total 815 5,514 100.0% 

Industrial 

1 39 39 5.7% 

3 55 165 23.9% 

7.5 10 75 10.9% 

25 8 200 29.0% 

70 3 210 30.5% 

200 0 0 0.0% 

Total 115 689 100.0% 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 4-17. Distribution of Permits by Site Size 

Site Size (Acres) No. of Permits Acres by Size Pct. Acres by Size 

Total 

1 614 614 2.9% 

3 739 2,217 10.5% 

7.5 295 2,213 10.5% 

25 345 8,625 40.8% 

70 59 4,270 20.2% 

200 16 3,200 15.1% 

Total 2,068 21,139 100.0% 

Based on permitting data from the following municipalities or counties: Austin, TX; Baltimore County, MD; Cary, NC; Ft.

Collins, CO; Lacey, WA; Loudoun County, VA; New Britain, CT; Olympia, WA; Prince George’s County, MD; Raleigh, NC;

South Bend, IN; Tallahassee, FL; Tuscon, AZ; and Waukesha, WI (EPA, 1999).

Source: EPA estimates.

Table 4-18. Estimates of Acreage Affected Under Proposed Rule Option 2 

Type of Construction 

Acreage Affected 

Under Option 1a 

Percent 

Excluded Under 

Option 2b 

Acreage Affected 

Under Option 2 

Residential Single-family 533,878 6.1% 501,100 

Multifamily 252,182 8.8% 229,958 

Nonresidential Commercialc 1,332,476 20.4% 1,061,108 

Industrial 57,523 25.7% 42,733 

Total 2,176,058 1,834,898 

a

 From Table 4-15.

b

 Based on analysis of site size distributions found in EPA (1999).

c

 A number of project types were grouped together to form the “commercial” category, including: hotels/motels,

amusement, religious, parking garages, service stations, hospitals, offices, public works, educational, stores, other

nonresidential buildings. 

Source: EPA estimates.

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

4.4.5 Operation and Maintenance Costs 

For any incremental ESC requirements triggered under Option 2, EPA estimated the percentage 

of capital costs of each technology that would be required annually to operate and maintain the facilities. 

Those facilities with a limited useful life were assigned percentages sufficient to replace them at the 

appropriate time. These were converted to costs per acre for each option. The O&M costs are assumed to 

be incurred for a one-year period during the active phase of construction. 

4.5 IMPACTS ON THE NATIONAL HOUSING MARKET 

4.5.1 Description of National Housing Market Model 

EPA takes three complementary approaches to estimating the market impacts of the proposed 

rule. Two treat the nation as a single market; the third treats each city as a distinct housing market. The 

first approach assumes all of the costs of compliance with the regulation are passed through to the home 

buyer. If the home is more costly, fewer households would be able to qualify for a mortgage to purchase 

it. This change in market size is an indicator of the impact of the proposed regulation. In the second 

approach, the costs of compliance shift the national housing supply curve in a linear partial equilibrium 

model. A portion of the increased costs raises the price of new housing while the balance is absorbed by 

the builder. Higher prices and lower quantities change the welfare of participants in the housing market. 

The third approach estimates a linear partial equilibrium model, like the national model, for 215 

metropolitan statistical areas (MSAs) based on local measures of residential construction activity. This 

approach measures changes in affordability in terms of the Housing Opportunity Index (HOI), a well 

publicized measure of housing availability. The following sections explain each model in detail. 

4.5.1.1 Complete Cost Pass Through and Housing Affordability 

Landis’ (1986) and Luger and Temkin’s (2000) surveys suggest that all of the additional costs of 

compliance with new storm water regulations would be passed through to new home buyers in the form 

of higher prices for a unit of a given quality. The quantity of new housing built would not change 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

because demand is driven by demographics more than marginal price considerations, i.e., demand is 

inelastic, and competition in supply is limited because of oligopolistic markets in many areas and 

infinitely elastic supply in others. An increase in the price of a home increases the income necessary to 

qualify for a home mortgage to purchase the home, and so reduces the number of households able to 

afford it. One measure of the impact of the regulation is the change in the number of households that can 

afford the new home. 

EPA developed its market model parameters from the previously described model projects, 

Census data, and the housing economics literature. Simple assumptions about expected proportionate 

profit margins, borrowing, and contingencies discussed in Section 4.2 indicate that added incremental 

compliance costs are multiplied by a factor of 1.5 to 1.8 in the final consumer price. Luger and Temkin 

(2000) report a compliance cost multiplier of 2 to 6 times actual compliance costs. The higher multiplier 

may reflect a tight housing market in high growth regions. The median house price, from the industry 

profile, is taken as the baseline price. The median price, P0, with the additional compliance costs, C, 

multiplied by a factor for added time and borrowing, m, equals the new price, PN, which is the starting 

point for calculating the effect of the proposed regulation on affordability, welfare measures, and other 

market model results: 

PN ’ P0 %mC (1) 

where: 

PN ’ New Price with ESC Compliance Costs 

P0 ’ Median New Home Price 

m ’ Cost Multiplier 

C ’ ESC Compliance Costs 

The monthly payment for principal, interest, taxes, and insurance (PITI) for the new home is based on the 

new price: 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

FPN ( r 

PI ’ 12) 

(2) 

12)

&360 1&(1% r 

PN T ’ t (3) 1,000 

PN I ’ s (4) 1,000 

PITI ’ PI %T%I (5) 

where: 

PI ’ Monthly Principal and Interest 

F ’ Proportion of New Home Cost that is financed 

r ’ Annual Mortgage Interest Rate 

T ’ Monthly Tax Payment 

t ’ Monthly Tax Rate per Thousand Dollars Value 

I ’ Monthly Insurance Premium 

s ’ Monthly Insurance Rate per Thousand Dollars Value 

PITI ’ Principal, Interest, Taxes, and Insurance 

Fannie Mae guidelines limit borrowers’ PITI payments to no more than 28 percent of their gross income. 

The value for F, 0.774, and r, 0.0752, the mortgage terms, are national averages for the typical 30-year 

fixed rate, private mortgage in the base period (FHFB, 2001). Values for t, $1/$1,000 value, and s, 

$0.25/$1,000 value, are from a recent study of housing affordability (Savage, 1999). The gross income 

necessary to qualify for the mortgage at the new price, under this criterion, Y, is given by: 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Y ’ 12 PITI 

(6) 0.28 

Table 4-19 illustrates the calculations using Option 2 costs. In Chapter Five, EPA uses this approach to 

estimate the number of households priced out of the new housing market as a result of each regulatory 

option or combination of options. 

Table 4-19. Change in Housing Affordability—Sample Calculation 

Source: EPA estimates. 

Data element Baseline Option 2 

Average per lot cost difference from baseline 

Difference in cost per lot times multiplier 

$0 

$0 

$111 

$201 

Home price $288,397 $288,598 

Principal and interest 

Real estate taxes 

Homeowner's insurance 

Total principal, interest, taxes, and insurance 

$1,564 

$288 

$72 

$1,924 

$1,565 

$289 

$72 

$1,926 

Income necessary to qualify for mortgage 

Change in income necessary 

Number of households shifted (thousands) 

Percent change in number of qualified households 

$82,472 

$0 

0 

0.0% 

$82,529 

$58 

-29 

-0.15% 

The change in the number of households who qualify for a mortgage to finance the baseline 

home price but cannot afford the home with the added compliance costs is imputed from Census Bureau 

statistics of household income. The Census Bureau, Current Population Survey, reports the money 

income of households in 21 income classes from zero to over $100,000 (U.S. Census Bureau 2000d). 

Table 4-20 shows the Census distribution. Each income class, except the top one, spans $5,000 in annual 

income. If households are evenly distributed within each class, then a change of $1,000 from the 

baseline income necessary to qualify to the new income necessary excludes one fifth of the members of 

the income class from qualifying for the new mortgage level. Since the incremental costs of compliance 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

are relatively small, the new price usually falls within the same income class as the baseline price and the 

number of households per $1,000 change in price is adequate to find the change in number of qualifying 

households. If the qualifying income for the baseline price is in a different income class than the 

qualifying income for the new price, the number of households per $1,000 change in price in each class 

is calculated and the number of households disqualified calculated in parts. 

Table 4-20. Household Information for Imputing Changes in Ownership Possibilities 

a

 Calculated from proportion of owner-occupied to total housing units multiplied by number of households in 

income class. 

Source: Household Income: U.S. Census Bureau, Current Population Reports, P60-209, Money Income in the 

United States: 1999, U.S. GPO: Washington, 2000; Housing: U.S. Census Bureau, American Housing Survey for 

the United States: 1999, Table 2-12 Income Characteristics of Occupied Units, 

http://www.census.gov/hhes/www/housing/ahs/ahs99/tab212.html 

Current Population Survey American Housing Survey 

Annual Household 

Income 

($1,000) 

Households 

(1,000) 

Households 

That Own 

Homea 

(1,000) 

Percent Owned for 

Income Class 

Total Housing 

Units 

(1,000) 

OwnerOccupied Units 

(1,000) 

<5 

5-9 

10-14 

15-19 

20-24 

25-29 

30-34 

35-39 

40-44 

45-49 

50-54 

55-59 

60-64 

65-69 

70-74 

75-79 

80-84 

85-89 

90-94 

95-99 

100> 

Total 

3,010 

6,646 

7,661 

7,482 

7,238 

6,890 

6,381 

6,016 

5,565 

4,958 

4,789 

4,064 

4,112 

3,380 

2,927 

2,903 

2,526 

2,023 

1,736 

1,568 

12,832 

104,707 

1,456 

3,051 

3,906 

3,935 

3,946 

4,000 

3,891 

3,794 

3,875 

3,452 

3,674 

3,118 

3,360 

2,762 

2,392 

2,372 

2,227 

1,784 

1,531 

1,383 

11,674 

70,071 

48.4% 

45.9% 

51.0% 

52.6% 

54.5% 

58.1% 

61.0% 

63.1% 

69.6% 

69.6% 

76.7% 

76.7% 

81.7% 

81.7% 

81.7% 

81.7% 

88.2% 

88.2% 

88.2% 

88.2% 

91.0% 

66.9% 

5,839 

6,728 

7,780 

7,037 

7,369 

6,867 

7,469 

5,951 

9,778 

” 

8,184 

” 

11,985 

” 

” 

” 

6,548 

” 

” 

” 

11,267 

102,802 

2,824 

3,089 

3,967 

3,701 

4,017 

3,987 

4,555 

3,753 

6,808 

” 

6,278 

” 

9,793 

” 

” 

” 

5,774 

” 

” 

” 

10,250 

68,796 

The proportion of households in the marginal income class that already own their home indicates 

the size of the market possibly affected. According to the Census Bureau’s American Housing Survey, in 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

1999, 48.4 percent of households with less than $5,000 income owned their own home while 91 percent 

of those with income over $100,000 annually own their home. Overall, 66.9 percent of households own 

their home.32 The rate of home ownership for the larger income classes from the housing survey was 

applied to all of the income classes of the population survey within the same range (indicated by the ditto 

marks in Table 4-20). The total number of households with income greater than that required to qualify 

for the baseline home is the total number of households that could afford the baseline home. Since this is 

the group that may be in the market for a new home, substantial changes in the proportion of this group 

that can afford it may represent large changes in the size of the market for new homes attributable to the 

construction and development regulation. 

4.5.1.2 National Partial Equilibrium Modeling 

Another approach to evaluating the impact of the proposed regulation on housing markets is 

based on a household production function partial equilibrium model. Empirical studies find a highly 

elastic supply and a somewhat inelastic demand for new housing (DiPasquale, 1999). These estimated 

elasticities and the assumption that compliance costs of new environmental regulations result in only 

marginal changes in prices and quantities allow the market to be modeled with a simple linear partial 

equilibrium market model similar to the ones used in other recent EPA regulations (U.S. EPA, 2001b). 

The modeling situation is similar to that used by Montgomery (1996) to forecast wood product 

demand. The linear partial equilibrium model can be viewed as a reduced form of a more complex 

structural model. We can assume, for example, that all of the instrumental variables are the same in both 

the baseline and alternatives, i.e., the regulation does not change U.S. population growth, carpenters’ 

wages, wood product prices, and so forth. Montgomery’s (1996) modeling equation (equation 12 in the 

paper) is simply a linear supply curve and equations 6, 8, and 10 reduce to a linear demand curve. The 

simpler model will provide the same results as the more complex structural model given small marginal 

changes in costs and unchanging long run assumptions. 

32 The American Housing Survey uses fewer income groups than the Current Population Survey. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

National statistics of residential housing starts from the Census of Construction establish the 

baseline quantity for the model. The baseline price is the median new home price derived from the 

project cost model. This combination is the baseline market equilibrium where supply equals demand. 

To indicate highly elastic supply, EPA assumes a price elasticity of supply of 4.0. DiPasquale (1999) 

cites studies with estimates for new housing supply elasticity from 0.5 to infinity but the majority of the 

long run estimates are in the 3 to 13 range. Housing demand elasticity is equally controversial. EPA 

assumes a price elasticity of demand of -0.7 to indicate a somewhat inelastic demand function. 

Sensitivity tests of these assumptions are shown in Appendix 5B. 

Given a baseline equilibrium point (P0, Q0

curve. 

) and these elasticities, EPA identified a linear supply 

Q ’ " % $ P (7) 

Where: 

Q ’ Number of residential building permits issued 

P ’ Price of new home 

" ’ Intercept calibrated from baseline equilibrium 

’ Q0 & $ P0 

$ ’ Coefficient on price 

’ Es×

Q0 

P0 

Es ’ Supply elasticity of new homes > 0 

A linear demand curve was derived similarly. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Q ’ F % ( P (8)

Where: 

F ’ Intercept calibrated from baseline equilibrium 

’ Q0 & ( P0 

( ’ Coefficient on price 

’ Ed×

Q0 

P0 

Ed ’ Demand elasticity of new homes < 0 

EPA assumes the baseline condition is in equilibrium so these two equations are equal. The 

increased costs of compliance raise builders’ costs and shift the supply curve upward to the left. The 

change in prices and quantities depends on the relative slopes of the supply and demand curves. EPA 

chose to model the increased costs as a slope-preserving change in the supply curve intercept, ", rather 

than an elasticity-preserving change in slope. The new intercept is calculated as: 

" ’ Shocked intercept s 

(9) 

’ Q0 & $ (P0%ESC) 

where ESC is the per unit costs of compliance with the proposed regulation. The new price is given by: 

" S & F 

PN ’ 

( & $ (10) 

Equilibrium prices and quantities are then recalculated using the new price and shocked intercept. 

Unlike the complete cost pass through method described above, some of the costs of compliance 

in the partial equilibrium model may be absorbed by the builder. The proportions flowing to consumers 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

and builders depends on the relative elasticities of supply and demand. The literature suggests cost pass 

through rates are very high in this industry (DiPasquale, 1999). With the supply and demand elasticities 

selected as representative of the literature, Es=4 and Ed=-0.7, the cost pass through is 85 percent. Thus, 

the industry absorbs 15 percent of the costs of compliance and passes the remainder on to home buyers 

as a price increase. 

The partial equilibrium model has a number of implications for the welfare of society. When the 

supply curve shifts following introduction of incremental compliance costs, consumers lose some of their 

benefits from the product in absorbing those compliance costs. This results in a loss of consumer 

surplus. How the consumer surplus is lost is irrelevant from a welfare economics perspective. 

Consumers may choose cheaper options in the construction of their new homes such as lower quality 

carpets or cabinets. They may accept less expensive, smaller homes. Or, they may just pay the higher 

price and forego other spending. In any case, the home would provide less utility than it might have 

without the ESC costs. Different choices would affect which industries feel the impact in the regional 

economy. Changes in housing options would impact builders and suppliers. Decreased overall spending 

would impact a wide range of consumer goods industries. For simplicity, EPA assumed that consumers 

would reduce other spending in response to the price change. The reduction in home sales volume and 

consumer spending in other sectors reduces employment in construction and all other parts of the 

economy. Indirect effects of the regulation on the whole economy are estimated using Regional InputOutput Modeling System (RIMS) multipliers published by the U. S. Department of Commerce. The 

multiplier analysis indicates the ultimate changes in gross domestic output and employment attributable 

to the new regulation. 

4.5.1.3 Regional Partial Equilibrium Modeling and the Housing Opportunity Index 

Each of the approaches described above treats housing as a national market with the same 

demand elasticities applying across the country. In reality, however, market conditions can vary widely 

from region to region, state to state, and city to city. Markets vary both in the level of activity and the 

structure of the industry. Costs of compliance would undoubtedly be easier to pass through to consumers 

in a hot housing market than in a depressed market. EPA’s third modeling approach captures such 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

regional variation by setting up a partial equilibrium model for each Metropolitan Statistical Area (MSA) 

and using statistics of the level of activity in the MSA to select the parameters of the model. 

The Census Bureau collects information about housing starts as well as the size of the existing 

housing stock at the MSA level. EPA infers that where housing built during the 1990s represents a large 

proportion of the total current housing stock, the new housing market is active and demand would be 

expected to be less elastic than in areas with slower growth. As discussed above, the long run supply of 

new housing is assumed to be quite elastic overall. These facts provide the basis for selecting elasticities 

to represent housing markets at the MSA level. 

EPA developed separate partial equilibrium models for each MSA. Like the national models 

described above, EPA used building permit and median new home price data to establish the baseline 

equilibrium point for each MSA. Demand elasticities were estimated based on the ratio of new housing 

units authorized to housing stock over the period 1990 to 1996 (Census, 1998). EPA mapped regions 

where this ratio is lowest to the most elastic estimates of demand found in the literature and those where 

the ratio is highest to the least elastic demand elasticity estimates. EPA believes this approach captures 

the relative differences in demand elasticity between active and depressed housing markets around the 

country. 

Each MSA model is shocked with the estimated compliance costs for the median new home in 

the region. The model then estimates changes in prices, quantities, and welfare measures for each MSA. 

As there are more than 200 MSAs, it is not practical to report all of the individual results. Instead, all of 

the MSAs in a Census division are averaged together to give a sense of the effect of compliance costs on 

each region of the nation. 

Affordability is a significant concern for some stakeholders. The National Association of Home 

Builders (NAHB) publishes the Housing Opportunity Index (HOI) for 180 MSAs. HOI measures the 

proportion of the housing stock a family with the median income can afford. NAHB compares the 

median family income to the actual distribution of home prices in the MSA. EPA does not have access to 

such detailed price information. Instead, EPA assumes home prices are normally distributed about the 

median with standard deviation of 1. Thus, our rough HOI (RHOI) is the cumulative probability of 

homes with prices less than the maximum PITI that the median income can afford. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Algebraically: 

30 (Median Income × 0.28) e rtdt 

RHOI ’ Z(1,1)

( m0 ) (11) 

Median Sales Price 

The numerator represents the present value of the maximum PITI payment that the median income can 

afford at the prevailing mortgage rate, r, over a typical 30-year fixed rate loan. The denominator is 

simply the median sales price. When this ratio is equal to one, the median income family can afford the 

median sales price home or, equivalently, half the families can afford the median sales price home. The 

normal cumulative density function with mean of one and variance of one, is represented by Z(1,1)(@). 

Thus, if the median income family can afford more than the median sales price home, the ratio will be 

greater than one, and the Z(1,1)(@) function will indicate the proportion of homes the family can afford. 

For MSAs with HOIs reported by NAHB, EPA adjusts the variance of the normal curve so that 

RHOI yields the NAHB baseline HOI index (NAHBHOI). The variance scaling factor is: 

Z &1 

(0,1)

( RHOI) V’* 

Z &1 

* (12) 

(0,1)

( NAHBHOI) 

where Z(0,1)

-1 is the inverse of the standard normal cumulative distribution. Changing the variance of Z(1,1) 

from one to V causes RHOI to equal NAHBHOI at the observed median family income. In those MSAs 

where NAHB does not calculate HOI, unadjusted RHOI is reported. 33 To assess the impact of the 

regulation, the adjusted HOI is calculated with the new sales price from the market model. The percent 

change in adjusted HOI is an indicator of the added stress of compliance costs on the housing market. 

Like the full pass through model discussed above, the MSA HOI model shows how changes in 

costs affect home buyers. This approach has the advantage of recognizing local market differences and 

33 In 13 MSAs, the distribution of home prices is so different from normal that RHOI cannot approximate 

NAHBHOI with the variance adjustment. These MSAs were deleted from the results. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

applying them within the model. Average HOI among MSAs in Census divisions before and after 

compliance costs are reported in Chapter Five. 

4.5.2 Inputs to the National Housing Market Model 

The analysis uses the average price of the model home worked out in Section 4.2, $284,632, as a 

starting point. Buyers in 2000 financed an average of 77.4 percent of the home purchase price at an 

interest rate of 7.52 percent (FHFB, 2001). EPA assumes a 30-year conventional fixed rate mortgage for 

ease of calculation. EPA also assumes a monthly real estate tax rate of $1 per $1,000 of home value and 

insurance payment of $0.25 per $1,000 of home value (Savage 1999). These assumptions are applied to 

the revised home price to derive an estimate of the monthly principal, interest, taxes, and insurance (PITI) 

payment generally required to purchase a new home. 

In Chapter Five EPA uses this approach to estimate the number of households priced out of the 

new housing market as a result of each regulatory option. 

4.5.3 Multifamily and Non-Residential Construction Market Models 

EPA developed three market models of the multifamily and non-residential construction industry. 

All three are similar to the residential regional partial equilibrium model. They treat each state as a 

separate market with adjusted demand elasticities. Each model produces estimates of changes in prices, 

quantities, and welfare measures. 

The commercial market is highly disaggregated into regional markets. Office rents for similar 

buildings (Class A space) range from $17/square foot/year in Wichita to more than $60/square foot/year 

in San Francisco (Grubb & Ellis 2001). This disparity shows that arbitrage among markets is not 

possible and space in each area should be considered a different commodity. Many real estate companies 

maintain data on conditions in regional markets. Typically, activity in the market is measured in terms of 

the vacancy rate and asking rents. EPA developed a market model for office space similar to the regional 

partial equilibrium models developed for residential construction to indicate the effects on commercial 

construction. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

The Census Bureau discontinued collection of non-residential building permit information in 

1994. To estimate non-residential building permits issued in later years, EPA regressed non-residential 

building permits on residential building permits, the value of non-residential buildings put in place (VPIP), 

and a time trend. Since the relationship among these variables differs from state-to-state, regressions were 

estimated at the state level. Three different regressions were estimated. Several states showed a distinct 

shift in building permits data when the Census sample changed from 17,000 permit-granting jurisdictions 

to 19,000 jurisdictions in 1983. In states where this difference was apparent, only observations after 1983 

were used in the final projection. In addition some states had strong trends which were correlated with 

residential building permits. Since this multicollinearity reduced the influence of residential building 

permit data in later projection years, a regression was also estimated without the trend variable. The three 

regressions are: 

• 1980-1994 data; 

• 1983-1994 data; and 

• 1980-1994 data estimated without the trend variable. 

Each regression was also estimated using only data through 1993 to test their ability to forecast the 

next year outside of the sample, i.e., 1994. The regression which gave the best out of sample projection to 

1994 and/or had the highest correlation coefficient for the state was selected to be used for that state’s 

projection. Thus, each state projection uses the model that best predicts its pattern of non-residential 

development. EPA allocates the number of non-residential building permits estimated for each state to 

commercial, industrial, and other projects based on the number of permits issued for each type of project in 

the 1994 building permit data. The commercial category is a catch-all which includes public buildings, 

hotels, amusements, and educational buildings, in addition to office and retail buildings. EPA implicitly 

assumes that these projects would employ best management practices that are similar to those required for 

office or retail space. A separate category for industrial projects and a third category for non-building 

permits are also allocated from the 1994 data. 

In the partial equilibrium model, the quantity of construction in each category is measured by the 

number of building permits issued. Rental rates, in dollars per square foot per year, are closely watched 

indicators of demand for commercial space and serve as our price. Rents and activity reports for 35 retail 

space markets around the country from a recent real estate marketing firm report (Grubb and Ellis, 2001) 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

provide the baseline information for the market model. Like the ratio of new building permits to housing 

stock in the residential model, EPA used the activity reports to create a scale of demand intensity which 

was then used to map to each market an appropriate demand elasticity from a range of possible market 

elasticities. 

Demand for office and retail space is relatively insensitive to small changes in price. Since nonresidential construction activity tends to be driven by interest rates, job growth, and locational factors 

rather than building costs, cost pass through is very high. Huffman (1988), for example, found that 

impact fees were largely passed on to end users in the long run. EPA therefore applies a range of 

elasticities from -0.01 to -0.80 to represent relatively inelastic demand for commercial space. In regions 

with many vacancies, lessees can be more sensitive to price so a more elastic demand curve is used. In 

regions with tight markets, lessees have fewer options and generally have little choice but to pay the 

asking price, so demand is less elastic. Builders can pass on a higher proportion of their costs in tight 

markets than in soft markets. Even in the softest market, however, 83 percent of costs are passed 

through to consumers with these assumptions. 

The number of non-residential building permits was projected at the state level while the Grubb 

and Ellis commercial data is from 35 selected cities. Since there is insufficient building permit data to 

model each city, EPA models each state as a separate market with the average rent and activity rate for 

the cities within the state representing the state market. The assumption is reasonable where state office 

and retail markets are concentrated in one city, or one city is representative of general statewide market 

conditions. The assumption is less defensible in large states with many population centers, since market 

conditions may vary from city to city within such states. Almost half of the states were not represented 

by cities in the Grubb and Ellis data. For these states, the average rent and activity values for cities 

within the Census division containing the state were used to indicate state market conditions. 

The industrial space market model is similar to the commercial model. It uses the vacancy rate 

for industrial space as an indicator of market activity and the rental rate for warehouse space as the price. 

Industrial space users are considerably more mobile and price sensitive than commercial or residential 

space consumers so demand for industrial space is more elastic. The range used in this analysis is -0.2 to 

-1.5. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

The multifamily housing market model uses the same format as the non-residential models. The 

activity measure is the proportion of the housing stock built in the 1990 to 1996 time period. Separate 

price series or rental rates for multifamily housing are not reported so the single-family housing prices 

were taken as a near substitute. EPA assumed that elasticities of demand are also similar to those for 

single-family housing. 

The multifamily and non-residential models apply equations 7 through 10 above to estimate 

supply and demand curves. Compliance costs are converted to the same units as the rental rates, given 

the model project. The increase in cost shifts the supply curve to the left and upward. Market results 

may be reported in terms of changes in rents and building permits, as well as changes in consumer and 

producer surplus, and can be converted to changes in indirect employment using the RIMS II multiplier. 

4.6 NET ECONOMIC IMPACTS 

Environmental regulations, while imposing costs on the regulated industry, may also provide a 

stimulus to firms that make or install environmental controls, or provide other services related to 

reglatory compliance. The output and jobs created by new spending in the environmental industry 

offsets, to some extent, the loss of output in the affected industry. In the case of C&D, the same firms 

that now do much of the site preparation work would also be charged with implementing ESCs, and 

likely, conducting ESC certification and inspection. Contractors would be hired to build sedimentation 

ponds, improve grades, and construct any incremental ESCs triggered by the proposed regulation. Thus, 

while the regulation is costly in one sense, much of that cost flows directly back into the industry, 

stimulating more activity, output, and employment. 

4.6.1 Welfare Effects 

In terms of the welfare effects discussed in Section 4.5.1, both the consumer and producer 

surpluses are converted to costs of production. Consumer surplus represents income that would have 

been used by consumers to purchase other products or for enjoyment. Producer surplus would have 

flowed to the owners of the firm and probably to consumption or investment in other industries. Both 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

quantities thus flow out of the construction sector. Only to the extent that the compliance costs that 

would be absorbed are greater than the sum of production loss plus the consumer surplus lost would the 

regulation result in a net increase in activity in the construction sector. 

Both the loss and the gain in employment are estimated by applying RIMS II multipliers to the 

changes in output derived from the market models. Construction activity generates approximately 37.8 

jobs per million dollars of output while general consumer spending generates only 27.3 jobs per million 

dollars of spending. Shifting spending from consumers to construction would increase overall 

employment. As some readers may be interested in both the losses and gains in construction 

employment, both aspects are shown in Chapter Five, as well as the loss in employment from lost 

consumer spending. 

4.6.2 Regional Impacts 

For this analysis, EPA examines the potential impacts to specific regions by assessing whether 

the proposed C&D regulations could have community or regional level impacts. Such impacts could 

alter the competitive position of the C&D industry across the nation or lead to growth or reductions in 

C&D activity (in- or out-migration) in different regions and communities. Traditionally, the distribution 

of C&D establishments has echoed the general regional distribution of U.S. population, with some parts 

of the industry responding to short or long term shifts in population distribution. 

EPA does not expect that the proposed C&D regulations would have a significant impact on 

where construction and development takes place, or the regional distribution of construction and 

development activity. On the one hand, regulatory costs would be lower in regions with lower rainfall 

and reduced soil erodibility. This would tend to favor projects being developed in such regions. At the 

same time, however, a project located in a low rainfall region would rarely be a perfect substitute for the 

same project in a high rainfall region. So many factors go into a locational decision that few 

homeowners, companies, or industrial firms are likely to make their decision on where to build based 

solely upon the relative costs of storm water controls. Thus, EPA does not expect the proposed C&D 

regulations to significantly influence the prevailing pattern of construction and development activity. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

EPA’s market model accounts for regional market influences by creating state and MSA level 

partial equilibrium models for each sector. These models are used to quantify the regional impacts in 

terms of output and employment. Like the national employment effects, state employment changes are 

calculated using RIMS II multipliers. Regional multipliers were not available for this analysis so the 

national multipliers were used. The results, therefore, overstate the employment impacts within the 

region but indicate the effect of changes within the region on the nation as a whole. Tables summarizing 

state impacts are included in Chapter Five. 

4.6.3 International Trade 

As part of its economic analysis, EPA has evaluated the potential for changes in U.S. trade 

(imports, exports) of construction and development related goods and services. A significant component 

of the U.S. construction and development industry operates internationally, and in addition numerous 

foreign firms operate in the U.S. EPA judged, however, that the potential for U.S. construction and 

development firms to be differentially affected by the proposed rule is negligible. The proposed rule 

would be implemented at the project level, not the firm level, and would affect only projects within the 

U.S. All firms undertaking such projects, domestic or foreign, would be subject to the proposed rules. 

U.S. firms doing business outside the U.S. would not be differentially impacted compared to foreign 

firms, nor would foreign firms doing business in the U.S. 

The proposed rule may stimulate or depress demand for some construction-related goods. To the 

extent that the proposed rule acts to depress the overall construction market, demand for conventional 

construction-related products may decline. This decline may be offset by purchase of goods and services 

related to storm water management. Overall, EPA does not anticipate that any shifts in demand for such 

goods and services resulting from the proposed regulation would have significant implications for U.S. 

and foreign trade. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

4.7 GOVERNMENT IMPACTS 

4.7.1 Administrative Costs 

EPA has analyzed the administrative costs to governments associated with the proposed rule. 

EPA assumes that the majority of construction-related regulatory costs would be associated with 

processing general permits. As noted previously, EPA assumes that the majority of NPDES Phase I and 

Phase II NPDES storm water permit programs are fully implemented, and that any new regulatory 

requirements would be superimposed upon these programs. 

Under Option 1, EPA assumes that no incremental costs would be imposed on governmental 

units. Under Option 2, EPA estimates that each state would incur costs to revise existing regulations to 

reflect the shift of regulatory coverage from Part 122 to Part 450. Based on the assumption that all states 

would change their storm water programs to include certification of sedimentation basins and other 

aspects of the proposed rule, EPA estimated the costs of establishing such a program. The costs are 

based on assumptions about the number of labor hours states would allocate to amending such programs, 

and the applicable labor rate. Further details on these assumptions and costs can be found in the 

Development Document (EPA, 2002). 

4.7.2 Compliance Costs 

EPA estimates that government entities (federal, state, and local) commission as much as one 

quarter of the total value of construction work completed in the U.S. each year. As final owner of a 

substantial amount of the industry output, governments would bear some of the compliance costs 

associated with the proposed rule, assuming these costs are passed on from developers and builders. In 

Chapter Five, Section 5.8, EPA allocates the government share of compliance costs based on the 

government share of industry output. Further details about government costs can also be found in 

Chapter Ten. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

4.8 REFERENCES 

Benshoof, M. 2001. An Inside Look at Builders’ Books. Housing Economics. National Association of 

Home Builders, May. 

Brealy, Richard A., and Stewart C. Myers. 1996. Principles of Corporate Finance (5th ed.). New York: 

The McGraw-Hill Companies, Inc. 

Brigham, Eugene F., and Louis C. Gapenski. 1997. Financial Management: Theory and Practice (8th 

ed.). Fort Worth: The Dryden Press. pp. 428-431. 

Brown, Dirk S. G. 2002. User Fee-Based Financing in the 2000s. Stormwater. 3(1): 50-54. 

Busco, Dana, and Greg Lindsey. 2001. Designing Stormwater User Fees: Issues & Options. 

Stormwater. 2(7): 42-44 

CCH. 1999. 2000 U.S. Master Tax Guide. Chicago: CCH Incorporated. 

CWP. 2001. Impervious Cover and Land Use in the Chesapeake Bay Watershed. Ellicott City, MD: 

Center for Watershed Protection, January. Additional data table, “Chesapeake Bay Watershed 

Impervious Cover Results by Land Use Polygon,” received via a facsimile from Tetra Tech, Inc., 

September 20, 2001. 

Dun & Bradstreet. 2000. 1999-2000 Industry Norms and Key Business Ratios. 

ERG. 2001. Distribution of Acreage Disturbed Estimates. Memo from ERG, Inc. to the U.S. 

Environmental Protection Agency, October 25, 2001. 

ERG. 1999. Real Estate Development Financing. Memo from ERG, Inc. to the U.S. Environmental 

Protection Agency, December 28, 1999. 

Fannie Mae. 2001. Glossary: Qualifying Guidelines. Available at: 

http://www.homepath.com/cgi-bin/WebObjects-4/HomePathWOF.woa/8/wa/Glossary?topic=Glo 

ssary&title=Qualifying%20Guidelines&wosid=IL1000D5300pz500E&oid=3684. Accessed on: 

July 18, 2001. 

FASU. 1997. Florida Association of Stormwater Utilities: 1997 Stormwater Utilities Survey. Available 

at: http://www.fasu.org/publications/surveys/. Accessed on January 31, 2002. 

FHFB (Federal Housing Finance Board). 2001. Monthly Interest Rate Survey (MIRS) Periodic 

Summary Tables. Available at: http://www.fhfb.gov/MIRS/mirs.htm. Accessed on: 

FHWA. 2001. Federal Highway Administration. Typical Interstate System Cost per Mile. Fax from C. 

Duran, FHWA Office of Program Administration, to D. Metivier, ERG, Inc. September 19, 

2001. 

4-76
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Grubb & Ellis. 2001. Office Market Trends: A Survey of the Nation’s Office Markets. Summer. 

Available at: www.grubb-ellis.com. Accessed on September 11, 2001. 

Hirsch, Albert A. 1994. Residential Construction from a Long-Run Perspective. Survey of Current 

Business. June: 30-41. 

Keller, Brant D. 2001. Buddy, Can You Spare a Dime? Stormwater. 2(2): 38-42. 

Kone, D. L. 2000. Land Development 9th ed. Home Builder Press of the National Association of Home 

Builders. Washington, DC. 

Luger, M.I. and K. Temkin. 2000. Red Tape and Housing Costs. New Brunswick, New Jersey: CUPR 

Press. 

NAHB (National Association of Home Builders). 2002. Characteristics of New Multifamily Buildings 

1987-1999. Available at: http://www.nahb.com/multifamily/characteristics.htm. Accessed on 

May 29, 2001. 

NAHB 2001a. Housing at the Millennium: Facts, Figures, and Trends. Washington, D.C.: The National 

Association of Home Builders. Available at: http://www.nahb.com/housing_issues/facts.htm. 

NAHB. 2001b. Building a Balance: Cost Breakdown of A Single family Home. Available at: 

http://www.nahb.com/housing_issues/balance_2.htm. 

Rappaport, B.A., and T.A. Cole. 2000. 1997 Economic Census–Construction Sector Special Study: 

Housing Starts Statistics–A Profile of the Homebuilding Industry. U.S. Census Bureau, July. 

Ross, D. and S. Thorpe. 1992. “Impact Fees: Practical Guide for Calculation and Implementation.” 

Available at: http://www.revenuecost.com/imp_fees.html. Accessed on July 11, 2001. 

R.S. Means. 2001. Heavy Construction Cost Data 15th Annual Edition. Kingston, Massachusetts: R.S. 

Means Co. 

R.S. Means. 2000. Building Construction Cost Data 58th Annual Edition. Kingston, Massachusetts: R.S. 

Means Co. 

Savage, H. A. 1999. Who Could Afford to Buy a House in 1995? Washington: U.S. Census Bureau. 

Supplemental material is available at: 

http://www.census.gov/hhes/www/housing/hsgaffrd/afford95/aff95src.html. 

Sierra Club. 2000. Sprawl Costs Us All: How Your Taxes Fuel Suburban Sprawl. Available at: 

http://www.sierraclub.org. Accessed on September 20, 2000. 

Tetra Tech, Inc. 2001. SWV2.xls. Microsoft Excel Spreadsheet. Received October 9, 2001. 

ULI. 2000. Urban Land Institute. Market Profiles 2000: North America. 

4-77
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

U.S. Census Bureau. 2000a. Current Construction Report C25: Characteristics of New Housing, 1999. 

Issued July 2000. 

U.S. Census Bureau. 2000b. Current Construction Report C40: New Privately Owned Housing Units 

Authorized, 1999. Issued July 2000. 

U.S. Census Bureau. 2000c. 1997 Economic Census: Construction: Subject Series. January. 2000. 

U.S. Census Bureau. 2000d. Current Population Reports, P60-209, Money Income in the United States: 

1999. Washington, D.C.: U.S. GPO. 

U.S. Census Bureau. 1999. American Housing Survey for the United States: 1999. Available at: 

http://www.census.gov/hhes/www/housing/ahs/ahs99/tab212.html. 

U.S. Census Bureau. 1998. State and Metropolitan Area Data Book 1997-98 (5th Edition). Washington, 

D.C.: U.S. GPO. 

U.S. Department of Agriculture. 2000. 1997 Natural Resources Inventory Summary Report. Table 8. 

Changes in land cover/use between 1992 and 1997. 

http://www.nhq.nrcs.usda.gov/NRI/1997/summary_report/original/table8.html 

U.S. EPA. 2002. Development Document for the Effluent Guidelines for the Construction and 

Development Point Source Category. EPA-821-R-02-007. 

U.S. EPA. 2001a. Estimation of Capital Costs for Technology Options. Draft dated July 12, 2001. 

U.S. EPA. 2001b. Economic Analysis of the Proposed Revisions to the National Pollutant Discharge 

Elimination System Regulation and the Effluent Guidelines for Concentrated Animal Feeding 

Operations. EPA-821-R-01-001. January. 

U.S. EPA 2001c. Summary of Focus Group Meetings with the National Association of Home 

Builders. Chicago, IL. March 13. 

U.S. EPA 2001d. Summary of Focus Group Meetings with the National Association of Home Builders. 

Dallas, TX. March 20. 

U.S. EPA. 1999. Economic Analysis of the Final Phase II Storm Water Rule. Office of Wastewater 

Management. 

U.S. Small Business Administration, 1999. Employer Firm Births and Deaths by Employment Size of 

Firm, 1989-1998. Available at: http://www.sba.gov/advo/stats/dyn_b_d8998.pdf. 

Wright, 1996. Paul H. Wright. Highway Engineering, 6th edition. New York: John Wiley & Sons. 

1996. 

4-78
APPENDIX 4A

Data and Modeling Assumptions for Model Project Analysis 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 4A-1. Model Parameters and Data Sources 

Parameters 

Single-family Residential Multifamily Residential Small Commercial (Shopping Center) Industrial Building 

Value Data Source Value Data Source Value Data Source Value Data Source 

Size of parcel 

1, 3, 7.5, 

25, 70, and 

200 acres EPA assumption 

1, 3, 7.5, 

25, 70, and 

200 acres EPA assumption 

1, 3, 7.5, 

25, 70, and 

200 acres EPA assumption 

1, 3, 7.5, 

25, 70, and 

200 acres EPA assumption 

Cost of raw land 

$40,000 

per acre 

NAHB Chicago focus 

groups, based on 

experience of the 

Chicago-area 

participants. See 

Appendix B for further 

discussion. 

$40,000 

per acre 

NAHB Chicago focus 

groups, based on 

experience of the 

Chicago-area 

participants. See 

Appendix A for further 

discussion. 

$297,545 

per acre 

Urban Land Institute 

(ULI) Market Profiles 

2000: North America. 

Median land cost for 

nonregional shopping 

centers (cost ranges for 

individual MSAs were 

averaged before taking 

the median) 

$137,500 

per acre 

Urban Land Institute 

(ULI) Market Profiles 

2000: North America. 

Median land cost for 

industrial parks (cost 

ranges for individual 

MSAs were averaged 

before taking the 

median). 

Average Lot Size 0.33 acres 

Census Report C25 

(Characteristics of New 

Housing, 1999) reports 

an average lot size for 

new single-family homes 

sold of 12,910 square 

feet, which represents a 

density of close to 3 lots 

per acre. (The median 

lot size is 8,750 square 

feet, which implies a 

density of almost 5 lots 

per acre). N/A N/A N/A 

Approximate Density 

(number of lots per 

acre) 2.67 

Calculated based on 

impervious surface ratios 

from “Chesapeake Bay 

Watershed Impervious 

Cover Results by Land 

Use Polygons,” to 

account for impervious 

surfaces not associated 

with individual lots. 

Total number of lots is 

rounded to nearest whole 

number. N/A N/A N/A 

4A-1
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 4A-1. Model Parameters and Data Sources 

Parameters 

Single-family Residential Multifamily Residential Small Commercial (Shopping Center) Industrial Building 

Value Data Source Value Data Source Value Data Source Value Data Source 

Due diligence 

$2,500 

per acre 

Based on $100,000 for a 

hypothetical 40-acre 

development discussed 

by the NAHB Chicago 

focus group participants. 

See Appendix B for 

further discussion. 

$2,500 per 

acre 

See Single-family 

Residential Data Source 

for details. 

$2,500 per 

acre 

See Single-family 

Residential Data Source 

for details. 

$2,500 

per acre 

See Single-family 

Residential Data Source 

for details. 

Land development 

costs 

$25,000 

per lot 

Estimate from NAHB 

Chicago focus groups. 

This figure includes any 

construction activities 

related to land 

development (e.g. 

infrastructure costs). 

$75,000 

per acre 

Scaled estimate based on 

$25,000 per lot from 

NAHB Chicago focus 

groups. This figure 

includes any construction 

activities related to land 

development (e.g. 

infrastructure costs). 

$75,000 

per acre 

Scaled estimate based on 

$25,000 per lot from 

NAHB Chicago focus 

groups. This figure 

includes any construction 

activities related to land 

development (e.g. 

infrastructure costs). 

$75,000 

per acre 

See Small Commercial 

Data Source for details. 

Engineering costs, as 

percent of land 

development costs 6% 

Estimate from NAHB 

Chicago focus groups. 6% 

Estimate from NAHB 

Chicago focus groups. 6% 

Estimate from NAHB 

Chicago focus groups. 6% 

Estimate from NAHB 

Chicago focus groups. 

Overhead costs, as 

percent of 

development costs 10% 

Estimate from NAHB 

Chicago focus groups. 10% 

Estimate from NAHB 

Chicago focus groups. 10% 

Estimate from NAHB 

Chicago focus groups. 10% 

Estimate from NAHB 

Chicago focus groups. 

Contingency, as 

percent of land 

development costs 

prior to impact fees 10% 

Estimate from NAHB 

Chicago focus groups. 10% 

Estimate from NAHB 

Chicago focus groups. 10% 

Estimate from NAHB 

Chicago focus groups. 10% 

Estimate from NAHB 

Chicago focus groups. 

Impact fees 

$15,000 

per lot 

Estimate from NAHB 

Chicago focus groups. 

See Appendix B for 

further discussion. 

$45,000 

per acre 

Scaled estimate based on 

$15,000 per residential 

lot from NAHB Chicago 

focus groups. See 

Appendix A for further 

discussion. 

$45,000 

per acre 

See Multifamily Data 

Source for details. 

$45,000 

per acre 

See Multifamily Data 

Source for details. 

4A-2
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 4A-1. Model Parameters and Data Sources 

Parameters 

Single-family Residential Multifamily Residential Small Commercial (Shopping Center) Industrial Building 

Value Data Source Value Data Source Value Data Source Value Data Source 

Real estate and 

marketing fees, as 

percent of sales price 

of building 7% 

Estimate from NAHB 

Chicago focus groups. 7% 

Estimate from NAHB 

Chicago focus groups. 7% 

Estimate from NAHB 

Chicago focus groups. 7% 

Estimate from NAHB 

Chicago focus groups. 

Average size of 

building 

2,310 

square feet 

From Census Report 

C25, the average size of 

new single-family homes 

sold in 1999 and 

conventionally financed 

was 2,310 square feet. Varies 

Scaled to site size based 

on impervious surface 

ratios from “Chesapeake 

Bay Watershed 

Impervious Cover 

Results by Land Use 

Polygon.” Varies 

Scaled to site size based 

on impervious surface 

ratios from “Chesapeake 

Bay Watershed 

Impervious Cover 

Results by Land Use 

Polygon.” Varies 

Scaled to site size based 

on impervious surface 

ratios from “Chesapeake 

Bay Watershed 

Impervious Cover 

Results by Land Use 

Polygon.” 

Cost of building 

construction 

$53.80 per 

sq.ft. 

From NAHB’s website, 

construction costs for a 

generic single-family 

house are $124,276. 

$124,276 ÷ 2,310 = 

$53.80. See Appendix B 

for further discussion. 

$54.05 per 

sq. ft. 

R.S. Means Building 

Construction Cost Data 

median construction cost 

per square foot for a 

“typical” low-rise (1-3 

stories) apartment 

building. 

$53.85 

per sq.ft. 

R.S. Means Building 

Construction Cost Data 

median construction cost 

per square foot for a 

“typical” supermarket $36.15 

R.S. Means Building 

Construction Cost Data 

median construction 

cost per square foot for 

a “typical” industrial 

warehouse. 

Total Paved Surface 

Area (Parking, 

Driveways, and 

Roads) N/A Varies 

Scaled to site size based 

on impervious surface 

ratios from “Chesapeake 

Bay Watershed 

Impervious Cover 

Results by Land Use 

Polygon.” Varies 

Scaled to site size based 

on impervious surface 

ratios from “Chesapeake 

Bay Watershed 

Impervious Cover 

Results by Land Use 

Polygon.” Varies 

Scaled to site size based 

on impervious surface 

ratios from “Chesapeake 

Bay Watershed 

Impervious Cover 

Results by Land Use 

Polygon.” 

Paving Cost 

(Parking, Driveways, 

and Roads) N/A 

$1.44 per 

sq. ft. 

R.S. Means Heavy 

Construction Cost Data 

$1.44 per 

sq. ft. 

R.S. Means Heavy 

Construction Cost Data 

$1.44 per 

sq. ft. 

R.S. Means Heavy 

Construction Cost Data 

Total Sidewalk Area N/A Varies 

Scaled to site size based 

on impervious surface 

ratios from “Chesapeake 

Bay Watershed 

Impervious Cover 

Results by Land Use 

Polygon.” Varies 

Scaled to site size based 

on impervious surface 

ratios from “Chesapeake 

Bay Watershed 

Impervious Cover 

Results by Land Use 

Polygon.” Varies 

Scaled to site size based 

on impervious surface 

ratios from “Chesapeake 

Bay Watershed 

Impervious Cover 

Results by Land Use 

Polygon.” 

4A-3
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 4A-1. Model Parameters and Data Sources 

Parameters 

Single-family Residential Multifamily Residential Small Commercial (Shopping Center) Industrial Building 

Value Data Source Value Data Source Value Data Source Value Data Source 

Sidewalk 

Construction Cost N/A 

$4.66 per 

sq. ft. 

R.S. Means Heavy 

Construction Cost Data 

$4.66 per 

sq. ft. 

R.S. Means Heavy 

Construction Cost Data 

$4.66 per 

sq. ft. 

R.S. Means Heavy 

Construction Cost Data 

Percent of total land 

cost that a developer 

can finance for land 

acquisition 65% 

Loan-to-value ratio as 

written in the Real Estate 

Lending Rules. See 

Appendix B for further 

discussion. 65% 

See Single-family 

Residential Data Source 

for details. 65% 

See Single-family 

Residential Data Source 

for details. 65% 

See Single-family 

Residential Data Source 

for details. 

Percent of total land 

cost that a developer 

can finance for land 

development 70% 

Loan-to-value ratio as 

written in the Real Estate 

Lending Rules. See 

Appendix B for further 

discussion. 70% 

See Single-family 

Residential Data Source 

for details. 70% 

See Single-family 

Residential Data Source 

for details. 70% 

See Single-family 

Residential Data Source 

for details. 

Percent of total 

building construction 

cost that a builder 

can finance 80% 

Loan-to-value ratio as 

written in the Real Estate 

Lending Rules. See 

Appendix B for further 

discussion. 80% 

See Single-family 

Residential Data Source 

for details. 80% 

See Single-family 

Residential Data Source 

for details. 80% 

See Single-family 

Residential Data Source 

for details. 

Loan interest rate for 

builder/developer 7.5% EPA estimate. 7.5% EPA estimate. 7.5% EPA estimate. 7.5% EPA estimate. 

Term of land 

acquisition loan, 

years 3 

EPA assumption. 

Assumes that the land 

acquisition loan is paid 

off over the life of the 

project, which in this 

case is 3 years. 3 

See Single-family 

Residential Data Source 

for details. 3 

See Single-family 

Residential Data Source 

for details. 3 

See Single-family 

Residential Data Source 

for details. 

Term of land 

development loan, 

years 1 

EPA assumption. 

Assumes that the land 

development loan term is 

equal to the length of the 

development phase of the 

project, which in this 

case is 1 year. 1 

See Single-family 

Residential Data Source 

for details. 1 

See Single-family 

Residential Data Source 

for details. 1 

See Single-family 

Residential Data Source 

for details. 

4A-4
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 4A-1. Model Parameters and Data Sources 

Parameters 

Single-family Residential Multifamily Residential Small Commercial (Shopping Center) Industrial Building 

Value Data Source Value Data Source Value Data Source Value Data Source 

Term of building 

construction loan, 

years 1 

EPA assumption. 

Assumes that the 

construction loan term is 

equal to the length of the 

construction phase of the 

project, which in this 

case is 1 year. 1 

See Single-family 

Residential Data Source 

for details. 1 

See Single-family 

Residential Data Source 

for details. 1 

See Single-family 

Residential Data Source 

for details. 

Assumed pre-tax 

profit on land 

development 10% 

NAHB Chicago focus 

group estimated 12-14 

percent; 10 percent is an 

EPA assumption. See 

Appendix B for further 

discussion. 10% 

See Single-family 

Residential Data Source 

for details. 10% 

See Single-family 

Residential Data Source 

for details. 10% 

See Single-family 

Residential Data Source 

for details. 

Assumed pre-tax 

profit on 

construction 10% 

NAHB Chicago focus 

groups estimated 8 to 12 

percent pre-tax at time of 

sale. R.S. Means uses 10 

percent as a profit 

assumption in their Cost 

Data book series. 10% 

See Single-family 

Residential Data Source 

for details. 10% 

See Single-family 

Residential Data Source 

for details. 10% 

See Single-family 

Residential Data Source 

for details. 

4A-5
APPENDIX 4B

Detailed Description of Model Parameters and Assumptions 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Cost of Raw Land 

Land prices tend to vary by region of the country, and even within particular regions, depending 

on the exact location of the parcel (e.g., urban proximity). For this generic single-family project cost 

model, a value of $40,000 per acre is used based on the estimate provided by participants in the Chicago 

NAHB focus group morning session. The participants in the NAHB Dallas focus group meetings 

confirmed that even within one state lot prices can range dramatically. Prices per lot were reported to 

range from near $10,000 in El Paso, TX, to nearly $1 million in Austin (for lake-front property). (Note, 

these costs cited were per lot, not per acre). The single-family development land cost estimate was also 

used in the multifamily residential project model due to lack of other data. 

Land prices for the commercial and industrial models were taken from the Urban Land Institute’s 

(ULI) Market Profiles 2000: North America, which lists average land costs for shopping centers and 

industrial parks for selected Metropolitan Statistical Areas (MSAs) depending on data availability. The 

median land cost for each project type was calculated from a list of MSA average land costs and used in 

the models as a national estimate proxy. 

Due Diligence 

As described previously, due diligence refers to the work done by the developer prior to taking 

ownership of a parcel. During this time the developer conducts a variety of environmental and 

engineering assessments to identify any potential obstacles to the successful completion of the proposed 

development. At this time the only estimates for due diligence costs are based on a $100,000 estimate 

provided by the Chicago NAHB focus group participants for a 40-acre project. This figure was 

converted to $2,500 per acre on the assumption that these costs would fluctuate depending on the size of 

the project. 

Impact Fees 

The NAHB’s Chicago focus group estimated the impact fees on new residential construction to 

average $15,000 per lot. This figure was converted to $45,000 per acre for use in the multifamily, 

commercial, and industrial project models. 

4B-1
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

This is one of many estimates that may be found in the literature. In their book Red Tape and 

Housing Costs, Michael Luger and Kenneth Temkin interviewed numerous builders and developers in 

New Jersey and North Carolina, and received several estimates for impact fees in North Carolina. 

Estimates ranged from approximately $2,800 to $6,547 per unit in Cary, NC, and from $1,300 to $2,765 

in Durham, NC. Even the highest estimate in these ranges is significantly lower than the estimate from 

the focus group meeting. These fees represent approximately 1 to 2 percent of the final sale price of a 

house in the area. 

In a cost breakdown of a single-family home provided by NAHB on their website,34 impact fees 

were estimated at $1,182 per unit (approximately 1 percent of total construction cost). A study by the 

Sierra Club (Sierra Club 2000) estimates that impact fees range from under $1,000 per unit to 

approximately $6,140 per single-family unit. These figures are based on local observations. Finally, 

Ross and Thorpe (1992) report that a survey conducted in 1990 in Orange County, California (one of the 

most expensive housing markets in the country), found at least three cities in that county with impact fees 

exceeding $20,000 per unit. This estimate is closest to the assumption currently in the models. 

At this time, EPA is unaware of any single national estimate for the average impact fee imposed 

on developers and builders and has chosen to use the NAHB estimate for this analysis. 

Building Construction Costs 

The approach used in the model project for estimating average building construction costs for the 

single-family project is to take total construction costs for a new single-family house, provided by NAHB 

on their website ($124,276) (NAHB 2001b), and divide that figure by the average square footage of a 

new, conventionally financed, house as reported by Census (2,310 square feet; Characteristics of New 

Housing). This calculation yields an average construction cost of $53.80 per square foot. NAHB focus 

group participants estimated that building construction costs ranged from $50 to $75 per square foot, at 

least in the Chicago area. The national estimate is within the range provided by NAHB members at the 

focus group meeting. 

34 http://www.nahb.com/housing_issues/balance_2.htm 

4B-2 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Building construction costs for the remaining projects – multifamily, commercial, and industrial 

– were taken from R.S. Means Building Construction Cost Data. The costs used were median costs for 

the “typical” sized building for each project type, based on the projects detailed in the R.S. Means project 

database. While the building costs may fluctuate some with overall building size, the median cost was 

used as a proxy for national-level building costs and was used regardless of site or building size. 

Building size for these three project types was assumed to fluctuate with site size. Size estimates for each 

site size were determined using the building to site area ratio from the Center for Watershed Protection. 

Multiplying this ratio by each site size (1, 3, 7.5, etc. acres) gave EPA an estimate of building footprint. 

Since multifamily building construction costs were based on low-rise apartment buildings 1 to 3 stories 

in height, an average of 2 stories per apartment building was used to calculate total building square 

footage from the footprint. Commercial and industrial buildings were assumed to be 1 story; therefore 

the building footprint equaled total building area. 

Impervious Surface Estimates 

Estimates for impervious surface area and construction costs were calculated for the multifamily, 

commercial, and industrial model projects. The impervious surface area for roads, driveways, parking, 

and sidewalks was calculated by multiplying the impervious surface area to site size ratio (CWP 2001) by 

the site size. R.S. Means cost estimates for paving and sidewalk construction were used to estimate 

impervious surface construction costs. The paving cost estimate ($1.44 per square foot) was multiplied 

by the combined surface area for roads, driveways, and parking while the sidewalk cost estimate ($4.66 

per square foot) could be directly multiplied to the sidewalk surface area estimate. 

Financing Requirements 

A December 28, 1999, memo from ERG to EPA (“Real Estate Development Financing”) cites 

the typical land acquisition loan duration is 2 years, whereas the models currently use a duration of 3 

years. It is not clear if the 2 year loan term includes the same activities as assumed for the model 

projects. Similarly, the duration for the land development loan is cited as approximately 2 years 

(comparable to that for the land acquisition loan). The average duration of the construction loan is not 

cited in the memo, although it may be assumed that the duration of the loan would vary with project size. 

4B-3
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Loan-to-value ratios under the Real Estate Lending Rules declined from approximately 80 percent 

for all phases of project development to the following breakdown after the Savings and Loan Crisis: 

• 65 percent for land acquisition 

• 75 percent for land development 

• 80 percent for construction 

The memo also states that the typical land acquisition loan rate is 1-4 points above the prime rate. 

No further detail for the remaining project stages is given, but they are assumed to be within the same 

range. The models currently use a loan rate of 7.5 percent. 

Profit Assumptions 

Profit on both land development and building construction are assumed to be 10 percent, based on 

conversations with NAHB and reality-checked against the assumptions used in the R.S. Means Cost Data 

series. Note that there would not be a separate profit for the land development phase of the project because 

the developer-builder would retain ownership of the project through building construction (land 

development profit is only realized when a developer sells finished lots to individual builders). The profit 

rate with 100 percent CPT is based on the assumption that any additional costs incurred by the developerbuilder (i.e., additional storm water control costs) would be passed through to the consumer, and that none 

of the additional costs would be borne by the developer-builder as decreased profit. The profit rate with 

zero CPT depends on the level of costs. 

Overhead Assumptions 

EPA assumes that developers apply an overhead charge to all costs incurred during the land 

development phase, and that a further overhead charge is levied by the builder on all costs incurred during 

the building phase, including the cost of lot acquisition. These overhead charges represent, in part, 

payment to the owner for capital tied up to secure development and construction loans as well as 

compensation for managing and overseeing the work of subcontractors and other professionals (engineers, 

architects, designers). 

4B-4 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

The estimated overhead rate of 10 percent at the development stage and 10 percent at the building phase 

was based on input from NAHB. EPA has separately calculated the “opportunity cost of capital” based 

on actual financing needs, loan conditions, and loan terms. In the model projects, therefore, the actual 

percentage applied as an overhead factor has been adjusted downwards. 

4B-5
APPENDIX 4C

Characteristics of Model Establishments
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 4C-1. Model Establishment Characteristics Based on Census Data[1] 

Class 

Number of 

Establishments 

Average 

Starts 

Average 

Revenue 

Average 

Employment Cashflow 

1-4 17,107 2.3 $492.2 2.5 $46.3 

Single 5-9 7,589 6.4 $1,088.6 3.3 $104.9 

Family 10-24 6,262 14.6 $1,987.0 4.3 $177.3 

25-99 3,018 41.9 $4,923.5 8.6 $4,229.0 

100-499 833 191.7 $24,030.7 32.1 $2,187.6 

500+ 122 864.5 $109,032.6 160.0 $9,192.5 

2-9 486 4.3 $644.8 3.2 $29.4 

Multifamily 10-24 398 16.5 $1,381.6 5.1 $99.6 

25-99 383 55.1 $3,499.7 8.0 $320.1 

100-499 593 191.7 $7,410.0 13.5 $566.6 

500+ 39 959.0 $43,844.4 64.7 $938.8 

Commercial 50-99 41,356 13.2 $23,799 67.5 $927.5 

Industrial 50-99 8,042 9.5 $18,470 67.7 $627.3 

[1] Dollar values in thousands 

4C-1
-- -- -- -- 

Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 4C-2 Model Establishment Characteristics Based on Dun And Bradstreet Data 

Single Family (SIC 1531) Multifamily (SIC 1522) Commercial (SIC 1542) Industrial (SIC 1541) 

Line Item S caled Value [1] Percent S caled Value [1] Percent S caled Value [1] Percent S caled Value [1] Percent 

Cash $82,22 9 11.9 % $55,75 2 18.4 % $61,70 5 21.5 % $57,68 2 19.1% 

A cco unts Receiva ble $61,49 9 8.9 % $81,20 4 26.8 % $101,59 8 35.4 % $108,11 6 35.8% 

Notes Receiva ble $4,83 7 0.7 % $3,93 9 1.3 % $2,00 9 0.7 % $2,71 8 0.9% 

Inventory $210,06 4 30.4 % $12,72 6 4.2 % $5,74 0 2.0 % $4,53 0 1.5% 

Other Current $152,71 1 22.1 % $67,56 9 22.3 % $60,27 0 21.0 % $58,58 8 19.4% 

Total Current Assets $511,34 0 74 .0 % $221,19 0 73 .0 % $231,32 2 80 .6 % $231,63 4 76 .7% 

Fix ed A ssets $109,17 8 15.8 % $58,17 6 19.2 % $41,04 1 14.3 % $52,24 6 17.3% 

Other Non-current $70,48 2 10.2 % $23,63 4 7.8 % $14,63 7 5.1 % $18,12 0 6.0% 

Total Asset s $691,00 0 100.0 % $303,00 0 100.0 % $287,00 0 100.0 % $302,00 0 100.0% 

A cco unts Paya ble $56,66 2 8.2 % $73,02 3 24.1 % $87,24 8 30.4 % $79,12 4 26.2% 

Bank Loans $11,74 7 1.7 % $2,42 4 0.8 % $1,43 5 0.5 % $60 4 0.2% 

Notes Paya ble $101,57 7 14.7 % $18,48 3 6.1 % $6,88 8 2.4 % $7,24 8 2.4% 

Other Current $196,93 5 28.5 % $102,41 4 33.8 % $52,52 1 18.3 % $57,98 4 19.2% 

Total Current Liabilities $366,92 1 53 .1 % $196,34 4 64 .8 % $148,09 2 51 .6 % $144,96 0 48 .0% 

Other Long Term $81,53 8 11.8 % $29,99 7 9.9 % $15,49 8 5.4 % $22,34 8 7.4% 

Deferred Credits $5,52 8 0.8 % $1,21 2 0.4 % $57 4 0.2 % $30 2 0.1% 

Net W orth $237,01 3 34.3 % $75,44 7 24.9 % $122,83 6 42.8 % $134,39 0 44.5% 

Total Liabilities & Net W orth $691,00 0 100.0 % $303,00 0 100.0 % $287,00 0 100.0 % $302,00 0 100.0% 

Ne t Sales $1,000,000 100.0% $1,000,000 100.0% $1,000,000 100.0% $1,000,000 100.0% 

Gross Profit $228,00 0 22.8 % $190,00 0 19.0 % $159,00 0 15.9 % $184,00 0 18.4% 

Net Profit A fter Tax $12,00 0 1.2 % $35,00 0 3.5 % $30,00 0 3.0 % $34,00 0 3.4% 

W orking Capital $144,419 $24,846 $83,230 $86,674 

Gross P rofit Ratio 0.22 8 0.19 0 0.15 9 0.184 

Ret urn on Net W orth Ratio 0.05 1 0.46 4 0.24 4 0.253 

Current Ratio 1.39 4 1.12 7 1.56 2 1.598 

Debt to E quity Ratio 1.91 5 3.01 6 1.33 6 1.247 

[1 ] Values scaled according to $1 ,000,000 net sales for comparative purposes 

4C-2 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 4C-3 Financial Ratio Data by Quartile 

Uppe r Low er 

Se ctor Ra tio Quar til e Me dia n Quar tile 

Current 2 .90 0 1 .40 0 1 .100 

S ingle Family De bt to E quity 0 .72 4 1 .79 6 4 .928 

Ret urn on Net W o rth 0 .33 5 0 .16 8 0 .066 

Current 2 .50 0 1 .50 0 1 .100 

Mul tifamily De bt to E quity 0 .59 5 1 .28 0 3 .179 

Ret urn on Net W o rth 0 .58 9 0 .22 7 0 .061 

Current 2 .20 0 1 .50 0 1 .200 

Commer cial De bt to E quity 0 .66 0 1 .45 6 2 .823 

Ret urn on Net W o rth 0 .36 9 0 .16 4 0 .055 

Current 2 .50 0 1 .60 0 1 .200 

Industrial De bt to E quity 0 .52 7 1 .30 0 2 .723 

Ret urn on Net W o rth 0 .38 6 0 .15 1 0 .055 

4C-3
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

CHAPTER FIVE

ECONOMIC IMPACT ANALYSIS RESULTS

5.1 OVERVIEW OF ECONOMIC IMPACT ANALYSIS METHODOLOGY 

This chapter presents the projected economic impacts of the regulatory options discussed in 

Chapter Three on the construction and development (C&D) industry. In this chapter, EPA evaluates the 

impacts of these costs using the methodology, models, data, and approaches described in Chapter Four. 

The economic impact methodology uses several methods to assess economic impacts on the 

industry. These include models that analyze impacts at the level of the individual construction project, 

individual firm, national construction market, and the economy as a whole. The analysis considers 

impacts on C&D firms that would be complying with the regulations. It also considers the impacts on 

those who purchase the output of the C&D industry, including prospective new home buyers; owners of 

new multifamily, commercial, and industrial properties; and public entities responsible for building 

roads, schools, and other public facilities. 

The chapter is organized as follows: 

• Section 5.2 presents EPA’s analysis of the economic impacts of the proposed 

rule on model C&D projects. These results are based on the financial analyses 

developed for representative projects in Chapter Four. 

• Section 5.3 presents EPA’s estimates of the national costs of the proposed rule. 

EPA determined those costs by multiplying the per-acre compliance costs by 

estimates of the number of acres subject to the proposed effluent guidelines 

annually. 

• Section 5.4 presents the results of EPA’s analysis of the impacts of the proposed 

rule on model C&D establishments. This section examines the impact of the 

incremental compliance requirements on the financial condition of representative 

establishments, using data on their present financial condition as a starting point. 

• Section 5.5 presents EPA’s analysis of closures and employment losses. These 

impacts are based on the model establishment described in Section 5.4. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

• Section 5.6 presents EPA’s analysis of the proposed rule’s impacts on barriers to 

entry—that is, how the incremental costs of the proposed rule could affect the 

ability of new businesses to enter the market. 

• Section 5.7 presents EPA’s market model analysis. This section considers the 

impact of the incremental compliance requirements on national construction 

markets and the economy as a whole. 

• Section 5.8 presents EPA’s analysis of potential impacts on government units. 

This section considers the various costs to government associated with the 

proposed rule. 

• Section 5.9 presents EPA’s analysis of additional impacts of the proposed rule. 

This section discusses regional impacts, social costs, and unfunded mandates. 

5.2 ANALYSIS OF IMPACTS ON MODEL PROJECTS 

Chapter Four defines a series of model projects. In this section, EPA uses those models to 

analyze the impact of the proposed rule on two alternative targets: the developer-builder (assuming that 

they absorb the incremental costs) and the consumer (assuming that the same costs are passed on to the 

buyer). EPA has developed model projects for each of the following: 

• A residential development of single-family homes 

• A residential development of multifamily housing units 

• A commercial development (enclosed shopping center) 

• An industrial development (industrial park) 

For each type of model project, EPA has analyzed costs and impacts for a range of project sizes: 

1, 3, 7.5, 25, 70, and 200 acres. The model projects incorporate all of the baseline costs associated with 

developing a site and completing construction of all housing units or buildings on the site. Accordingly, it 

is assumed that the baseline costs include the costs of complying with existing Phase I and Phase II 

NPDES storm water regulations as they would apply to the site. The model then allows EPA to assess 

the incremental impact of additional requirements imposed under the proposed rule. Chapter Four 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

provides a detailed description of the model project characteristics, assumptions, and data sources, 

including an itemized listing of project cost elements. 

5.2.1 Cost Pass Through Considerations 

The model projects are calibrated to allow analysis under varying assumptions about the degree 

of cost pass through (CPT) from the builder-developer to the buyer.1 Costs for the models have been 

estimated under two extreme assumptions, 100 percent CPT and zero CPT. Under 100 percent CPT, all 

incremental regulatory costs resulting from the proposed rule are passed through to end consumers. 

Under this approach, the costs are also assumed to be marked up to the same degree as any other project 

costs.2 Consumers feel the impact of the regulations in the form of a higher price for each new building 

or housing unit. With zero CPT, the incremental regulatory costs are assumed to accrue entirely to the 

builder-developer, and appear as a reduction in profits. EPA determines this reduction by fixing the final 

sales price of the housing units and calculating the builder’s profit once the regulatory costs are absorbed. 

Existing literature and industry information suggests that, in the important single-family home 

market, at least, pass through of regulatory costs in the new housing market is close to 100 percent (e.g., 

Luger and Temkin, 2000), but the actual incidence of regulatory costs would depend closely on local 

market conditions. To illustrate the range of possible impacts, EPA has calculated its models under the 

extreme conditions of 100 percent and zero percent CPT. Accordingly, for each sector modeled there are 

two sets of results reported below. 

5.2.2 Model Project Baseline Performance 

Under the baseline assumptions and conditions, the sales price for each housing unit (or model 

commercial or industrial building) is calculated, and the baseline builder-developer profit level is 

1

 Cost pass-back to the landowner is possible, but it occurs infrequently. See Section 4.1.2. Since EPA 

lacks data on the actual incidence and extent of cost pass-back, it is not analyzed in detail. 

2

 The cost markup assumptions are built into the model and are explained in Chapter Four. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

determined based on the sales price. Builder-developer pre-tax profit is assumed to be approximately 10 

percent of the building sales price. Table 5-1 shows the baseline sales price and profit for each model 

project type and each project size. Data and assumptions underlying these estimates are derived in 

Chapter Four. The model results presented later in this section show changes from these baseline values 

under each regulatory option. 

Table 5-1. Baseline Sales Price and Profit Conditions for the Model Projects 

Project Type and Size (acres) Calculated Building Sales Price Builder-Developer Pre-tax Profit 

Single-Family Residential 

1 acre $279,903 $27,990 

3 acres $283,093 $24,251 

7.5 acres $283,093 $28,309 

25 acres $282,951 $28,295 

70 acres $283,042 $28,304 

200 acres $283,058 $28,306 

Multifamily Residential 

1 acre $1,375,074 $137,507 

3 acres $4,125,374 $412,537 

7.5 acres $10,313,438 $1,031,344 

25 acres $34,378,235 $3,437,823 

70 acres $96,259,030 $9,625,903 

200 acres $275,025,887 $27,502,589 

Commercial 

1 acre $1,498,800 $149,880 

3 acres $4,496,399 $449,640 

7.5 acres $11,240,999 $1,124,100 

25 acres $37,469,920 $3,746,992 

70 acres $104,915,760 $10,491,576 

200 acres $299,759,358 $29,975,936 

Industrial 

1 acre $950,949 $95,095 

3 acres $2,852,899 $285,290 

7.5 acres $7,132,197 $713,220 

25 acres $23,773,989 $2,377,399 

70 acres $66,567,119 $6,656,712 

200 acres $190,191,761 $19,019,176 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

5.2.3 Results of Model Project Analyses 

Table 5-2a contains the results under the 100 percent CPT assumption, while Table 5-2b contains 

identical results under the assumption of zero CPT. In Table 5-2a (100 percent CPT), the impacts of the 

regulatory options are shown as the percentage increase in the sales price of each model project unit. In 

Table 5-2b (zero CPT), the impacts of the regulatory options are shown as the percentage decrease in 

builder profits. 

100 Percent Cost Pass-Through 

Under the 100 percent CPT assumption, the impacts range from a minimum of 0.00 percent (i.e., 

there is no incremental impact on sales price) for all project types to a range of maximum impact values 

(where the percent listed indicates an increase in sales price of that amount): 0.09 percent for single-family 

residential, 0.05 percent for multifamily residential, 0.05 percent for commercial, and 0.07 percent for 

industrial. All of the maximum impacts occur under Option 2. 

Zero Cost Pass-Through 

Under the zero CPT assumption, the impacts range from a minimum of 0.00 percent for all project 

types under various option combinations (indicating no impact to builder profit) to a range of maximum 

impact values, all under one percent. Maximum impacts all occur with Option 2 as shown below: 

• Single-family residential: -0.80 percent 

• Multifamily residential: -0.45 percent 

• Commercial: -0.41 percent 

• Industrial: -0.64 percent 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 5-2a. Impact of Regulatory Options on Model Project Financials—100 Percent Cost Pass 

Through, All Project Sizes 

Option 

Percent Change in Project Price to Buyer 

Single-Family Multifamily Commercial Industrial 

Min Max Min Max Min Max Min Max 

1 0.00% 0.04% 0.00% 0.02% 0.00% 0.02% 0.00% 0.03% 

2 0.00% 0.09% 0.00% 0.05% 0.00% 0.05% 0.00% 0.07% 

3 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

Table 5-2b. Impact of Regulatory Options on Model Project Financials—Zero Percent Cost Pass 

Through, All Project Sizes 

Option 

Percent Change in Builder-Developer Profit 

Single-Family Multifamily Commercial Industrial 

Min Max Min Max Min Max Min Max 

1 0.00% -0.37% 0.00% -0.19% 0.00% -0.17% 0.00% -0.27% 

2 0.00% -0.80% 0.00% -0.45% 0.00% -0.41% 0.00% -0.64% 

3 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

5.2.4 Nonbuilding Project Analysis Results 

This section presents the results of the model nonbuilding project analysis described in Section 

4.2.7. As indicated in that section, EPA has not developed actual engineering costs for projects such as 

roads and highways. As a result, EPA has simulated the impact of the proposed rule on such projects 

using worst-case (i.e., highest) estimates of the per-acre engineering costs estimated for building projects. 

Due to the lack of engineering costs for this project type, EPA used a “worst-case” assumption of 

$378 per acre in compliance costs. This figure is based on the highest per-acre compliance cost 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

estimated for a 7.5-acre building project. EPA elected to use the compliance costs for a 7.5-acre project 

because the model one-mile new highway construction project encompasses 10.67 acres. EPA estimates 

that the baseline costs of construction for one mile of typical road or highway is $5.4 million (see Section 

4.2.7). Using $378 per acre, the worst-case estimate of compliance costs associated with one mile of 

new road or highway construction (10.67 acres) is $4,033. This equates to less than 0.1 percent of 

baseline costs, indicating even under worst-case assumptions regarding compliance costs, the proposed 

rule is unlikely to have a significant impact on representative nonbuilding construction projects. 

5.3 ANALYSIS OF NATIONAL COMPLIANCE COSTS 

EPA has calculated the national compliance costs associated with the proposed rule by 

multiplying the compliance costs per acre (by project type and size) by estimates of the number of acres 

developed per year. EPA used data from the USDA National Resources Inventory (NRI) to estimate the 

number of acres developed per year. According to this source, approximately 2.2 million acres of 

undeveloped land are converted to a developed state every year. EPA has adjusted this total to account 

for waivers and differences in regulatory coverage between Option 1 and Option 2.3 As described in 

Chapter Four, both the 14-Community Study (conducted in support of the Phase II NPDES storm water 

rule development) and building permits data from Census were used to allocate the developed acreage by 

project type and size. 

Table 5-3 contains EPA’s estimates of the national costs of the regulatory options. The national 

costs of the proposed rule range from $0.00 for each project type (Option 3) to a maximum of $121.5 

million for single-family residential construction, $59.4 million for multifamily residential construction, 

$277.3 million for commercial construction, and $11.0 million for industrial construction (all Option 2). 

The combined national compliance costs across all sectors are shown in the final rows of Table 

5-3a. The national compliance costs under Option 1 are $118.1 million while the national compliance 

costs under Option 2 are $469.2 million. 

3

 Option 1 applies to sites of one acre or more in size while Option 2 applies to sites of five acres or more 

in size. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 5-3a. Estimated National Cost of Storm Water Control Options 

(All Dollar Amounts in Constant, Pre-tax, 1997 Dollars) 

Option Compliance Costs per Acre($) Estimated National Costs ($ Millions) 

Single-Family Residential 

Option 1 $57.0 $24.1 

Option 2 $305.0 $121.5 

Option 3 $0.0 $0.0 

Multifamily Residential 

Option 1 $59.0 $11.9 

Option 2 $319.0 $59.4 

Option 3 $0.0 $0.0 

Commercial 

Option 1 $74.0 $78.4 

Option 2 $312.0 $277.3 

Option 3 $0.0 $0.0 

Industrial 

Option 1 $81.0 $3.7 

Option 2 $303.0 $11.0 

Option 3 $0.0 $0.0 

Total 

Option 1 $118.1 

Option 2 $469.2 

Option 3 $0.0 

NOTE: Compliance costs per acre are weighted national averages for each option over all site size classes. 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 5-3b. Calculation of Total Cost per Unit 

(All Dollar Amounts Are in Constant, Pre-tax, 1997 Dollars)

Single Multi-Family Commercial Industrial Total 

Option 1 

Total Costs $24,099,340 $11,892,936 $78,415,033 $3,733,824 $118,141,133 

Total Acres 533,878 252,182 1,332,476 57,523 2,176,058 

Cost per Acre $45.14 $47.16 $58.85 $64.91 

Units per Acre 2.67 13,591 8,320 8,555 

Cost per Unit $16.91/house $0.003/sq ft $0.007/sq ft $0.008/sq ft 

Option 2 

Total Costs $121,470,785 $59,391,699 $277,280,636 $11,016,368 $469,159,488 

Total Acres 501,100 229,958 1,061,108 42,733 1,834,898 

Cost per Acre $242.41 $258.27 $261.31 $257.80 

Units per Acre 2.67 13,591 8,320 8,555 

Cost per Unit $90.79/house $0.019/sq ft $0.031/sq ft $0.030/sq ft 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

Table 5-3b shows the calculation of cost per unit for Options 1 and 2. Units are “dollars per 

house” for single-family residential construction and “dollars per square foot” for all other categories. 

Total costs are the estimated national costs as shown in Table 5-3a. Option 2 applies only to sites 

disturbing 5 acres or more, so this option encompasses less acreage than Option 1. In addition, several 

states have enacted regulations equivalent to the proposed standards and so would not incur incremental 

costs from the proposed rule. These equivalent states are included in the storm water control costs per 

acre in Table 5-3a but removed in the estimated national costs in the same table. Table 5-3b recalculates 

the cost per acre with the costs attributable to states with equivalent programs removed. With this 

adjustment, the cost per unit is calculated by dividing by the number of houses per acre, or number of 

rentable square feet per acre, which is derived from Census and R. S. Means data. 

The cost to build a new single-family home increases by $17 under Option 1 and $91 under 

Option 2. Costs per square foot increase by less than 1 cent for Option 1 and 2 to 3 cents for Option 2. 

The impacts of these cost increases on the markets for new construction are explored in Section 5.7. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

5.4 ANALYSIS OF IMPACTS ON MODEL ESTABLISHMENTS 

As described in Chapter Four, EPA developed a set of representative model projects as one basis 

for analyzing the impacts of the proposed rule on the construction industry. EPA has examined the 

impacts of the compliance costs associated with these model projects on a series of model establishments 

that characterize the financial conditions of “typical” businesses in each of the four major industry sectors 

(single-family residential, multifamily residential, commercial, and industrial; see Section 4.3). 

The model firm analysis simulates the impact of the incremental compliance costs on the balance 

sheet and cash flow of the model establishments, and expresses the impacts in terms of changes in 

meaningful business financial ratios. The ratios used in the analysis include: 

• Gross profit ratio 

• Return on net worth 

• Current ratio 

• Debt to equity ratio 

These ratios are reviewed in Chapter Four, which also presents a discussion of their significance as 

indicators of financial performance. 

5.4.1 Building Construction 

This section presents the results of simulations of firm performance under the regulatory options 

being considered by EPA. As indicated in Chapter Four, the simulations have been run under two CPT 

scenarios: (1) zero CPT from the developer-builder to the consumer and (2) an estimated actual CPT, 

where a “realistic” share of the compliance costs are passed though to consumers in the form of higher 

prices. EPA has estimated a separate CPT factor for each market sector individually. The zero CPT 

results presented in this section represents the “worst case” scenario; impacts under the more realistic CPT 

assumption are much smaller than those shown below. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 5-4 shows sample results for a firm in the single-family residential construction industry 

(SIC 1531) completing between 10 and 24 housing starts per year, based on costs for 7.5-acre projects. 

Impacts are most severe on the return on net worth ratio, a recurring outcome throughout EPA’s model 

firm analysis. Return on net worth is the most sensitive ratio because it is based on net profit after taxes, 

which makes up 1.2 percent of revenues for the “typical” establishment in SIC 1531 according to D&B 

data. Impacts are much less severe under the other financial ratio measures. 

Table 5-5a provides a summary of the results for each sector by regulatory option, over all 

project sizes and under the zero CPT scenario. The results are broadly similar to the detailed example 

presented in Table 5-4 for the single-family residential sector. Table 5-5b provides the same summary of 

financial ratios under the estimated actual cost pass through scenario. In both scenarios the most severe 

impacts are observed when measured by impact on return on net worth, followed by the gross profit, debt 

to equity, and current ratios. The largest impact over both scenarios is a 5.85 percent decline in the 

return on net worth ratio for the single-family residential sector under Option 2 with zero CPT. With the 

exception of return on net worth, the remainder of the results under zero CPT are at or below 1.0 percent 

for all project types. The results under the estimated actual CPT scenario indicate impacts of less than 

1.0 percent for all financial ratios and all four project types, with most of the impacts being less than 0.10 

percent (with the exception of return on net worth). 

5-11
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 5-4 Impact of Regulatory Options on Financial Performance for Model Firm 

Single-family Residential Construction, 10-24 Housing Units Starts Class 

Impact 

Regulatory Option 

Option 1 Option 2 Option 3 

Cost Impact 

Incremental Costs per Acre Per Year $64 $371 $0 

Incremental Costs per Establishment Per Year $354 $2,034 $0 

Impact on Financial Performance 

Gross Profit Ratio 

Percent change from baseline 

0.2278% 

-0.0780% 

0.2270% 

-0.4490% 

0.2280% 

Return on Net Worth 

Percent change from baseline 

0.0502% 

-0.8810% 

0.0481% 

-5.0680% 

0.0506% 

Current Ratio 

Percent change from baseline 

1.3935% 

-0.0070% 

1.3930% 

-0.0400% 

1.3936% 

Debt to Equity Ratio 

Percent change from baseline 

1.9161% 

0.0310% 

1.9189% 

0.1800% 

1.9155% 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 5-5a. Impact of Regulatory Options on Model Firm Financial Performance 

Zero Cost Pass Through 

Construction Industry 

and Regulatory Option 

Percent Change in Financial Ratios, From Baselinea 

Gross Profit 

Return on Net 

Worth Current Ratio Debt to Equity 

Min. Max. Min. Max. Min. Max. Min. Max. 

Single-family residential 

Option 1 0.000% -0.230% 0.000% -2.540% 0.000% -0.020% 0.000% 0.900% 

Option 2 0.000% -0.520% 0.000% -5.850% 0.000% -0.050% 0.000% 0.210% 

Option 3 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 

Multifamily residential 

Option 1 0.000% -0.310% 0.000% -0.990% 0.000% -0.050% 0.000% 0.200% 

Option 2 0.000% -0.950% 0.000% -3.070% 0.000% -0.160% 0.000% 0.640% 

Option 3 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 

Commercial 

Option 1 0.000% -0.170% 0.000% -0.530% 0.000% -0.020% 0.000% 0.130% 

Option 2 0.000% -0.400% 0.000% -1.250% 0.000% -0.050% 0.000% 0.310% 

Option 3 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 

Industrial 

Option 1 0.000% -0.140% 0.000% -0.430% 0.000% -0.020% 0.000% 0.120% 

Option 2 0.000% -0.320% 0.000% -1.020% 0.000% -0.050% 0.000% 0.280% 

Option 3 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 

a

 Ranges (minimum and maximum) reflect results across model firms of varying sizes. 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 5-5b. Impact of Regulatory Options on Model Firm Financial Performance 

Estimated Actual Cost Pass Through 

Construction Industry 

and Regulatory Option 

Percent Change in Financial Ratios, From Baselinea 

Gross Profit 

Return on Net 

Worth Current Ratio Debt to Equity 

Min. Max. Min. Max. Min. Max. Min. Max. 

Single-family residential 

Option 1 0.000% -0.034% 0.000% -0.379% 0.000% -0.003% 0.000% 0.013% 

Option 2 0.000% -0.077% 0.000% -0.872% 0.000% -0.007% 0.000% 0.031% 

Option 3 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 

Multifamily residential 

Option 1 0.000% -0.026% 0.000% -0.083% 0.000% -0.004% 0.000% 0.017% 

Option 2 0.000% -0.080% 0.000% -0.259% 0.000% -0.014% 0.000% 0.054% 

Option 3 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 

Commercial 

Option 1 0.000% -0.017% 0.000% -0.054% 0.000% -0.002% 0.000% 0.013% 

Option 2 0.000% -0.040% 0.000% -0.126% 0.000% -0.006% 0.000% 0.031% 

Option 3 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 

Industrial 

Option 1 0.000% -0.021% 0.000% -0.066% 0.000% -0.003% 0.000% 0.018% 

Option 2 0.000% -0.048% 0.000% -0.155% 0.000% -0.008% 0.000% 0.042% 

Option 3 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 

a

 EPA applied the following estimated cost pass through factors: Single-family residential, 85.10%; Multifamily residential,

91.55%; Commercial, 89.87%; Industrial, 84.75%.

b

 Ranges (minimum and maximum) reflect results across model firms of varying sizes.

Source: EPA estimates based on the methodologies presented in Chapter Four.

5.4.2 Nonbuilding Construction 

EPA has analyzed the potential impacts of the proposed rule on nonbuilding construction 

establishments based on Census data and the cost data presented in Section 5.2.4. As previously 

discussed, this analysis focuses on highway and street construction contractors (NAICS 23411) due to 

the lack of financial data for other segments of the heavy construction industry group (NAICS 234). 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

The model establishment analysis for heavy construction, although somewhat simplified, follows 

the basic methodology outlined in Section 4.3 for establishments in the commercial and industrial 

construction industries. EPA has determined that the median highway construction establishment 

(NAICS 23411), based on revenues, is in the 50 to 99 employee size classification category as defined by 

Census (U.S. Census 2000). Within this employment size class, EPA calculated average establishment 

revenues, employment, and costs as discussed in Section 4.3.1.2. 

For the model establishment, EPA examined the economic impacts of the worst-case compliance 

cost impacts on the same four financial ratios analyzed above for the residential, commercial, and 

industrial construction industries. Due to the lack of actual engineering cost estimates for highway 

construction, the compliance costs used in this analysis do not correspond to a particular regulatory 

option or combination of options. Compliance costs for 7.5-acre projects were chosen for this analysis 

because they are closest in size to the model highway construction project assumed to be undertaken by 

the model establishment, which encompasses 10.67 acres. 

Table 5-6 shows the results of this analysis for the model highway construction firm (50-99 

employment size class). Overall, the impacts are not large, with only one estimate above one-quarter of 

one percent. As with the model establishments in the building construction industries, the impacts are 

largest for the return on net worth ratio. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 5-6. Impact of Proposed Rule on Model Firm Financials - Highway Construction 

Cost Pass 

Through 

Assumption 

Gross Profit 

Return on Net 

Worth Current Debt to Equity 

Ratio 

Percent 

Change 

from 

Baseline Ratio 

Percent 

Change 

from 

Baseline Ratio 

Percent 

Change 

from 

Baseline Ratio 

Percent 

Change 

from 

Baseline 

Zero Cost Pass Through 

Baseline 0.223000 0.198344 1.629629 1.061856 

Worst-Case 0.222256 -0.33% 0.196307 -1.03% 1.628681 -0.06% 1.064601 0.26% 

90 Percent Cost Pass Through 

Baseline 0.223000 0.198344 1.629629 1.061856 

Worst-Case 0.222926 -0.03% 0.198141 -0.10% 1.629534 -0.01% 1.062131 0.03% 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

Under a zero cost pass through (CPT) assumption, the largest impact is on return on net worth, 

which declines by just over 1.0 percent. Impacts under an estimated CPT value of 90 percent are all at or 

below 0.10 percent. 

5.5 ANALYSIS OF IMPACTS ON CLOSURES AND EMPLOYMENT LOSSES 

As discussed in Chapter Four, EPA used two approaches to estimate potential facility closures 

and employment losses resulting from the proposed rule. The primary approach was to analyze changes 

in key financial ratios that occur as firms’ costs increase in response to the proposed rule. To estimate 

closures, EPA examined a weighted average of changes in the current ratio, debt to equity ratio, and 

return on net worth ratios. EPA then constructed a cumulative distribution function for each ratio to 

estimate the percent of establishments that would likely fall below “critical” values after incurring 

compliance costs. That percent falling below this critical value, multiplied by the number of facilities 

represented by the model under evaluation, resulted in a projected number of closures. Employment 

losses were calculated by multiplying the number of establishments projected to close by employment 

estimates for the model facility representing those closures. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

EPA’s alternative approach, which analyzed estimated model facility cash flow, was used as a 

check on the financial ratio analysis described above. Results from this analysis are contained in 

Appendix 5-A. 

5.5.1 Facility Closures 

Table 5-7a shows closure analysis results using the financial ratio method under a zero CPT 

assumption — the worst case scenario. Results under a calculated CPT assumption are presented in 

Table 5-7b. The largest number of establishment closures is projected to occur in the commercial sector 

(43 projected closures), followed by the single-family residential sector (13 closures). Facility closures 

as a percent of total facilities are less than one percent under all proposed options and for all industry 

sectors. As seen in Table 5-7b, closure impacts are even smaller when CPT is accounted for. 

Table 5-7a. Estimated Facility Closures 

Zero Cost Pass Through 

Option 

Single-Family Multifamily Commercial 

Number Pct. of Total Number Pct. of Total Number Pct. of Total 

1 4 0.005% 1 0.022% 11 0.028% 

2 13 0.015% 3 0.065% 43 0.108% 

3 0 0.000% 0 0.000% 0 0.000% 

Option 

Industrial Heavy TOTAL 

Number Pct. of Total Number Pct. of Total Number Pct. of Total 

1 2 0.026% 0 0.000% 18 0.012% 

2 7 0.090% 26 0.230% 92 0.063% 

3 0 0.000% 0 0.000% 0 0.000% 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 5-7b. Estimated Facility Closures 

Estimated Cost Pass Through 

Option 

Single-Family Multifamily Commercial 

Number Pct. of Total Number Pct. of Total Number Pct. of Total 

1 1 0.001% 0 0.000% 1 0.003% 

2 2 0.002% 0 0.000% 4 0.010% 

3 0 0.000% 0 0.000% 0 0.000% 

Option 

Industrial Heavy TOTAL 

Number Pct. of Total Number Pct. of Total Number Pct. of Total 

1 0 0.000% 0 0.000% 2 0.001% 

2 1 0.013% 3 0.027% 10 0.007% 

3 0 0.000% 0 0.000% 0 0.000% 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

5.5.2 Employment Losses 

Table 5-8a presents employment loss analysis results for the financial ratio method under a zero 

CPT assumption to show the worst case scenario. Results under a calculated CPT assumption are 

presented in Table 5-8b. 

Employment impacts as a percent of each sector’s total employment are roughly the same as 

closure impacts. This is to be expected, because EPA estimated employment impacts by multiplying 

projected closures by the number of employees per establishment. Note that in the multifamily sector, 

the percentage of employment losses is slightly larger than the percentage of closures. This is because 

the model establishments most affected by the proposed rule account for a disproportionately high 

percentage of sector employment. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 5-8a. Estimated Employment Losses 

Zero Cost Pass Through 

Option 

Single-Family Multifamily Commercial 

Number Pct. of Total Number Pct. of Total Number Pct. of Total 

1 34 0.016% 12 0.034% 162 0.029% 

2 145 0.067% 61 0.173% 603 0.110% 

3 0 0.000% 0 0.000% 0 0.000% 

Option 

Industrial Heavy TOTAL 

Number Pct. of Total Number Pct. of Total Number Pct. of Total 

1 43 0.029% 0 0.000% 251 0.021% 

2 133 0.089% 647 0.233% 1,589 0.130% 

3 0 0.000% 0 0.000% 0 0.000% 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

Table 5-8b. Estimated Employment Losses 

Estimated Cost Pass Through 

Option 

Single-Family Multifamily Commercial 

Number Pct. of Total Number Pct. of Total Number Pct. of Total 

1 5 0.001% 1 0.003% 16 0.003% 

2 22 0.006% 5 0.014% 61 0.011% 

3 0 0.000% 0 0.000% 0 0.000% 

Option 

Industrial Heavy TOTAL 

Number Pct. of Total Number Pct. of Total Number Pct. of Total 

1 7 0.005% 0 0.000% 29 

2 20 0.013% 65 0.023% 173 

3 0 0.000% 0 0.000% 0 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

5.6 ANALYSIS OF BARRIER TO ENTRY 

This section presents the results of EPA’s barrier to entry analysis. As discussed in Section 

4.3.3, EPA examined the ratio of compliance costs to current and total assets to determine if new market 

entrants would find it more difficult to obtain construction loans to start a project than would existing 

firms. As discussed in more detail in that section, this methodology is conservative by design because it 

does not account for the fact that a firm would typically be expected to finance 20 percent of the 

incremental compliance costs to obtain the loan— not the full amount as assumed here. 

5.6.1 Building Construction 

As shown in Table 5-9a, compliance costs represent a maximum of 0.82 percent of a model 

establishment’s current assets (0.60 percent of total assets) across all options and project types. These 

maximum projected impacts occur in the multifamily sector. For the industrial and commercial sectors, 

compliance costs are less than 0.30 percent of current assets, while in the single-family sector, costs are 

less than 0.25 percent of current assets. Table 5-9b shows the barrier to entry analysis results under an 

estimated CPT scenario. As shown, the impacts are smaller than under the zero CPT scenario, with the 

maximum impact on both current assets and total assets at less than 0.10 percent. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 5-9a. Barrier to Entry Analysis—Zero Cost Pass Through 

Option 

Compliance Costs Divided by: 

Current Assets Total Assets 

Min Max Min Max 

Single-Family Residential 

1 0.000% 0.100% 0.000% 0.070% 

2 0.000% 0.230% 0.000% 0.170% 

3 0.000% 0.000% 0.000% 0.000% 

Multifamily Residential 

1 0.000% 0.260% 0.000% 0.190% 

2 0.000% 0.820% 0.000% 0.600% 

3 0.000% 0.000% 0.000% 0.000% 

Commercial 

1 0.000% 0.120% 0.000% 0.090% 

2 0.000% 0.270% 0.000% 0.220% 

3 0.000% 0.000% 0.000% 0.000% 

Industrial 

1 0.000% 0.110% 0.000% 0.080% 

2 0.000% 0.250% 0.000% 0.190% 

3 0.000% 0.000% 0.000% 0.000% 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 5-9b. Barrier to Entry Analysis—Cost Pass Through 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

Option 

Compliance Costs Divided by: 

Current Assets Total Assets 

Min Max Min Max 

Single-Family Residential 

1 0.000% 0.015% 0.000% 0.011% 

2 0.000% 0.034% 0.000% 0.025% 

3 0.000% 0.000% 0.000% 0.000% 

Multifamily Residential 

1 0.000% 0.022% 0.000% 0.016% 

2 0.000% 0.069% 0.000% 0.050% 

3 0.000% 0.000% 0.000% 0.000% 

Commercial 

1 0.000% 0.012% 0.000% 0.009% 

2 0.000% 0.028% 0.000% 0.022% 

3 0.000% 0.000% 0.000% 0.000% 

Industrial 

1 0.000% 0.016% 0.000% 0.013% 

2 0.000% 0.038% 0.000% 0.029% 

3 0.000% 0.000% 0.000% 0.000% 

5.6.2 Nonbuilding Construction 

The barrier to entry analysis also produced results in line with the results previously reported for 

the other four industries. Table 5-10 shows the results of this analysis. Under a zero CPT assumption, 

compliance costs are less than one percent of both current and total assets using the best estimate 

compliance cost. Using the worst-case estimate, compliance costs are slightly above 2.5 percent of 

current assets and nearly 1.5 percent of total assets. With cost pass through, these impacts are 

significantly lower. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 5-10. Barrier to Entry Analysis - Highway Construction 

Compliance Cost Assumption 

Compliance Costs Divided By: 

Current Assets Total Assets 

Zero Cost Pass Through 

Baseline 0.00% 0.00% 

Worst-Case 0.29% 0.17% 

With 90 Percent Cost Pass Through 

Baseline 0.00% 0.00% 

Worst-Case 0.03% 0.02% 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

5.7 ANALYSIS OF IMPACTS ON NATIONAL CONSTRUCTION MARKETS 

EPA used three approaches to estimate the potential impacts of the regulatory options on the 

national single-family housing construction market. This section presents the results of these analyses. 

In the first approach, EPA analyzed the impacts of the proposed rule on consumers under the 

assumption that developers and builders pass on 100 percent of the costs to the new single-family home 

buyer. To assess these impacts, EPA developed a model that estimates the change in income needed to 

qualify for financing to purchase the (higher priced) housing unit, and then estimates the change in the 

number of households that would meet the higher income criteria. In theory, this provides an estimate of 

the change in new housing demand that could arise as a result of the proposed regulations. 

EPA’s second approach applies a partial equilibrium model to 220 metropolitan housing markets 

to estimate how compliance costs change the proportion of homes in the market that the median income 

household can afford, termed the Housing Opportunity Index (HOI). HOI is published quarterly by the 

NAHB. This index offers a similar estimate of the change in housing demand that may arise from the 

effluent guideline in terms of a familiar, widely publicized, indicator. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

The third approach is a single national partial equilibrium model. Changes in prices and 

quantities from this model are used to derive the impacts on employment and social welfare. 

EPA’s methodology for these models is discussed more fully in Section 4.5. 

5.7.1 Residential Construction Markets 

5.7.1.1 Housing Affordability 

Table 5-11 shows that the incremental costs of the proposed rule add a maximum of $58 to the 

$82,472 in income that is required to purchase the baseline model home. After this income change, 

between 5,200 and 29,000 households (0.03 percent to 0.15 percent of total qualifying households) 

would fail to qualify for a mortgage. 

Table 5-11. Impact of Erosion and Sediment Control Costs on Housing Affordability 

(All Dollar Amounts are in Constant, Pre-tax, 1997 Dollars) 

Option 

ESC 

Costs 

($/Unit) 

Total 

Change in 

Costs 

($/Unit) 

Income 

Needed To 

Qualify 

($) 

Change in 

Income 

Needed 

($) 

Number of 

Households 

Shifted 

(Thousands) 

Percent of 

Households 

Shifted That 

Could Afford 

Baseline 

(Percent) 

1 $20 $36 $82,482 $10 -5.2 -0.03% 

2 $111 $201 $82,529 $58 -29.1 -0.15% 

3 $0 $0 $82,472 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

5.7.1.2 Housing Opportunity Index 

The HOI is an alternative measure of housing affordability. EPA estimated the change in HOI 

from its baseline value for 220 regional housing markets. Table 5-12 summarizes these results in terms 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

of the average change calculated across each Census Bureau division. Since the HOI encompasses both 

existing and new housing, the results show the net effect for the entire housing market. The value of the 

HOI varies considerably by region. In the Pacific region, high real estate prices result in only one third of 

households having sufficient income to purchase the median-priced home. In the central regions, 

however, three-quarters of households can afford the median-priced home. 

The proposed regulation has little effect on regional HOI. Table 5-13 shows the percentage 

change in HOI by Census division. Option 1 changes HOI by less than two-hundredths of one percent in 

all regions. Option 2 changes HOI by less than 0.2 percent. The largest changes occur in the South 

Atlantic region. These changes are much smaller in scale than annual changes that result from normal 

shifts in real estate market conditions and demography of the market areas. 

Table 5-12. Single-Family Residential Average HOI by Census Division 

Option 

Census Division 

1 

New 

England 

2 

Middle 

Atlantic 

3 

East North 

Central 

4 

West North 

Central 

5 

South 

Atlantic 

6 

East South 

Central 

7 

West South 

Central 

8 

Mountain 

9 

Pacific 

1 54.24 62.36 72.66 78.81 70.30 69.69 64.73 44.57 32.62 

2 54.23 62.31 72.59 78.74 70.24 69.65 64.69 44.55 32.61 

3 54.24 62.37 72.67 78.82 70.31 69.70 64.73 44.58 32.63 

HOI indicates the percent of households in each region that can afford the median-priced house. 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

Table 5-13. Single-Family Residential Percentage Change in HOI by Census Division 

Option 

Census Division 

1 

New 

England 

2 

Middle 

Atlantic 

3 

East 

North 

Central 

4 

West 

North 

Central 

5 

South 

Atlantic 

6 

East South 

Central 

7 

West 

South 

Central 

8 

Mountain 

9 

Pacific 

1 0.00% -0.02% -0.02% -0.02% -0.02% -0.01% -0.01% -0.01% -0.01% 

2 -0.02% -0.10% -0.10% -0.10% -0.11% -0.08% -0.07% -0.07% -0.04% 

3 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 

HOI indicates the percent of households in each region that can afford the median-priced house. 

Source EPA estimates based on the methodologies presented in Chapter Four. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

5.7.1.3 Single-Family Housing Prices and Quantities 

Table 5-14 shows the results of EPA’s analysis using the market model approach. The table 

shows the estimated changes in median single-family home prices from all combinations of the proposed 

options. The changes in costs range from $0 to $111. The market model recognizes that market 

conditions control how much of these costs can be passed through to consumers. Thus, the price 

increase is somewhat smaller than the related cost increase, reflecting the fact some costs would be borne 

by the builder-developer. The largest increase in price reduces the quantity that can be sold by about 

two-hundredths of one percent. The total loss in output to the construction industry ranges from $0 to 

$72 million. 

Table 5-14. Single-Family Residential—Changes in Price and Quantity From the Baseline 

(All Dollar Values Are in Constant, Pre-tax, 1997 Dollars) 

Option 

Change in 

Cost 

($/Unit) 

New Price 

($/Unit) 

Price Change 

($/Unit) 

Quantity 

Change 

(Units) 

Quantity 

Change 

(Percent) 

Loss of 

Output 

($ Million) 

1 $20 $288,414 $17 (44) -0.00% -$12.8 

2 $111 $288,492 $95 (248) -0.02% -$71.6 

3 $0 $288,397 $0 0 -0.00% 0 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

5.7.1.4 Multifamily Housing Prices and Quantities 

Table 5-15 shows the estimated changes in median price of a unit in a multifamily building from 

the proposed options. The changes in costs range from $0 to $40 per unit. Multifamily housing disturbs 

a smaller area per unit, so any ESC-related costs are spread over more units. The market model suggests 

a higher share of compliance costs in multifamily housing would be passed through to consumers, 

compared to single-family homes, so price changes are closer to the actual change in builder costs. The 

price changes passed through to consumers range from $0 to $40 per unit. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 5-15. Multifamily Residential—Changes in Price and Quantity From the Baseline 

(All Dollar Values Are in Constant, Pre-tax, 1997 Dollars) 

Option 

Change in 

Cost 

($/Unit) 

New Price 

($ 1,000/Unit) 

Price 

Change 

($/Unit) 

Quantity 

Change 

(Units) 

Quantity 

Change 

(Percent) 

Loss of 

Output 

($ Million) 

1 $7 $132.53 $7 -7 0.00% -$0.9 

2 $40 $132.57 $40 -41 0.01% -$5.2 

3 $0 $132.53 $0 0 0.00% -$0.0 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

5.7.2 Non-Residential Construction Markets 

5.7.2.1 Commercial Space 

Rental prices for commercial space are typically quoted in dollars per square foot per year. Table 

5-16 shows the estimated changes in median rental rate of a square foot of commercial space from the 

proposed options. The changes in costs range from $0 to $0.02 per square foot. Tenants of commercial 

space are considerably more price sensitive than residential buyers, so less of the change in costs can be 

passed through to tenants. The change in average price per square foot reflects this absorption of 

compliance costs by builders and building owners. 

Price changes range from $0 to $0.02 per square foot. Quantity reductions are estimated to reach 

seven-hundredths of one percent for the most costly option. The total loss in output to the construction 

industry ranges from $0 to $67.1 million. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 5-16. Commercial—Changes in Price and Quantity From the Baseline 

(All Dollar Values Are in Constant, Pre-tax, 1997 Dollars) 

Option 

Change in 

Cost 

($/Sq. Ft.) 

New Price 

($/Sq. Ft.) 

Price Change 

($/Sq. Ft.) 

Quantity 

Change 

(Units) 

Quantity 

Change 

(Percent) 

Loss of Output 

($ Million) 

1 $0.01 $14.67 $0.00 -36 -0.01% -$14.7 

2 $0.02 $14.69 $0.02 -163 -0.07% -$67.1 

3 $0.00 $14.66 $0.00 0 -0.00% $0.0 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

5.7.2.2 Industrial Space 

Only 12,100 industrial projects are estimated to start in the base year. Rental prices for industrial 

space are typically quoted in dollars per square foot per year. Table 5-17 shows the estimated changes in 

median rental rate of a square foot of industrial/warehouse space from the proposed options. The 

changes in costs range from $0 to $0.02 per square foot. Buyers of industrial space are considerably 

more price sensitive than homeowners, so less of the change in costs can be passed through to the endusers. The change in average price per square foot reflects this absorption of compliance costs by 

builders and developers. 

Price changes range from $0 to $0.02 per square foot. Quantity reductions are estimated to reach 

0.3 percent for the most costly option, albeit on a small number of projects in the baseline. The total loss 

in output to the construction industry ranges from $0 to $17.8 million. 

Table 5-17. Industrial—Changes in Price and Quantity From the Baseline 

(All Dollar Values Are in Constant, Pre-tax, 1997 Dollars) 

Option 

Change in 

Cost 

($/Sq. Ft.) 

New Price 

($/Sq. Ft.) 

Price Change 

($/Sq. Ft.) 

Quantity 

Change 

(Units) 

Quantity 

Change 

(Percent) 

Loss of 

Output 

($ Million) 

1 $0.01 $5.17 $0.00 -11 -0.08% -$4.4 

2 $0.02 $5.18 $0.02 -46 -0.32% -$17.8 

3 $0.00 $5.16 $0.00 0 0.00% $0.0 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

5.7.3 Output and Employment 

As discussed in Section 4.5, additional compliance costs reduce the output of the construction 

industry as the increased price reduces sales. The estimate of this effect is shown in the “Loss of Output” 

column of Table 5-18. Most of the losses are in the large single-family residential and catch-all 

commercial construction sectors. These losses are offset, however, by increases in output and 

employment in those industries associated with compliance, i.e., design, installation, and inspection of 

ESCs. The estimate of the amount of new work generated in these activities is shown in the “Stimulus 

from Added Work” column. The next two columns show the changes in jobs related to the loss in 

construction spending and (offsetting) increase in regulatory compliance spending. Under both options, 

the stimulus adds more jobs than the loss of output takes away, with the result that net employment 

change from construction impacts is a positive number. In the single-family sector, for example, under 

Option 1 there is a loss $12.8 million of output but an offsetting stimulus of $21.5 million. The loss 

represents 475 jobs, but the stimulus generates 797 jobs; the net result is that 322 more jobs are 

generated. Note that these job estimates apply to the entire economy, not just the construction sectors. 

They represent all of the impacts that result as changes in the construction industry ripple through other 

sectors. 

The stimulus to the construction industry comes at the expense of consumer spending, as home 

buyers and other consumers devote more of their income to housing. EPA assumes that this loss of 

consumer surplus takes the form of reduced spending for other products, though it might also take the 

form of reduced amenities in housing construction. Removing this spending from the national economy 

reduces the employment that arises in response to consumer spending. The “Change in Employment 

From Consumer Spending” column shows this reduction in jobs, which offsets the stimulus to 

construction. When this effect is factored in, the net change in total employment is negative. 

Total employment losses range from 0 to 1,400 jobs. These estimates do not consider how long 

individuals may be out of work, nor do they consider individuals’ alternative opportunities. Because of 

this, such input-output analysis results are usually considered an over-estimate of the hardship initiated 

by the change to the economy. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 5-18. Changes in Output and Total Employment From the Baseline 

(All dollar Values Are in Constant, Pre-tax, 1997 Dollars) 

Option 

Loss of 

Output 

($ Million) 

Stimulus 

From 

Added 

Work 

($ Million) 

Change in 

Employment 

From Lost 

Output 

(Jobs) 

Change in 

Employment 

From 

Stimulus 

(Jobs) 

Net Change in 

Employment 

From 

Construction 

Impacts 

(Jobs) 

Change in 

Employment 

From 

Consumer 

Spending 

(Jobs) 

Net Change in 

Total 

Employment 

(Jobs) 

Single-Family Residential 

1 ($12.8) $21.5 (475) 797 322 (498) (176) 

2 ($71.6) $120.2 (2,662) 4,467 1,805 (2,792) (986) 

3 $0.0 $0.0 0 0 0 0 0 

Multifamily Residential 

1 ($0.9) $2.5 (34) 91 57 (67) (10) 

2 ($5.2) $13.7 (192) 509 317 (374) (56) 

3 $0.0 $0.0 0 0 0 0 

Commercial 

1 ($14.7) $42.6 (546) 1,583 1,037 (1,062) (25) 

2 ($67.1) $194.7 (2,494) 7,234 4,740 (4,857) (116) 

3 $0.0 $0.0 0 0 0 0 0 

Industrial 

1 ($4.4) $6.7 (164) 248 84 (152) (68) 

2 ($17.8) $26.9 (662) 1,001 338 (616) (277) 

3 $0.0 $0.0 0 0 0 0 0 

Total 

1 ($32.8) $73.2 (1,219) 2,719 1,501 (1,780) (279) 

2 ($161.7) $355.5 (6,010) 13,212 7,201 (8,638) (1,436) 

3 $0.0 $0.0 0 0 0 0 0 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

5.7.4 Changes in Welfare Measures 

As discussed in Section 4.6, the proposed regulation shifts the supply curves for new 

construction in each sector. This shift alters the balance between consumers and producers. Each group 

contributes to the costs of complying with the regulation. As Table 5-19 indicates, consumers may lose 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

from $0 to $316.6 million, depending on the option selected. Producers lose from $0 to $40.4 million. 

Almost all of this loss is shifted from consumers and construction firm owners to construction firms to 

pay the costs of complying with the regulation. As shown in the last section, the net effect on 

construction may be a stimulus. However, a small portion is utterly lost to society. This portion, termed 

the “deadweight loss,” ranges from $0 to $200,000. 

Table 5-19. Changes in Social Welfare Measures—All Sectors Combined 

(All Dollar Values Are in Constant, Pre-tax, 1997 Dollars) 

Option 

Total Deadweight Loss 

($ Million) 

Total Consumer Surplus 

Loss 

($ Million) 

Total Producer Surplus Loss 

($ Million) 

1 $0.0 $65.2 $8.2 

2 $0.2 $316.6 $40.4 

3 $0.0 $0.0 $0.0 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

5.7.5 Regional Effects 

The multifamily housing and non-residential market models estimate impacts at the state level 

based on information about local real estate markets. The single-family housing market model estimates 

market effects at the MSA level, which can then be aggregated to the state level. Table 5-20 shows the 

loss in output to the construction industry, by state, from compliance with the more expensive Option 2. 

Loss of output largely follows the expected pattern of population and growth. Several states show zero 

loss for some categories because there is so little activity in that state that the effect could not be 

measured. For example, multifamily housing in Vermont. California, Pennsylvania, and several other 

states (indicated with an e) show no effect as current State regulations were deemed equivalent to the 

proposed regulations and so there was no incremental impact on firms operating in those states. 

Although the totals would be lower for Option 1, the pattern of losses would be similar. 

Table 5-21 provides a similar state-by-state breakdown of the net change in employment as a 

result of compliance with the proposed regulation. In several states, multifamily housing, commercial, 

5-31
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

and industrial stimulus effects are greater than the losses, and the regulation causes a small net positive 

change in employment within those categories. 

Table 5-20. Loss of Output to the Construction Industry by State and Use Category ($ Millions) (All Dollar Values Are in 

Constant, Pre-tax, 1997 Dollars), Option 2 

State Single-Family Multifamily Commercial Industrial Total 

Alabama (1.2) 0.0 (0.9) (0.4) (2.5) 

Alaska (0.2) 0.0 0.0 0.0 (0.2) 

Arizona e e e e e 

Arkansas (0.4) 0.0 (0.7) (0.2) (1.3) 

California e e e e e 

Colorado (3.6) (0.3) (1.2) (0.5) (5.6) 

Connecticut e e e e e 

Delaware (0.3) 0.0 (0.5) 0.0 (0.8) 

District of Columbia (4.8) (0.2) 0.0 0.0 (5.1) 

Florida (7.4) (1.0) (15.3) (0.9) (24.6) 

Georgia (0.9) (0.5) (4.1) (1.6) (7.1) 

Hawaii (0.4) 0.0 0.0 0.0 (0.4) 

Idaho e e e e e 

Illinois e e e e e 

Indiana (3.6) (0.1) (1.6) (1.5) (6.9) 

Iowa (0.7) 0.0 (0.7) (1.0) (2.5) 

Kansas (0.5) 0.0 (0.9) (0.5) (1.8) 

Kentucky (1.1) 0.0 (1.3) (0.8) (3.3) 

Louisiana (1.8) 0.0 (1.8) (0.2) (3.8) 

Maine 0.0 0.0 (2.4) (0.1) (2.5) 

Maryland (2.1) 0.0 (2.1) (0.3) (4.4) 

Massachusetts e e e e e 

Michigan (5.9) (0.1) (2.9) (1.1) (10.0) 

Minnesota (3.5) (0.1) (2.4) (1.0) (7.0) 

Mississippi (0.7) 0.0 (0.7) (0.2) (1.7) 

Missouri (3.1) (0.1) (2.0) (0.6) (5.9) 

Montana 0.0 0.0 (0.3) (0.1) (0.3) 

Nebraska (0.6) (0.1) (0.8) (0.2) (1.7) 

Nevada 4.0 (0.3) (2.8) (0.3) 0.7 

New Hampshire e e e e e 

New Jersey (3.9) (0.1) 0.0 (0.1) (4.1) 

New Mexico e e e e e 

New York (13.4) (0.7) (6.9) (0.6) (21.5) 

North Carolina (3.2) (0.4) (3.3) (1.5) (8.4) 

5-32
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 5-20. Loss of Output to the Construction Industry by State and Use Category ($ Millions) (All Dollar Values Are in

Constant, Pre-tax, 1997 Dollars), Option 2

State Single-Family Multifamily Commercial Industrial Total 

North Dakota (0.1) 0.0 (0.3) (0.3) (0.6) 

Ohio (6.8) (0.2) (1.1) (1.2) (9.3) 

Oklahoma e e e e e 

Oregon (1.0) (0.1) (2.2) (0.8) (4.1) 

Pennsylvania e e e e e 

Rhode Island (0.7) 0.0 (1.2) 0.0 (1.9) 

South Carolina e e e e e 

South Dakota e e e e e 

Tennessee e e e e e 

Texas e e e e e 

Utah e e e e e 

Vermont (0.1) 0.0 (1.2) (0.1) (1.4) 

Virginia e e e e e 

Washington (1.9) (0.3) (4.1) (0.5) (6.8) 

West Virginia e e e e e 

Wisconsin (1.8) (0.2) (1.2) (1.3) (4.4) 

Wyoming 0.0 0.0 (0.2) 0.0 (0.3) 

United States Total (71.6) (5.2) (67.1) (17.8) (161.7) 

Note: e indicates state has regulations equivalent to the proposed options. 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

5-33
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 5-21. Net Change in Total Employment by State and Use Category (Jobs) Under Proposed Rule Option 2 

State Single-Family Multifamily Commercial Industrial Total 

Alabama (17) 0 (3) (5) (26) 

Alaska (3) 0 0 0 (3) 

Arizona e e e e e 

Arkansas (5) 0 (8) (3) (17) 

California e e e e e 

Colorado (50) (3) (4) (4) (62) 

Connecticut e e e e e 

Delaware (4) 0 (2) 0 (7) 

District of Columbia (66) (3) 0 0 (69) 

Florida (102) (16) (15) (15) (187) 

Georgia (12) (9) (28) (28) (64) 

Hawaii (5) 0 0 0 (5) 

Idaho e e e e e 

Illinois e e e e e 

Indiana (50) (1) 49 (30) (32) 

Iowa (10) 0 (-3) (23) (35) 

Kansas (7) 0 (3) (8) (18) 

Kentucky (16) (1) (5) (13) (34) 

Louisiana (24) 0 (21) (3) (48) 

Maine 0 0 (37) 0 (37) 

Maryland (28) 0 (7) (4) (41) 

Massachusetts e e e e e 

Michigan (81) 0 57 (9) (33) 

Minnesota (49) (1) (8) (17) (74) 

Mississippi (10) 0 (3) (3) (16) 

Missouri (43) (1) (7) (9) (61) 

Montana 0 0 (3) (1) (3) 

Nebraska (8) (1) (3) (3) (15) 

Nevada 55 (7) (44) (4) 0 

New Hampshire e e e e e 

New Jersey (54) 0 24 1 (29) 

New Mexico e e e e e 

New York (184) 5 56 (2) (125) 

North Carolina (44) (7) (12) (29) (92) 

North Dakota (1) 0 (1) (5) (7) 

Ohio (93) (1) 34 (21) (81) 

Oklahoma e e e e e 

Oregon (14) (2) (28) (11) (55) 

5-34
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 5-21. Net Change in Total Employment by State and Use Category (Jobs) Under Proposed Rule Option 2 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

State Single-Family Multifamily Commercial Industrial Total 

Pennsylvania e e e e e 

Rhode Island (9) 0 (19) 0 (28) 

South Carolina e e e e e 

South Dakota e e e e e 

Tennessee e e e e e 

Texas e e e e e 

Utah e e e e e 

Vermont (2) 0 (18) 0 (21) 

Virginia e e e e e 

Washington (26) (4) (64) (5) (99) 

West Virginia e e e e e 

Wisconsin (25) (3) 37 (20) (10) 

Wyoming 0 0 (3) (1) (3) 

United States Total (986) (56) (116) (277) (1,436) 

5.8 IMPACTS ON GOVERNMENTAL UNITS 

As Section 4.8 discusses, EPA estimates that the proposed rule would impose some costs on 

governmental units involved in “codifying” the construction general permit. This section examines the 

costs imposed on governmental units associated with the proposed Option 2. 

5.8.1 Construction Program Administration 

EPA has analyzed the costs to governments under the assumption that the majority of 

construction-related regulatory costs would be associated with processing general permits. As noted 

previously, EPA assumes that the majority of NPDES Phase I and Phase II NPDES storm water permit 

programs are fully implemented, and that any new regulatory requirements would be superimposed upon 

these programs. 

5-35
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Based on the assumption that all states would change their storm water programs to include 

certification of sedimentation basins and other aspects of the proposed rule, EPA estimated the annual 

costs of establishing such a program. These costs are presented in Table 5-22. EPA estimates that states 

would experience $0.26 million in costs staying current with federal guidance, state guidance, and 

evolving industry practice (U.S. EPA 2002). 

Table 5-22. Costs To Establish Construction Programs ($1997) 

Element Value Units 

Labor hours to review EPA regulation and modify 

state practices 200 Hours/Year 

Labor cost $26.02 $/Hour/State 

State Cost per year $5,203 $/Year/State 

Number of States 50 States 

Totals $260,150 $/Year 

Source: U.S. EPA. 2002. 

In evaluating the annual costs, EPA assumed that the current trend — states taking the lead in 

implementing the regulation of construction activities — will continue in the future. EPA elected not to 

evaluate how to distribute its total estimated implementation cost between state and municipal agencies, 

and instead has attributed all costs to states. 

5.8.2 Government Construction Costs 

Government entities commission nearly a quarter of the value of construction put in place 

(Census, 2000). Government projects would need to comply with the proposed regulation so their costs 

would increase, just as private projects’ would. Roughly one-half of government projects are 

maintenance or reconstruction of existing structures which does not entail new ground disturbance. EPA 

estimates that approximately 25 percent of total impacts would fall on government projects resulting in a 

$29.2 million additional cost to government entities under proposed Option 1 or a $115.9 million 

5-36
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

additional cost under proposed Option 2.4 This effect is discussed in detail in the Unfunded Mandates 

Reform Act (UMRA) analysis in Chapter Ten. 

5.9 OTHER IMPACTS 

This section addresses Executive Order (EO) 12866, which directs federal agencies to assess the 

costs and benefits of each significant rule they propose or promulgate, as well as issues of environmental 

justice and children’s health. Chapter Ten addresses the Unfunded Mandates Reform Act (UMRA). 

Section 5.9.1 describes the administrative requirements of EO 12866. Sections 5.9.2 and 5.9.3 describe 

EPA’s analysis of environmental justice and children’s health issues for the proposed rule. Another 

piece of legislation —the Unfunded Mandates Reform Act, or UMRA —also has requirements relevant to 

EPA’s plans. Chapter Ten addresses UMRA. 

Much of the information provided in this section is summarized from other documents that 

support this proposed rulemaking, as well as other sections of this report. 

5.9.1 Requirements of Executive Order 12866 

Under EO 12866 (58 FR 51735, October 4, 1993), the Agency is to determine whether a 

regulatory action is “significant” and therefore subject to OMB review and the directives of the EO. The 

Order defines a “significant regulatory action” as one that is likely to result in a rule that may: 

(1) Have an annual effect on the economy of $100 million or more or adversely affect in a 

material way the economy, a sector of the economy, productivity, competition, jobs, the 

environment, public health or safety, or state, local, or tribal governments or 

communities; 

(2) Create a serious inconsistency or otherwise interfere with an action taken or planned by 

another agency; 

4

 Additional cost to government entities under the proposed ESC options includes costs potentially incurred 

by Federal, State, and local government entities. 

5-37 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

(3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs 

or the rights and obligations of recipients thereof; or 

(4) Raise novel legal or policy issues arising out of legal mandates, the President’s priorities, 

or the principles set forth in the Executive Order. 

EPA has determined that the proposed C&D rulemaking is a “significant regulatory action” under 

the terms of EO 12866, because the total costs of the proposed rule are estimated to exceed $100 million 

annually. As such, this action was submitted to OMB for review. Changes made in response to OMB 

suggestions or recommendations will be documented in the public record. 

In addition to submission of the action to OMB, the principal directives of the EO are that the 

Agency perform an analysis comparing the benefits of the regulation to the costs that the regulation 

imposes, that the Agency analyze alternative approaches to the proposed rule, and that the reason for the 

proposed rule be identified. Wherever possible, the costs and benefits of the proposed rule are to be 

expressed in monetary terms. To address these directives, the following section describes the reasons why 

EPA is revising the existing regulations, and Chapters Eight and Nine present the estimated social costs, 

pollutant reductions, and monetary benefits of the proposed C&D regulations. Section 5.8 addresses the 

impacts of the proposed regulations on governmental units. An in-depth profile of the potentially affected 

industry sectors is presented in Chapter Two of this report. 

Reason for the Regulation 

Executive Order 12866 directs the Agency to identify the reason for the regulations being 

proposed. The reasons for proposing the C&D regulations are stated throughout this report (Chapters One 

and Six) and are presented in the preamble of the proposed rulemaking. These reasons are summarized 

briefly below: 

• In spite of existing regulatory controls, there is continued runoff of sediment from 

construction sites and newly developed areas. Sediment entering public waterways 

imposes costs on water users in the form of additional demand for pre-treatment of water 

withdrawn and diminished value for in-stream uses. Users cannot identify and seek 

compensation from the construction sites causing the problem. So there is a market 

failure in terms of the environmental externality of sediment emissions. The proposed 

5-38
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

regulations are expected to address the impairment of many U.S. waterways and the 

associated human health and ecological risks. 

• The existing regulation appears to be insufficient to protect or restore water quality. There 

exists an information asymmetry between builders and enforcement officials in which 

builders know their level of care with regard to erosion and sediment controls while 

officials may or may not know. The certification and inspection provisions of the 

proposed rule increase the level of information available to officials. The revisions would 

make the regulations apply more uniformly throughout the country and “raise the bar” for 

storm water control, in general. 

Both UMRA and EO 12866 require the statutory authority for the rule to be cited. A detailed 

discussion of the objectives and legal basis for the proposed C&D regulations is presented in the preamble. 

A discussion of the UMRA is presented in Chapter Ten of this report. 

5.9.2 Environmental Justice 

According to EO 12898, Federal Actions To Address Environmental Justice in Minority 

Populations and Low-Income Populations, federal agencies are to address potential environmental justice 

issues that may be triggered by proposed actions. Based on guidance in EPA’s Guidelines for Preparing 

Economic Analyses, the potential effects of the proposed regulation on minority and low-income 

populations have been considered (U.S. EPA 2000). EPA has determined that the proposed rule would not 

have a disproportionately large effect on minority or low-income populations, nor would it have 

disproportionately high human health or environmental effects. Thus no further analysis on environmental 

justice issues has been conducted for this proposal. 

5.9.3 Children’s Health 

Pursuant to EO 13045, Protection of Children From Environmental Health Risks and Safety 

Risks, EPA has considered whether this proposed rule would have any significant effects on children’s 

health or safety (U.S. EPA 2000). EPA has determined, based on the information provided throughout 

5-39
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

this report, that the proposed rule would not have any significant effects on children’s health or safety, 

and no further analysis has been conducted for this proposal. 

5-40
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

5.10 REFERENCES 

Tetra Tech. 2002. Personal Communication from J. Swanson, Tetra Tech, Inc., to J. Cantin, ERG, Inc. 

January 29. 

U.S. Census Bureau 2000.1997 Economic Census: Construction: Subject Series. January. 

U.S. EPA 2002. “Development Document for the Effluent Guidelines for the Construction and 

Development Point Source Category.” Washington, D.C.: U.S. Environmental Protection 

Agency. 

U.S. EPA 2000. “Guidelines for Preparing Economic Analyses.” Washington, D.C.: U.S. Environmental 

Protection Agency, Report EPA 240-R-00-003, September. 

5-41
APPENDIX 5A

Closure and Employment Loss Analysis Results

Cash Flow Method
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 5A-1. Estimated Closures as Percent of Total Establishments 

Zero Cost Pass Through 

Cash Flow Method 

Option Single-Family Multifamily Commercial Industrial 

1 0.0% - 0.0% 0.0% - 0.0% 0.0% - 0.0% 0.0% - 0.0% 

2 0.0% - 0.0% 0.0% - 0.0% 0.1% - 0.2% 0.1% - 0.1% 

3 0.0% - 0.0% 0.0% - 0.0% 0.0% - 0.0% 0.0% - 0.0% 

Table 5A-2. Estimated Closures as Percent of Total Establishments 

Cost Pass Through 

Cash Flow Method 

Option Single-Family Multifamily Commercial Industrial 

1 0.0% - 0.0% 0.0% - 0.0% 0.0% - 0.0% 0.0% - 0.0% 

2 0.0% - 0.0% 0.0% - 0.0% 0.0% - 0.0% 0.0% - 0.0% 

3 0.0% - 0.0% 0.0% - 0.0% 0.0% - 0.0% 0.0% - 0.0% 

Single family cost pass through: 85.10%

Multifamily cost pass through: 91.55%

Commercial cost pass through: 89.87%

Industrial cost pass through: 84.75%

Cost Pass Through Values Calculated by EPA.

5A-1 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 5A-3. Estimated Employment Losses as Percent of Total Employment 

Zero Cost Pass Through 

Cash Flow Method 

Option Single-Family Multifamily Commercial Industrial 

1 0.0% - 0.0% 0.0% - 0.0% 0.0% - 0.0% 0.0% - 0.0% 

2 0.0% - 0.0% 0.2% - 0.2% 0.1% - 0.2% 0.1% - 0.1% 

3 0.0% - 0.0% 0.0% - 0.0% 0.0% - 0.0% 0.0% - 0.0% 

Table 5A-4. Estimated Employment Losses as Percent of Total Employment 

Cost Pass Through 

Cash Flow Method 

Option Single-Family Multifamily Commercial Industrial 

1 0.0% - 0.0% 0.0% - 0.0% 0.0% - 0.0% 0.0% - 0.0% 

2 0.0% - 0.0% 0.0% - 0.0% 0.0% - 0.0% 0.0% - 0.0% 

3 0.0% - 0.0% 0.0% - 0.0% 0.0% - 0.0% 0.0% - 0.0% 

Single family cost pass through: 85.10%

Multifamily cost pass through: 91.55%

Commercial cost pass through: 89.87%

Industrial cost pass through: 84.75%

Cost Pass Through Values Calculated by EPA.

5A-2 
APPENDIX 5B 

Sensitivity Analysis for the National Partial Equilibrium Model 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

5B.1 Introduction to Sensitivity Analysis 

Elasticities of supply and demand are key parameters of the partial equilibrium market models 

which generate many of the results shown in Chapter 5. Values for these parameters are derived from a 

consensus of elasticity estimates appearing in the literature. Often differing databases and estimation 

methods generate different estimates, so the literature contains a wide range of elasticities. Table 5B-1 

shows the impact on the results of selecting different sets of elasticities. The first line in each use 

category section is the cost pass through (CPT) and impact reported in Table 5-16a, Changes in Output 

and Total Employment from the Baseline, for the proposed Option 2. The succeeding lines show how 

the results change with the different combinations of supply and demand elasticities shown in the first 

two columns. (As the stimulus is virtually the same in all cases, the “Stimulus from Added Work” and 

“Change in Employment from Stimulus” columns in Table 5-16a are not shown here.) Except for single 

family housing, all of the categories were modeled at the state level so that local market conditions would 

drive the model. Thus, a range of demand elasticities is chosen as a parameter of the model but the 

actual elasticity used in each state model is calculated based on an indicator of state market activity. The 

sensitivity analysis for these categories was conducted by adjusting the range of possible demand 

elasticities. 

As discussed in Section 4.5, housing supply is highly elastic which implies high CPT rates. The 

sensitivity analysis shows that when the elasticity of supply for single family housing is reduced from 4 

to 0.5, the CPT falls from 85 percent to 42 percent. This reduces the change in the quantity of homes 

sold and the impact on consumers so much that the net effect of the proposed regulation is a creation of 

1,800 jobs. Similar changes occur in other use categories. Reducing the elasticity of demand also 

reduces the impact of the regulation. 

5B.2 Sensitivity Analysis Results 

Overall, the sensitivity analysis shows that while the results can be changed by manipulation of 

the assumptions, the assumptions used yield reasonable estimates near the middle of the range of 

probable outcomes. 

5B-1
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 5B-1. Sensitivity Tests with Alternative Elasticities 

Supply 

Elasticity 

Demand 

Elasticity 

CPT 

(%) 

Loss of 

Output 

($Million) 

Change in 

Employment 

from Lost 

Output 

Net Change in 

Employment 

from 

Construction 

Impacts 

Change in 

Employment 

from 

Consumer 

Spending 

Net Change 

in Total 

Employment 

Single Family Housing 

4 0.7 85.11 -71.6 -2,662 1,805 -2,792 -986 

10 0.7 93.46 -78.7 -2,923 1,544 -3,066 -1,522 

1 0.7 58.82 -49.5 -1,840 2,628 -1,930 698 

0.5 0.7 41.67 -35.1 -1,303 3,165 -1,367 1,798 

4 1.0 80.00 -96.2 -3,575 892 -2,624 -1,732 

4 0.5 88.89 -53.4 -1,986 2,482 -2,916 -434 

Multifamily Housing 

4 -0.8 - -0.2 91.54 -5.2 -192 317 -374 -56 

10 -0.8 - -0.2 96.42 -5.5 -203 333 -394 -61 

1 -0.8 - -0.2 73.35 -4.0 -150 257 -299 -42 

4 -1.0 - -0.2 90.40 -5.9 -218 284 -369 -84 

4 -0.5 - -0.2 93.34 -4.0 -150 369 -381 -12 

4 -0.8 - -0.1 93.08 -4.2 -158 360 -380 -20 

Commercial 

4 -0.8 - -0.01 89.87 -67.1 -2,494 4,740 -4,857 -116 

10 -0.8 - -0.01 95.62 -71.5 -2,656 4,578 -5,119 -541 

1 -0.8 - -0.01 70.17 -51.9 -1,930 5,306 -3,898 1,408 

4 -1.0 - -0.01 87.73 -81.6 -3,034 4,199 -4,757 -558 

4 -0.5 - -0.01 93.32 -44.0 -1,633 5,604 -5,015 588 

4 -0.8 - -0.2 88.16 -83.5 -3,103 4,130 -4,744 -615 

Industrial 

4 -1.5 - -0.2 84.75 -17.8 -662 338 -616 -277 

10 -1.5 - -0.2 93.21 -20.0 -742 258 -682 -424 

1 -1.5 - -0.2 59.11 -11.7 -436 567 -418 149 

4 -2.0 - -0.2 81.43 -21.8 -810 190 -588 -399 

4 -1.0 - -0.2 88.43 -13.4 -498 504 -646 -142 

4 -1.5 - -0.01 86.91 -15.8 -585 416 -630 -214 

5B-2
APPENDIX 5C 

Baseline Analysis 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

APPENDIX 5C

BASELINE ANALYSIS

5C.1 INTRODUCTION 

The main portion of this economic analysis assumes that, in the baseline, the construction and 

development (C&D) industry is in full compliance with the existing Storm Water Phase I and Phase II 

regulations as they apply to construction activities. Since the final deadline for implementation of Phase II 

is not until March 10, 2003, some affected entities may not yet have adjusted to the Phase II requirements. 

Because of the overlap between the proposal of the effluent limitation guideline (ELG) and the 

implementation of the Phase II regulations, EPA has completed this alternate baseline analysis. The 

analysis presents the following: 

• Combined national compliance costs and social costs of Phase II and the C&D Effluent Limitation 

Guideline (ELG)—This analysis simply adds together the compliance and government costs of the 

rules. 

• Impact of the combined Phase II and ELG costs on representative model projects—This analysis 

would apply to projects that take place in jurisdictions not yet in compliance with Phase II. 

• Impact of the combined Phase II and ELG costs on representative model firms—This analysis 

would apply to firms for whom 100 percent of operations take place in jurisdictions not yet in 

compliance with Phase II. 

• Impact of the combined Phase II and ELG costs on facility closures and employment levels. This 

part of the analysis is the most speculative because we have no way of identifying how many 

firms and what share of their operations would be subject to both rules. To derive these estimates 

we have assumed that (1) firms within a certain size class are most likely to be affected (because 

Phase II applies only to sites of 1 to 5 acres in size), and (2) within this group we have estimated 

only those firms located in non Phase II compliant states would be affected. This second 

assumption ignores the fact that it is site location, not firm location, that would determine coverage 

under Phase II, and that many construction firms operate outside their home state. 

Note that EPA has not assessed the potential combined benefits of the Phase II and effluent 

guidelines requirements. The Phase II rule EA indicated benefits from the construction part of the rule of 

$540 to $686 million per year (U.S. EPA 1999, Table 6-20). 

5C-1 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

5C.2 BASELINE ANALYSIS 

Throughout the economic analysis of the proposed C&D effluent guidelines, EPA has assumed the 

industry is in full compliance with all applicable existing laws and regulations related to storm water 

management (see U.S. EPA 2002, Section 4.11). This includes the final storm water Phase II regulations, 

which were published on December 8, 1999 (64 FR 235; page 68794). The Phase II rules apply to sites 

between one and five acres in size. 

While many permitting authorities have already begun implementing the Phase II requirements, 

the deadline for obtaining permit coverage is not until March 10, 2003. As a result, it is likely that the 

C&D industry is not uniformly compliant with these requirements at this time. One implication is that the 

economic baseline used to assess the impacts of the proposed effluent guideline may not reflect industry 

conditions once the Phase II regulations have been fully implemented. To account for this, EPA has 

conducted a supplemental analysis that includes the combined costs and impacts of meeting the Phase II 

requirements and the proposed effluent guidelines. This section describes the methodology used to conduct 

this analysis and presents the results. 

5C.2.1 National Compliance Costs 

The economic analysis for the construction component of the final Phase II storm water rule was 

based on engineering costs developed for three site size classes: 1-, 3-, and 5-acres. Within each site size 

class EPA developed costs for erosion and sediment control (ESC) specific to sites in low, medium, and 

high rainfall regions and with low, medium, and high slope conditions. Since EPA did not have a 

distribution of sites by rainfall region or slope condition, a simple average of the costs across all site types 

was used within each size class. Table 5C-1 shows the costs and costs per acre for the three site size 

classes, with costs updated to 1997 dollars. 

5C-2
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 5C-1. Costs of Phase II Erosion and Sediment Control, by Site Size ($1997) 

Site Size (Acres) ESC Costs ESC Costs per Acre 

1 $1,187 $1,187 

3 $4,524 $1,508 

5 $8,569 $1,714 

Source: Economic Analysis of the Final Storm Water Phase II Rules. U.S. EPA (1999); ENR (2001). 

In addition to the ESC costs, EPA estimated the industry would incur $937.46 in administrative 

costs ($922.42 in $1997) for each permitted construction project. These include costs associated with the 

following elements: notification of intent, municipal notification, storm water pollution prevention plan, 

record retention, and notification of termination. Thus, the total costs to industry of compliance with the 

construction portion of the Phase II rules include the costs of ESC controls and the administrative costs. 

The Phase II compliance costs were applied to EPA’s estimate of the number of projects falling 

within the one to five acre size class. Projects in areas with equivalent programs were excluded, including 

14 states covered by equivalent existing state programs and two states and parts of four other states covered 

by requirements equivalent to those implemented under the Coastal Zone Act Reauthorization 

Amendments (CZARA) (which covers nonpoint sources of pollution, including construction activities, in 

coastal regions). The national compliance costs of the Phase II rules were estimated in 1998 dollars to be 

$545 - $679 million.1 

EPA added the Phase II compliance cost estimates to the compliance costs of the proposed ELG to 

obtain an alternate estimate of the compliance costs (and social costs) of the proposed rule under the 

alternative baseline. Table 5C-2 shows the national costs under the alternative baseline scenario, obtained 

by adding the national ESC and administrative costs from the Phase II analysis to the national compliance 

costs associated with the proposed effluent guidelines. The combined industry compliance costs are 

$539.3 million under Option 1 and $890.3 million under Option 2. Table 5C-3 indicates the combined 

social costs are $891.1 million for Option 2 (1997 dollars). 

1

 Source: Phase II final EA, Table 4-18, p. 4-25. 

5C-3 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 5C-2. Estimated National Costs of Erosion and Sediment Controls 

Alternative Baseline Scenario (No Phase II Compliance) 

($1997 millions, pre-tax) 

Option 

National Costs by Type of Construction ($ millions) 

Total 

SingleFamily Multifamily Commercial Industrial 

1 $64.6 $39.3 $413.4 $22.0 $539.3 

2 $161.9 $86.8 $612.3 $29.3 $890.3 

3 $0.0 $0.0 $0.0 $0.0 $0.0 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

Table 5C-3. Social Costs and Benefits Erosion and Sediment Controls 

Alternative Baseline Scenario (No Phase II Compliance) 

($1997 millions, pre-tax) 

Option 

Installation, 

Design and 

Permitting 

Operation and 

Maintenance 

Government 

Costs Deadweight Loss 

Total Social 

Costs 

Total 

Benefitsa 

1 $539.3 $0.0 $0.0 $0.1 $539.4 $9.7 

2 $842.4 $48.0 $0.3 $0.4 $891.1 $20.6 

3 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 a

Benefits do not include benefits of Phase II rule.

Source: EPA estimates based on the methodologies presented in Chapter Four.

5C.2.2 Economic Impacts 

EPA assessed the economic impacts under the alternative baseline using a similar approach to that 

described in Chapter Four of the draft Economic Analysis (EA). The impacts on key financial ratios were 

assessed for model projects and model firms. The model firm impact analysis was then extended to 

estimate the number of firm closures and the associated employment losses. 

5C.2.2.1 Analysis of Impacts on Model Projects 

EPA assessed the impacts of the combined costs of the Phase II and proposed effluent guidelines 

requirements on model projects using the same approach described in Section 4.2. EPA developed a series 

of model C&D projects and flowed the incremental costs through these models to assess the impacts on 

project viability. The model project scenarios were analyzed under the alternative assumptions of 100 

5C-4
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

percent cost pass through (the end consumer bears all of the cost) and zero cost pass through (the 

developer-builder bears all of the cost). In the former case the impacts are reflected in a higher price for 

the finished product (home, apartment, commercial or industrial building) while in the latter case the 

impacts are reflected in reduced profits to the builder-developer. 

Table 5C-4a shows the combined impact of the Phase II and proposed effluent guidelines costs on 

model project financials under the 100 percent cost pass through scenario. Table 5C-4b shows the same 

impacts under the zero percent cost pass through scenario. 

Table 5C-4a. Impact of Combined Phase II and Proposed Effluent Guidelines Costs on Model Project 

Financials—100 Percent Cost Pass-Through and All Project Sizes 

Option 

Percent Change in Project Price to Buyer 

Single-Family Multifamily Commercial Industrial 

Min Max Min Max Min Max Min Max 

1 0.00% 0.47% 0.00% 0.26% 0.00% 0.24% 0.00% 0.37% 

2 0.00% 0.44% 0.00% 0.24% 0.00% 0.22% 0.00% 0.34% 

3 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

Table 5C-4b. Impact of Combined Phase II and Proposed Effluent Guidelines Costs on Model Project 

Financials—Zero Cost Pass-Through and All Project Sizes 

Option 

Percent Change in Builder-Developer Profit 

Single-Family Multifamily Commercial Industrial 

Min Max Min Max Min Max Min Max 

1 0.00% -4.60% 0.00% -2.35% 0.00% -2.13% 0.00% -3.36% 

2 0.00% -4.23% 0.00% -2.15% 0.00% -1.96% 0.00% -3.09% 

3 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

5C-5
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

For Option 1, under the alternate baseline, the maximum percent change in project cost to the 

buyer ranges from 0.24 percent (commercial project) to 0.47 percent (single-family project). This is 

higher than the range of maximum impact given in Table 5-2a of the draft EA, Chapter 5 (0.02 percent 

for a commercial project to 0.04 percent for a single-family project). 

Impacts on builder profits are also greater under the alternate baseline assumption. As shown in 

Table 5C-4b, the maximum impacts range from -4.60 percent for a single-family project under Option 1, 

up to -1.96 percent for a commercial project under Option 2. This is 2 to 3 percent higher than the 

impacts shown in Chapter 5 of this EA, Table 5-2b, where the maximum impact ranges from -0.17 

percent for a commercial project up to -0.80 percent for a single-family project. 

5C.2.2.2 Analysis of Impacts on Model Establishments 

In Section 4.3 EPA developed a series of model firms based on composite industry financial data 

collected by Dun & Bradstreet (D&B 2000). For single-family and multifamily housing EPA 

constructed one model for each starts size class while for commercial and industrial construction there is 

a single model firm. EPA examined the impact of the regulatory costs on model firm financial 

performance by analyzing changes in key financial ratios as the annual regulatory costs are absorbed into 

the model firm’s financial statement. Complete details on the methodology can be found in Chapter 

Four, Section 4.3 of this economic analysis. 

Under this baseline scenario some firms will be impacted to a greater extent than others because 

they operate on sites subject to the Phase II storm water requirements and in jurisdictions that have not 

yet fully implemented the Phase II requirements. As a result, the baseline financial conditions for these 

firms used in the economic analysis may not fully reflect adjustments necessary to meet the Phase II 

requirements. To address this, EPA has analyzed the impacts associated with meeting the combined 

requirements of Phase II and the C&D effluent guidelines. 

As noted above, the Phase II rules apply to construction sites greater than one acre and less than 

five acres in size. EPA currently lacks information on how frequently firms operate on sites that fall 

within this size range. As a result, EPA cannot present reliable data on the extent to which firms might 

5C-6
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

be subject to both the Phase II requirements and the proposed effluent guidelines requirements. At one 

extreme there may be firms that operate only on sites greater than five acres. Such firms are likely be 

already compliant with the existing Phase I requirements and thus would face only the incremental 

requirements associated with the proposed effluent guidelines. On the other extreme are firms that may 

operate exclusively on sites between one and five acres in size and in jurisdictions that have not fully 

implemented the Phase II requirements. These firms would incur the combined costs of the Phase II and 

proposed effluent guidelines Option 1 requirements on 100 percent of their projects. In between there 

will be firms who operate only part of the time on sites subject to the combined Phase II and proposed 

effluent guidelines requirements. 

Insufficient data is available to allow EPA to develop a distribution of firms by the extent of 

exposure to both the Phase II requirements and the proposed effluent guidelines requirements. As a 

result, EPA has modeled this baseline scenario only for firms with 100 percent exposure to both sets of 

requirements. This represents an absolute worst-case scenario in terms of potential impacts. EPA 

expects that only a small proportion of the industry would actually be represented by this model firm 

scenario. 

Table 5C-5 shows the impact of the combined Phase II and proposed effluent guidelines 

compliance costs on model firm financial ratios under the zero cost pass through assumption (i.e., the 

firm absorbs 100 percent of the compliance costs). 

Table 5C-5. Impact of Combined Phase II and Proposed Effluent Guidelines Costs on Model Firm 

Financials – Zero Cost Pass Through 

Option 

Percent Change in Financial Ratios From Baseline 

Gross Profit 

Return on Net 

Worth Current Ratio Debt to Assets 

Min Max Min Max Min Max Min Max 

Single-family Residential 

1 0.00% -2.40% 0.00% -27.04% 0.00% -0.21% 0.00% 0.96% 

2 0.00% -2.20% 0.00% -24.83% 0.00% -0.20% 0.00% 0.88% 

3 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 

Multifamily Residential 

1 0.00% -1.73% 0.00% -5.57% 0.00% -0.30% 0.00% 1.15% 

2 0.00% -1.59% 0.00% -5.11% 0.00% -0.27% 0.00% 1.06% 

3 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

5C-7
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

For Option 1, the largest impacts generally occur in the multifamily sector. Percent change in 

gross profit for the single-family sector ranges from -2.20 percent to -2.40 percent. Under the initial 

baseline, the range was from -0.23 percent to -0.52 percent. For the multifamily residential sector, the 

change in gross profit ranges from -1.59 percent to -1.73 percent. The change in gross profit for the 

multifamily sector is also higher under the alternate baseline than under the initial baseline assumption. 

Change in gross profit from the initial baseline was from -0.31 percent to -0.95 percent. 

The current ratio shows the least change from baseline of all four financial ratios in both sectors. 

The maximum percent change in current ratio for the single-family sector ranges from -0.20 percent to -

0.21 percent. Under the initial baseline, these impacts were lower, ranging from -0.02 percent to -0.05 

percent. For the multifamily sector the change ranges from -0.27 percent to -0.30 percent. Again, impacts 

were less severe under the initial baseline assumption, where change in current ratio for the multifamily 

sector ranged from -0.05 percent to -0.16 percent. 

As with the analysis in the EA, the largest impacts over all model firm financials under the 

alternate baseline is on the return on net worth. Here, the percent change from baseline ranges from -24.83 

percent to -27.04 percent in the single-family sector and from -5.11 percent to -5.57 percent in the 

multifamily sector (both under zero cost pass through). Under the initial baseline, change in return on net 

worth ranges from -2.54 percent to -5.85 percent for single-family and from -0.99 percent to -3.07 percent 

for multifamily. 

Incremental impacts on debt-to-assets ratios (also called the debt-to-equity ratio) for the singlefamily sector range from 0.88 percent to 0.96 percent. Under the initial baseline, change in the debt-toassets ratio in this sector range from 0.21 percent to 0.90 percent. For the multifamily sector, the percent 

change in debt-to-assets ratio over baseline ranges from 1.06 percent to 1.15 percent. The impacts under 

the initial baseline for this sector range from 0.20 percent to 0.64 percent. 

5C-8
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

5C.2.2.3 Analysis of Impacts on Closures and Employment Losses 

EPA examined the potential impact of the combined Phase II and proposed effluent guidelines 

requirements on closures and employment losses using the general approach developed in Section 4.3.2. 

The approach is based on the model firm analysis presented in the section above. EPA estimated the 

change in the number of firms considered financially “stressed” (and their employment) as a result of the 

regulatory action by examining key financial ratios with and without the compliance cost impacts. The 

financial stress indicators were used to identify firms that could potentially shut down and close as a result 

of the regulatory action. 

As explained above, EPA lacks reliable data on the distribution of firms by extent of exposure to 

the Phase II requirements. Although key information on the exposure of firms to the combined effect of 

Phase II and the proposed effluent guidelines was not available, EPA developed closure estimates for the 

single-family and multifamily homebuilding sector only by making a number of assumptions.2

 First, EPA 

assumed that the firms most likely to operate on sites subject to the Phase II requirements (i.e., sites 

between one and five acres in size) are those in the 5-9 and 10-24 starts per year class.3 At the national 

average lot size of 0.31 acres this translates to disturbance of between 1.55 and 7.44 acres. EPA further 

assumed that all of the activities of firms in these size classes takes place on sites between 1 and 5 acres in 

size.4 

2

 EPA has a distribution of establishments by starts size class for the single-family and multifamily sectors 

only and therefore could not conduct the same analysis for the commercial and industrial sector. 

3

 These establishments represent 35 percent of all establishments and account for 21 percent of new singlefamily homes. See Table 2-20. Builders in the 1-4 starts class (accounting for 43 percent of establishments and 7 

percent of starts) were already assumed to build predominantly on sites under 1 acre in size and thus will not be 

impacted by the proposed rule requirements. See Sections 2.34 and 2.35. 

4

 The next largest starts class is between 25 and 99 units. This translates to between 7.5 and 33 acres 

disturbed. EPA judged that at this size class and above it was unlikely that firms would operate solely or 

predominantly on sites between 1 and 5 acres in size. 

5C-9 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

The closure analysis is thus based on the following: 

• The combined Phase II and effluent guidelines costs are applied to establishments in the 5-

9 and 10-24 starts class located in states without equivalent Phase II programs at the time 

of promulgation of the Phase II rules. 

• The analysis assumes all activities of firms in these starts classes in affected states are 

subject to the combined compliance costs of Phase II and the effluent guideline. 

• The costs per acre for the effluent guidelines only are applied to remaining establishments 

(i.e., those in the 25+ starts size classes) in these states and to all establishments in all 

other states. 

• Closures and employment losses are calculated under the zero cost pass through 

assumption. 

Tables 5C-6 and 5C-7 present the results of the closure analysis. Table 5C-6 shows the estimated 

closures for the single-family and multifamily sectors under the alternate baseline. Table 5C-7 shows the 

estimated employment losses for the single-family and multifamily sectors under the alternate baseline. 

As shown in the tables below, EPA has estimated that approximately 16 single-family businesses 

(0.02 percent of all potentially affected single-family businesses), and 4 multifamily businesses (0.09 

percent of potentially affected multifamily businesses), will be subject to possible closure due to the 

proposed rule. Under the initial baseline, EPA estimated that 13 single-family businesses and 3 

multifamily businesses would be subject to closure. 

EPA has estimated employment losses with the alternative baseline to be approximately 230 for 

the single-family and multifamily sectors (less than one-half of one percent of potentially affected 

employees in these two sectors). Under the initial baseline, EPA estimated employment losses of 

approximately 206 for both sectors. 

5C-10
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 5C-6. Estimated Facility Closures 

Alternate Baseline 

Zero Cost Pass Through 

Option 

Single-Family Multifamily TOTAL 

Number 

Pct. of 

Total Number Pct. of Total Number Pct. of Total 

1 12 0.014% 2 0.043% 14 0.057% 

2 16 0.019% 4 0.087% 20 0.106% 

3 0 0.000% 0 0.000% 0 0.000% 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

Table 5C-7. Estimated Employment Losses 

Alternate Baseline 

Financial Ratio Method 

Zero Cost Pass Through 

Option 

Single-Family Multifamily TOTAL 

Number Pct. of Total Number Pct. of Total Number Pct. of Total 

1 64 0.019% 18 0.051% 82 0.070% 

2 162 0.048% 65 0.185% 227 0.233% 

3 0 0.000% 0 0.000% 0 0.000% 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

5C.2.2.4 Analysis of Impacts on the National Construction Market 

The Phase II baseline scenario adds the same costs per acre to each type of construction. The 

impact on each type of construction is a weighted average of the number of acres subject to the Phase II 

regulation. The incremental costs to bridge the gap between the Phase II baseline and the initial baseline 

are also the same across policy options. Thus, assessing this baseline scenario is unlikely to change the 

rank order of costs among policy options but merely demonstrate larger impacts by including all recent 

EPA C&D regulation rather than showing only the effects of the proposed effluent guidelines. 

5C-11
--- --- --- 

Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 5C-8 repeats the affordability assessment from the initial baseline analysis. It shows the 

worst case scenario in which the Phase II alternative baseline applies to all regulated construction sites. 

The impacts are considerably larger than under the standard baseline. The most costly option decreases the 

number of families that could have afforded the model home by 0.21 percent. This is slightly more than 

the 0.15 percent cut estimated under the standard baseline. 

Table 5C-8. Impact of Erosion and Sediment Control Costs on Housing Affordability Alternative 

Baseline Scenario (No Phase II Compliance) 

($1997 millions, pre-tax). 

Option 

Storm Water 

Control Costs 

Per Lot 

Change in 

Costs per 

Unit 

Income 

Needed to 

Qualify 

Change in 

Income 

Needed 

Number of 

Households 

Shifted 

(thousands) 

Percent of 

Households 

Shifted That 

Could Afford 

Baseline 

1 $62 $112 $82,503 $32 -16 -0.08% 

2 $153 $277 $82,551 $79 -40 -0.21% 

3 $0 $0 $82,472 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

The changes in output and employment are considerably greater under the alternative baseline. 

Table 5C-9 shows that under the more costly Option 2, construction-related impacts decrease employment 

by 7,800 jobs. The stimulus effect of the regulation increases employment by a more than offsetting 

19,410 jobs. The change in consumer spending, however, causes a job loss of 12,900 jobs in all industries 

nationwide. This is half again as large as the job losses from consumer spending estimated under the 

original baseline for Option 2 (8,640 jobs). Table 5C-9 shows a net employment loss of 1,300 under 

Option 2. This is about the same as the net employment effect under the initial baseline (1,440 jobs) 

Clearly, the estimated impact of the proposed rule depends on which baseline is considered more 

appropriate. 

5C-12
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 5C-9 Changes in Output and Total Employment from the Alternate Baseline ($1997) 

Option 

Comb. 

Loss of 

Output 

($ Million) 

Stimulus from 

Added Work 

($ Million) 

Change in 

Employment from 

Lost Output 

(Jobs) 

Change in 

Employment from 

Stimulus 

(Jobs) 

Net Change in 

Employment from 

Construction 

Impacts 

(Jobs) 

Change in 

Employment 

from 

Consumer 

Spending 

(Jobs) 

Net Change in 

Total 

Employment 

(Jobs) 

Single-family 

1 (30) 67 (1,101) 2,477 1,376 (1,616) (241) 

2 (74) 165 (2,732) 6,147 3,414 (4,012) (598) 

3 0 0 0 0 0 0 0 

Multifamily 

1 (4) 10 (136) 354 218 (260) (41) 

2 (8) 21 (293) 772 479 (567) (88) 

3 0 0 0 0 0 0 0 

Commercial 

1 (50) 143 (1,840) 5,319 3,478 (3,569) (90) 

2 (102) 295 (3,789) 10,965 7,176 (7,361) (185) 

3 0 0 0 0 0 0 0 

Industrial 

1 (14) 21 (520) 779 259 (478) (219) 

2 (27) (41) (1,019) 1,527 508 (940) (432) 

3 0 0 0 0 0 0 0 

Total 

1 (97) 240 (3,597) 8,928 5,332 (5,923) (591) 

2 (211) 522 (7,833) 19,410 11,577 (12,880) (1,303) 

3 0 0 0 0 0 0 0 

Source: EPA estimates based on the methodologies presented in Chapter Four. 

5C-13
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

5C.3 REFERENCES 

Dun & Bradstreet. 2000. 1999-2000 Industry Norms and Key Business Ratios. 

ENR. 2001. ENR Construction Cost Index. Engineering News Record. Available at: 

http://www.enr.com/cost/costcci.asp. Accessed on December 17, 2001. 

U.S. EPA. 1999. Economic Analysis of the Final Phase II Storm Water Rule. U.S. Environmental 

Protection Agency. 

5C-14
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

CHAPTER SIX

INITIAL REGULATORY FLEXIBILITY ANALYSIS

6.1 INTRODUCTION TO THE INITIAL REGULATORY FLEXIBILITY ANALYSIS 

This section considers the effects that the proposed C&D regulations would have on small 

entities in accordance with the Regulatory Flexibility Act (RFA, 5 U.S.C et seq., Public Law 96-354) as 

amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA). The purpose 

of the RFA is to establish as a principle of regulation that agencies should tailor regulatory and 

informational requirements to the size of entities, consistent with the objectives of a particular regulation 

and applicable statutes. The RFA generally requires an agency to prepare an initial regulatory flexibility 

analysis (IRFA) of any rule subject to notice-and-comment rulemaking requirements under the 

Administrative Procedure Act or any other statute unless the agency certifies that the rule will not have a 

“significant impact on a substantial number of small entities.”1 Small entities include small businesses, 

small organizations, and governmental jurisdictions. 

For this proposed rulemaking, EPA conducted outreach to small businesses, convened a Small 

Business Advocacy Review (SBAR) panel, and prepared an IRFA.2 The IRFA is detailed in this section 

and represents EPA’s assessment of the impacts of the proposed regulations on small businesses in the 

C&D industries. The analysis is presented as follows: 

C Section 6.2 outlines EPA’s initial assessment of small businesses in the 

industries affected by the proposed regulations. 

C Section 6.3 presents EPA’s analysis (i.e., IRFA) and summarizes the steps taken 

by EPA to comply with the RFA. 

1

 The preparation of an IRFA for a proposed rule does not legally foreclose certifying no significant impact 

for the final rule (USEPA, 1999). 

2

This analysis or a summary of the analysis must be published in the Federal Register at the time of 

publication of a proposal. 

6-1 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

C Section 6.4 presents the data, methodology, and results of EPA’s analysis of 

impacts to small businesses for this rulemaking. 

6.2 INITIAL ASSESSMENT 

EPA has determined that the proposed C&D regulations are subject to notice-and-comment 

rulemaking requirements. EPA has developed a profile of the C&D industry that includes all potentially 

affected operations as well as small businesses. This information is provided in Chapter Two and also in 

Chapters Four and Five of this EA. Much of the profile information covered in these sections applies to 

small businesses. Additional information on small businesses in the C&D industry is provided in 

Sections 6.2 and 6.3 of this chapter. EPA’s assessment concludes that the proposed rule may affect small 

entities and the proposed rule would have an adverse economic impact on small entities. 

Section 6.2.1 reviews the SBA definitions of small entities in the C&D industry. Section 6.2.2 

then uses the definitions of small entities laid out in Section 6.2.1 to estimate the number of operations 

that meet this small business definition. 

6.2.1 Definition of Affected Small Entities 

The RFA defines a “small entity” as a small not-for-profit organization, small governmental 

jurisdiction, or small business. EPA expects that the principal impact of the C&D regulations on small 

entities will fall on (1) small businesses that undertake C&D activities and (2) small governmental units 

involved in permitting C&D activities. With respect to the first of these categories, the majority of C&D 

activity in the United States is undertaken by private businesses, hence the small entity analysis will 

focus on small businesses engaged in C&D activities.3 With respect to the second category of impact, 

permitting activity is undertaken exclusively by governmental units (at various levels of government), 

hence this part of the analysis will focus on the impacts on small government units. 

3

 While some governmental and nonprofit entities may engage directly in C&D activities (i.e., undertake 

C&D work of their own accord), complete information is not available to warrant inclusion of governmental or 

nonprofit entities in this analysis. For this reason, this analysis focuses only on small businesses. 

6-2 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

The RFA requires (with some exception) that EPA define“small” businesses according to the size 

standards established by the Small Business Administration (SBA). SBA establishes criteria for 

identifying small businesses based on either the number of employees or annual revenues (13 CFR 121).4 

These size standards vary by NAICS (North American Industrial Classification System) code, and 

previously by Standard Industrial Classification (SIC) codes. Qualifying revenue levels differ among 

NAICS industries, and within the C&D industries there is a range of qualifying revenue levels, from $5.0 

million for NAICS 23311 (Land subdivision and development) to $27.5 million for the majority of 

industries within NAICS 233 and 234. For businesses in the special trades industries, the small business 

size threshold is $11.5 million in revenues. Table 6-1 summarizes the SBA revenue thresholds for small 

businesses in each of the C&D industries. 

4

 Employees counted in determining size includes all individuals employed on a full-time, part-time, 

temporary or other basis. Employment is measured as the average number of employees for each pay period over 

the previous 12 months. For standards based on revenues, SBA uses the average revenues over the last three 

completed fiscal years. 

6-3 
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 6-1. SBA Small Business Definitions for the Construction and Development Industry 

NAICS Code Description 

SBA Revenue Size 

Cutoff (Millions) 

233110 Land subdivision and land development $5.0 

233210 Single-family housing construction $27.5 

233220 Multifamily housing construction $27.5 

233310 Manufacturing and industrial building construction $27.5 

233320 Commercial and institutional building construction $27.5 

234110 Highway and street construction $27.5 

234120 Bridge and tunnel construction $27.5 

234910 Water, sewer, and pipeline construction $27.5 

234920 Power and communication transmission line construction $27.5 

234930 Industrial nonbuilding structure construction $27.5 

234990 All other heavy construction $27.5 

235930 Excavation contractors $11.5 

235940 Wrecking and demolition contractors $11.5 

Source(s): 13 CFR 121 (Small Business Size Regulations; Size Standards and the North American Industry 

Classification System; Correction); Small Business Administration 1998: Firm Size Data (see 

http://www.sba.gov/advo/stats/data.html) 

6.2.2 Number of Small Businesses Affected 

The number of small businesses affected by the proposed rule was estimated through a series of 

steps. First, EPA estimated the number of establishments in the affected industries. From the number of 

establishments, EPA then estimated the number of businesses (or firms) affected. Finally, EPA estimated 

the number of small businesses affected. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

6.2.2.1 Number of Establishments Affected 

The first step in the small entity analysis is to determine the number of establishments affected. 

EPA developed estimates of the number of potentially affected establishments in Chapter Two (see Table 

2-14.) The estimate of 148,553 potentially affected businesses was obtained after subtracting 62,400 

establishments judged to be primarily engaged in remodeling activities, and 50,661 homebuilding 

establishments that construct fewer than four homes per year and who were judged unlikely to disturb 

more than one acre of land on a regular basis. Table 2-14 also reflects the fact that EPA distributed 

establishments in the land development industry (NAICS 2331) among the four building construction 

industries (NAICS 23321, 23322, 23331, and 23332) due to data limitations for the land development 

industry. 

For the small entity analysis, EPA was unable to include all of the establishments potentially 

affected as shown in Table 2-14. In particular, EPA has not included special trades (NAICS 235) in its 

small entity analysis because the financial data upon which the small entity analysis is based is not 

available for these industries. EPA does not believe, however, that a substantial number of entities in 

these industries are NPDES storm water permittees or co-permittees and would therefore not be subject 

to the proposed rule requirements. 

The final distribution of potentially affected establishments used in the small entity analysis is 

shown in Table 6-2. The total number of establishments potentially affected by the proposed rule is 

128,782 under Option 1. This is the figure upon which the small business analysis is based. 

6-5
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 6-2. Number of Affected Establishments in the Construction and Development Industry 

NAICS Industry 

Option 1 Option 2 

Number 

Percent of 

Total Number 

Percent of 

Total 

23321 

Single-family residential building 

construction 34,070 26.5% 21,362 18.7% 

23322 

Multi-family residential building 

construction 4,603 3.6% 2,699 2.4% 

23331 

Manufacturing and industrial building 

construction 7,742 6.0% 7,742 6.8% 

23332 

Commercial and institutional building 

construction 39,810 30.9% 39,810 34.9% 

23411 Heavy construction 42,557 33.0% 42,557 37.3% 

Potentially affected establishments 128,782 67.0% 114,170 100.0% 

Totals may not add due to rounding.

Source: U.S. Census Bureau (2000a) and EPA estimates. See also Chapter Two, Table 2-14.

6.2.2.2 Number of Businesses Affected 

In order to estimate the number of businesses affected by the proposed rule, EPA first examined 

the ratio of businesses to establishments from SBA (1998) data.5 Table 6-3 shows these ratios. 

5

 For clarification, an establishment is defined as “a relatively permanent office or other place of business 

where the usual business activities related to construction are conducted” (Census 2000). A business (or firm) refers 

to the aggregation of all establishments owned by one company; therefore one business may consist of several 

establishments. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 6-3. Ratio of Businesses to Establishments by Employment Size Class 

Employment 

Class 

23321 

Single-Family 

Housing 

Construction 

23322 

Multifamily 

Housing 

Construction 

23331 

Manufacturing 

and Industrial 

Building 

Construction 

23332 

Commercial 

and 

Institutional 

Building 

Construction 

23411 

Heavy 

Construction 

1 to 4 1.000 1.000 1.000 1.000 0.999 

5 to 9 1.000 0.999 1.000 1.000 0.999 

10 to 19 0.999 1.000 0.999 0.998 0.997 

20 to 99 0.993 0.994 0.997 0.991 0.991 

100 to 499 0.661 0.884 0.973 0.821 0.860 

500+ 0.203 0.540 0.558 0.327 0.215 

Source: SBA (1998). 

As seen, the ratio of businesses to establishments is almost one-to-one for all establishments with 

fewer than 100 employees. With the exception of NAICS 23331 (manufacturing and industrial 

construction), the ratio of businesses to establishments is significantly lower for establishments 

employing 100 or more workers. Table 6-4 applies these percentages to the total number of 

establishments in the four industries to estimate the number of businesses.6 The overall ratio of 

businesses to establishments for each industry was then applied to the number of potentially affected 

establishments within each industry. To illustrate, for the single-family residential construction industry, 

the estimate of potentially affected businesses is based on the following calculation: 

(adjusted no. of affected establishments) * (total businesses/total establishments) = affected businesses 

(34,070) * (138,732/138,850) = 34,041 potentially affected businesses 

The number of potentially affected businesses was calculated in the same manner for the 

remaining industries. 

6

 The table also shows average revenues per establishment. These results are used in the next step to 

determine the number of small businesses affected. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 6-4. Estimated Number of Businesses by Employment Class, and Revenues per Establishment 

Employment 

Class 

Number of 

Establishments 

Ratio of 

Businesses to 

Establishments 

Estimated Number 

of Businesses 

Estimated Number of 

Establishments Owned by 

Multifacility Businesses 

Revenues per 

Establishment 

(x $1,000) 

Single-Family Housing Construction (NAICS 23321) 

1 to 4 106,985 1.000 106,985 0 $412 

5 to 9 21,377 1.000 21,372 5 $1,299 

10 to 19 7,234 0.999 7,227 7 $2,991 

20 to 991 3,022 0.993 2,999 23 $12,073 

100 to 4992 222 0.661 147 75 $75,923 

500+3 10 0.203 2 8 $174,764 

Subtotal 138,850 0.999 138,732 118 $1,760 

Multifamily Housing Construction (NAICS 23322) 

1 to 4 4,725 1.000 4,725 0 $383 

5 to 9 1,456 0.999 1,455 1 $1,474 

10 to 19 782 1.000 782 0 $3,612 

20 to 991 532 0.994 529 3 $10,692 

100 to 4992 46 0.884 41 5 $40,855 

500+3 3 0.540 2 1 $122,949 

Subtotal 7,544 0.999 7,534 10 $1,070 

Manufacturing and Industrial Building Construction (NAICS 23331) 

1 to 4 3,136 1.000 3,136 0 $459 

5 to 9 1,666 1.000 1,666 0 $1,529 

10 to 19 1,261 0.999 1,260 1 $2,926 

20 to 991 991 0.997 988 3 $10,891 

100 to 4992 195 0.973 190 5 $46,414 

500+3 30 0.558 17 13 $217,247 

Subtotal 7,279 0.997 7,257 22 $4,682 

Commercial and Institutional Building Construction (NAICS 23332) 

1 to 4 17,722 1.000 17,718 4 $467 

5 to 9 7,644 1.000 7,643 1 $1,490 

10 to 19 5,861 0.998 5,850 11 $3,434 

20 to 991 5,518 0.991 5,470 48 $12,663 

100 to 4992 637 0.821 523 114 $77,162 

500+3 48 0.327 16 32 $342,102 

Subtotal 37,430 0.994 37,220 210 $437,317 

Heavy Construction (NAICS 23411) 

1 to 4 4,154 0.9997 4,153 1 $281 

5 to 9 1,987 0..9995 1,986 1 $939 

10 to 19 1,876 0.9966 1,870 6 $1,998 

20 to 991 2,683 0.9907 2,658 25 $7,124 

100 to 4992 544 0.8601 468 76 $35,823 

500+3 26 0.2153 6 20 $118,810 

Subtotal 11,270 0.9886 11,141 129 $4,301 

Source: Census (2000); SBA (1998). 

1

 Combined data from Census 20 to 49 and 50 to 99 employment classes.

2

 Combined data from Census 100 to 249 and 250 to 499 employment classes.

3

 Combined data from all Census employment classes of more than 500 employees.

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

6.2.2.3 Number of Small Businesses Affected 

To determine the number of potentially affected small businesses, the number of potentially 

affected businesses was multiplied by the ratio of small businesses to total businesses. To estimate the 

number of small businesses, EPA examined the distribution of revenues per establishment by size of 

establishment (see last column of Table 6-4). This review concluded that average revenues for 

establishments below 100 employees in size are consistently below the SBA small business size 

threshold ($27.5 million per year) while average revenues for establishments above 100 employees 

consistently exceed the SBA threshold.7 EPA thus concluded that the number of businesses with 100 or 

fewer employees would be a good proxy for the number of businesses that fall below the SBA revenue 

size threshold. Table 6-5 shows the results of this review. EPA estimates there are 95,753 potentially 

affected businesses (representing 98.6 percent of all potentially affected businesses) that fall below the 

SBA-defined revenue threshold and that therefore may be considered “small” businesses. 

7

 EPA notes that while the SBA threshold applies to businesses not establishments, there are very few 

multi-establishment businesses in the below 100-employee size classes, therefore the use of average establishment 

revenues is appropriate. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 6-5. Estimated Number of Small Businesses Potentially Affected by the Proposed Rule. 

NAICS 

Potentially 

Affected 

Establishments 

Potentially 

Affected 

Businesses 

Potentially Affected Small 

Businesses 

Small 

Businesses as a 

Percent of 

Total for 

Individual 

Number Percent of total Industry

233210: Single-family 

housing construction 34,070 34,041 34,004 35.5% 99.9% 

233220: Multifamily 

housing construction 4,603 4,597 4,571 4.8% 99.4% 

233310: Manufacturing 

and industrial building 

construction 7,742 7,719 7,498 7.8% 97.1% 

233320: Commercial and 

institutional building 

construction 39,810 39,587 39,013 40.7% 98.6% 

23411 Heavy construction 11,270 11,141 10,667 11.1% 95.7% 

Total 97,495 97,085 95,753 100.0% 98.6% 

Source: EPA estimates based on methodologies presented in this chapter and in Chapter Four. 

6.3 EPA COMPLIANCE WITH RFA REQUIREMENTS 

6.3.1 Outreach and Small Business Advocacy Review 

In accordance with section 609(b) of the RFA, as amended by SBREFA, EPA convened a Small 

Business Advocacy Review (SBAR) Panel for the proposed rule. The Panel was convened on July 16, 

2001. Panel participants included representatives from EPA, the Office of Information and Regulatory 

Affairs within the Office of Management and Budget (OMB), and the Office of Advocacy of the Small 

Business Administration (SBA). “Small Entity Representatives” (SERs), who advised the Panel, 

included small homebuilders and commercial builders. Throughout the development of these 

regulations, EPA conducted outreach to small businesses in the C&D industries. EPA held several 

informational public meetings in 1999 and again in 2001 to provide the public and those in potentially 

affected C&D industries to learn more about the proposed rule and to voice their questions and concerns. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

In addition, several half-day focus group sessions were conducted with members of the National 

Association of Home Builders (NAHB) in early 2001. 

Consistent with the RFA/SBREFA, the Panel evaluated the assembled materials and small entity 

comments on issues related to the elements of the IRFA. The Panel’s activities and recommendations are 

summarized in the Final Report of the Small Business Advocacy Review Panel on EPA’s Planned 

Proposed Rule on National Pollutant Discharge Elimination System (NPDES) and Effluent Limitations 

Guideline (ELG) Regulations for Construction and Development Activities (USEPA, 2001), or “Panel 

Report.” This document is included in the public record. 

6.3.2 EPA’s Initial Regulatory Flexibility Analysis 

As required by Section 603 of the RFA, as amended by SBREFA, EPA has conducted an initial 

regulatory flexibility analysis. The IRFA includes a discussion of the problems the proposed rule will 

solve, as well as the objectives and legal basis for the proposal. The IRFA also includes a description 

and estimate of the following: 

C Number of small businesses that will be affected; 

C The reporting, recordkeeping, and other compliance requirements of the proposed rule; 

C Any Federal rules that may duplicate, overlap, or conflict with the proposed rule; 

C Any significant regulatory alternatives to the rule that would accomplish the stated 

objectives of the applicable statutes and minimize impacts to small businesses. 

This section addresses each of these requirements of the IRFA that EPA has prepared to support 

the proposed C&D regulations. 

Section 607 of the RFA further notes that the Agency is to “provide either a quantifiable or 

numerical description of the effects of a proposed rule or alternatives to the proposed rule, or more 

general descriptive statements if quantification is not practicable or reliable.” For this rulemaking, EPA 

has prepared an economic analysis of the impacts to small C&D businesses. This analysis is provided in 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Section 6.4. Additional information and the detailed results of this analysis are presented in Section 

6.4.2. 

6.3.2.1 Reasons EPA is Considering the Proposed Rule 

EPA is proposing effluent limitation guidelines (ELG) for the C&D industry under a settlement 

agreement with the Natural Resources Defense Council (NRDC). The ELG is an effort to establish 

performance standards for construction and development projects during active and post-construction 

phases. This rulemaking is being proposed under Title III of the Clean Water Act (CWA), and was 

outlined in the Phase II NPDES storm water Final Rule (64 FR 68741) as the next step in the 

development of the framework of the storm water program. While construction activities disturbing five 

acres or more land are already subject to NPDES permits and the requirements set forth in EPA’s 

construction general permit (CGP), these permits do not generally contain technology-based requirements 

for design, inspection, or maintenance of erosion and sediment control (ESC) best management practices 

(BMPs). The current regulations require permittees to develop a storm water pollution prevention plan 

(SWPPP) and in that plan to describe any ESCs they will use. The existing regulations do not require 

that permittees use particular ESCs; actual ESC selection and design is the responsibility of the permittee 

in conformance with any existing state and local requirements. State and local requirements for ESC 

design, inspection, and maintenance criteria, if present, vary widely. The purpose of this rule is “to 

establish nation-wide criteria to support builders and local jurisdictions in appropriate BMP selection” 

(64 FR 68741). 

6.3.2.2 Objectives and Legal Basis for the Proposed Rule 

Construction and development (C&D) activity affecting water quality typically involves site 

selection and planning, and land-disturbing tasks during construction such as clearing, excavating and 

grading. Disturbed soil, if not managed properly, can be easily washed off-site during storm events. 

Storm water discharges generated during construction activities can cause an array of physical, chemical 

and biological impacts. Water quality impairment may result, in part, because a number of pollutants are 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

preferentially absorbed onto mineral or organic particles found in fine sediment. The interconnected 

process of erosion (detachment of the soil particles), sediment transport, and delivery is the primary 

pathway for introducing pollutants from construction sites into aquatic systems. A primary concern at 

most construction sites is the erosion and transport process related to fine sediment because rain splash, 

rills (small channels typically less than one foot deep) and sheetwash (thin sheets of water flowing across 

a surface) encourage the detachment and transport of this material to water bodies. Although streams and 

rivers naturally carry sediment loads, erosion from construction sites and runoff from developed areas 

can elevate these loads to levels above those in undisturbed watersheds. 

Existing national storm water regulations require construction site operators to outline controls to 

manage construction site runoff, but do not require any specific level of control. One of the options 

being proposed (Option 2) would establish effluent limitation guidelines in the form of minimum 

standards for design and implementation of erosion and sediment controls used during the active phase of 

construction. This approach would cover sites with five or more acres of disturbed land, and would 

establish minimum requirements for conducting site inspections and providing certification as to the 

design and completion of various aspects of those controls. 

EPA acknowledges that many State and local governments have existing standards for temporary 

controls. The proposed rule is intended to work in concert with existing requirements where equivalent, 

and would not supercede more stringent requirements. In addition, EPA is proposing two alternatives 

that would not set national standards for control of storm water discharges from construction sites subject 

to permit requirements under section 402 of the CWA. Both of these approaches would rely instead on a 

combination of existing State and local requirements and additional requirements based on the best 

professional judgement (BPJ) of the permitting authority. Under one of these alternatives (Option 1), the 

proposal would establish minimum requirements for conducting site inspections and providing 

certification as to design and completion of controls required by the permit authority in its NPDES 

permit. These requirements are similar to the inspection and certification requirements in Option 2. 

Existing compliance determination practices for construction site storm water controls rely principally on 

site inspections by local governments, however, enforcement efforts are reported to be uneven 

nationwide, largely due to limited enforcement resources at the Federal, State and local levels. The 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

inspection and certification requirements in today's proposed rule could strengthen the current permit 

program. 

Under another alternative (Option 3), no new requirements would be established under this 

option. Both the control requirements and the certification requirements would be left to the best 

professional judgement of the permitting authority in order to allow them to be better tailored to local 

conditions. These proposed options are discussed in more detail in sections IX and X of today's notice. 

At this time, EPA is co-proposing all three options because it sees advantages to each. 

This rulemaking is being proposed under Title III of the Clean Water Act (CWA), specifically 

under the authorities of sections 301, 304, 306, 307, 308, 402 and 501 of the Clean Water Act. Further 

legal basis for this proposed rule may be found in 33 U.S.C. sections 1311, 1314, 1316, 1317, 1318, 

1342 and 1361 and under authority of the Pollution Prevention Act of 1990, 42 U.S.C. 13101 et seq., Pub 

L. 101-508, November 5, 1990. Chapter One of this report and the preamble to the proposed rule contain 

more detailed information on the objectives and basis for this proposed rule. 

6.3.2.3 Description and Estimate of Number of Small Entities Affected 

As presented in Table 6-5, EPA estimates that there are about 97,085 potentially affected C&D 

businesses nationwide in the four industries discussed in this chapter, of which 95,753 (98.6 percent) are 

small businesses.8 Approximately 40 percent of the small businesses are in the commercial and 

institutional building construction industry and 35 percent are in the single-family residential 

construction industry. Heavy construction accounts for 11 percent of small C&D businesses, 

manufacturing and industrial building construction accounts for 8 percent, and multifamily residential 

construction accounts for 5 percent. 

8

 The businesses shown in Table 6-5 excludes those representing 19,771 establishments in Special Trades 

Contracting (NAICS 235) that are potentially affected by the proposed rule (see Table 2-14), but were not analyzed 

in this chapter because the financial data upon which the small entity analysis is based is not available for these 

industries. EPA does not believe, however, that a substantial number of entities in these industries are NPDES 

storm water permittees or co-permittees, and would therefore generally not be subject to the proposed rule 

requirements. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

6.3.2.4 Description of Proposed Recordkeeping, Reporting, and Other Requirements 

The proposed C&D regulations contain recordkeeping and reporting requirements for entities in 

the C&D industry. In Chapter Five, EPA estimated the costs associated with the additional requirements 

imposed on C&D establishments as a result of the proposed rule. This section focuses specifically on the 

costs and burden associated with recordkeeping, reporting and related requirements. 

For the purpose of this analysis, “burden” means the total time, effort, or financial resources 

expended by persons to generate, maintain, retain, or disclose or provide information to or for a federal 

agency. This includes the time needed to review instructions; develop, acquire, install, and utilize 

technology and systems for the purposes of collecting, validating, and verifying information, processing 

and maintaining information, and disclosing and providing information; adjust existing procedures to 

comply with any previously applicable instructions and requirements; train personnel to be able to 

respond to a collection of information request; search data sources; complete and review the collection of 

information; and transmit or otherwise disclose the information. 

EPA estimated that states would incur some costs related to implementation of the proposed rule. 

Specifically, general permit development and implementation of the inspection and certification 

provisions are estimated to require approximately 200 labor hours per state during the first three years of 

program implementation. See Chapter Five, Section 5.8 for full details. 

EPA analyzed costs to government units under the assumption that the majority of Phase I and 

Phase II storm water NPDES permit programs are fully implemented. Any new regulatory requirements 

will be incremental to the costs of these programs. The analysis in Chapter Five concluded that once 

Phase I and Phase II are fully implemented by communities, the proposed rule will not add any additional 

burden to government units. 

The current NPDES storm water permitting authority defaults to the state level except where 

places are large enough to qualify as Phase I (medium and large MS4) or Phase II (small MS4) 

communities. Since permitting authority, and thus permitting costs, will affect only Phase II or larger 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

communities, and since EPA’s analysis indicates no incremental impacts to Phase II or larger 

communities, EPA does not expect smaller government units to be adversely impacted by the proposed 

rule. Therefore no additional analysis was conducted to assess the impacts of the proposed rule on small 

government entities. 

A significant new requirement for construction firms contained in both Option 1 and Option 2 

would be maintenance of a site log book. The site log will record the date of initial groundbreaking and 

any inspection or maintenance activities related to erosion and sediment control. The availability of the 

log must be posted on the site and the log must be made available to government inspectors and the 

public. This is a record-keeping requirement only and no information will be collected. EPA estimates 

that site log will require 8.7 hours per year for each construction firm respondent. EPA further assumes 

that all recordkeeping tasks will be performed by an engineering assistant. The fully loaded hourly wage 

for the engineering assistant labor category in the construction industry, based on data from the U.S. 

Department of Labor, Bureau of Labor Statistics, is $38.47 per hour. Thus, the 8.7 hours per year burden 

implies an average annual cost of $335 for each firm. Since there are an estimated 95,753 small firms 

subject to Option 1, the annual cost of the site log requirement is $32.07 million. This is the largest 

portion of the inspection costs discussed in Chapter Five. Since Option 2 excludes firms disturbing less 

than five acres each year from the site log requirement, the total costs of this requirement to small 

business will be reduced. 

6.3.2.5 Identification of Relevant Federal Rules That May Duplicate, Overlap, or Conflict 

with the Proposed Regulations 

EPA has analyzed the potential impacts of the proposed rule under the baseline assumption that 

all C&D activities are in compliance with existing federal and state regulations affecting C&D 

operations, including Phase I and future Phase II NPDES storm water regulations. Neither EPA nor the 

Small Business Advocacy Review Panel identified any federal rules that duplicate or interfere with the 

requirements of the proposed rule (USEPA, 2001). 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

6.3.2.6 Significant Regulatory Alternatives 

The proposed rule retains the coverage of the Phase II NPDES storm water permitting program, 

which excludes construction activities that disturb less than one acre of land. EPA believes that this 

exclusion alleviates the potential compliance burden for small-scale builders who operate independently 

and who work on very few (and relatively small) projects in a given year.9 EPA believes that larger plans 

of development and individual construction projects that disturb a total of more than one acre are more 

likely to contribute to increased storm water runoff and erosion problems than activities disturbing less 

than one acre. In addition, activities disturbing less than one acre are more likely to be dispersed, thus 

decreasing the concentration of adverse effects. 

Additionally, under Option 2 of the proposed rule construction sites disturbing less than 5 acres 

would be excluded. EPA believes that a substantial share of activity on sites between one and five acres 

in size may also be undertaken by small-scale builders. This broader exclusion, therefore, would 

potentially reduce compliance burdens for more small-scale builders by exempting them from additional 

requirements. 

EPA considered additional options that would, for example, exempt construction activities taking 

place on sites of ten acres or less. EPA was unable, however, to identify data to suggest that exempting 

sites under ten acres from the requirements of the proposed rule would produce substantial additional 

relief to small entities. In fact, EPA found evidence that even the largest home builders operate on sites 

in this size range (Otsuji, 2001). 

Waivers for construction activities occurring in areas with low erosion potential remain in place 

from the Phase II NPDES storm water Final Rule. Under Phase II such waivers may be granted where 

little or no rainfall is expected during the period of construction. Qualification for this waiver may be 

determined using the tables of rainfall-runoff erosivity (R) factors published for each region of the U.S. 

by the Department of Agriculture (64 FR 68774). In addition, EPA has taken regional climate factors 

into account throughout the development of this proposed regulation and has built a sizeable amount of 

9

 Note that as in the Phase II NPDES storm water rule, this exclusion does not apply to development 

activities disturbing less than one acre that are part of a larger development plan (64 FR 68772-68773). 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

flexibility into the rule to allow permittees to choose appropriate controls based on their particular site 

characteristics. 

6.4 EPA’S ANALYSIS OF SMALL BUSINESS IMPACTS 

The following sections describe the methodologies and results for the economic impact analysis 

of the proposed rule on small businesses in the C&D industry. 

6.4.1 Classification of Model Facilities for Impact Analysis 

For its economic impact analysis, EPA used model facilities based on Census data, however, 

these facilities are not identical to the 1997 Census of Construction data. This section describes how 

EPA applied its analysis of small business-owned establishments to the model facilities used in the 

impact analysis. 

In the single-family and multifamily housing construction industries, (NAICS 233210 and 

233220, respectively), EPA used multiple model facilities based on the number of housing starts 

performed by the establishment per year for its economic impact estimates. EPA compared the model 

facility data by starts class with both the 1997 Census of Construction data by employment class and the 

SBA size standard for small business status. Table 6-6 presents key model facility data by starts class. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 6-6. Key Model Facility Data by Housing Starts Classification Category 

Number of Units Started 

Average 

Number of 

Employees 

Average 

Value of 

Construction 

Work ($1,000) 

NAICS 233210 

Single-Family Housing Construction 

1 to 4 2.5 $492 

5 to 9 3.3 $1,089 

10 to 24 4.3 $1,987 

25 to 99 8.6 $4,923 

100 to 499 32.1 $24,031 

500+ 160.0 $109,033 

NAICS 233220 

Multifamily Housing Construction 

2 to 9 3.2 $645 

10 to 24 5.1 $1,382 

25 to 99 8.0 $3,500 

100 to 499 13.5 $7,410 

500+ 64.7 $43,844 

Source: EPA estimates based on Rappaport and Cole (2000). 

Single-family housing construction establishments with 100 to 499 starts per year employ, on 

average, 32 workers per establishment and earn $24 million in revenues. Establishments with fewer 

starts tend to employ fewer workers and have lower average revenues. Conversely, establishments with 

more than 500 starts per year employ on average 160 workers and earn revenues in excess of $109 

million per establishment. 

Multifamily housing construction establishments with 100 to 499 starts per year employ, on 

average, 13.5 workers per establishment and earn $7.4 million in revenues. Establishments with more 

than 500 starts per year employ on average 65 workers and earn revenues of $44 million per 

establishment. Although average employment per establishment in the 500+ start class does not exceed 

100 workers, employment per establishment in that class is almost five times larger than the 100 to 499 

starts class. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

The natural break points in the employment and revenue per establishment data by housing start 

class match reasonably well with those from the 1997 Census of Construction data described in Section 

6.2.2. Therefore, for the purpose of this analysis, EPA assumes that model facilities with fewer than 500 

housing starts per year in both the 233210 and 233220 NAICS codes are small business-owned 

establishments, and model facilities in the 500+ starts class represent large business-owned 

establishments. Note that based on 1997 Census of Construction figures by employment class, EPA 

estimated 99.8 percent of establishments in NAICS 233210 and 99.4 percent of establishments in NAICS 

233220 overall are small business-owned. Based on the Census Housing Starts Statistics special study, 

EPA estimated that 99.7 percent of establishments in NAICS 233210 and 98.4 percent of establishments 

in NAICS 233220 overall are small business-owned.10 

To estimate the number of small business-owned facilities affected by the proposed C&D 

effluent guideline, EPA first projected impacts for each model facility and extrapolated those to the 

establishments represented by the model. If the model facility has fewer than 500 starts per year, then all 

impacts to establishments represented by that facility are incurred by small businesses; impacts to 

establishments represented by the model facility for the 500+ starts class are incurred by large businessowned establishments. 

In the manufacturing and industrial, commercial and institutional, and heavy construction 

industries, (NAICS codes 233310, 233320, and 23411, respectively), a single model facility was used for 

the economic impact analysis. Selection of the model facility for each industry was based on median 

revenue by employment class. Because EPA used a single model facility in each of these industries, it is 

not appropriate to designate the model facility as owned by a small or large business. Therefore, EPA 

calculated the percent of establishments that are small business-owned, as estimated from the 1997 

Census of Construction, and applied that percentage to all impacts to estimate small business impacts. 

For example, approximately 97 percent of establishments in NAICS 233310 are small business-owned. 

10 Small differences arise in estimating the percentages of total establishments in the industry that are small 

business-owned because of differences in how the data is arranged. SBA sets its definition of “small” by firm 

revenues. However, the Census data available to EPA is arranged by employment class, not revenues, while data in 

the Census special study used to develop model establishments is arranged by starts class, not revenues or 

employment. Thus minor discrepancies in percentages that are insignificant to the analysis will occur. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

If 100 establishments in that NAICS code are projected to incur compliance costs exceeding one percent 

of revenues, EPA assumes that 97 of those establishments are small businesses. 

6.4.2 Revenue Test Methodology 

EPA assessed the impacts to small businesses by examining the ratio of estimated compliance 

costs to business revenues. Impacts are determined by the number and percentage of businesses 

incurring costs that exceed one percent and three percent of revenues. 

EPA’s primary tool for projecting revenue test impacts is the model facility. For each model 

facility, it is straightforward to divide estimated business-level compliance costs by model facility 

revenues. However, that answers only part of the question concerning the impact of the proposed 

regulation on small business entities. To determine the number and percentage of businesses exceeding 

the revenue test thresholds, EPA must consider not only the model facility, but the businesses 

represented by that model as well. The model facility actually represents a set of approximately similar 

businesses (e.g., similar levels of employment within some bounded range) with revenues that form a 

statistical distribution around the model facility’s revenue figure. Some businesses in this statistical 

distribution will have revenues below those of the model business while others will have revenues above 

those of the model business. Therefore, simply examining the ratio of compliance costs to revenues for 

the model business is insufficient. If, for example, the model facility incurs compliance costs that are 

less than one percent of revenues, a conclusion that no businesses are affected by the regulation is 

unwarranted. It is highly likely that other businesses represented by the model have lower revenues and 

therefore may well incur costs exceeding one percent of revenues. 

To address this issue, EPA developed estimates of the statistical revenue distribution of 

establishments represented by each model facility.11 EPA then used those distributions to estimate the 

number and percentage of small business-owned establishments in each industry that incur compliance 

costs exceeding one and three percent of revenues. EPA used model facility revenues for the mean of 

11 As described in Section 6.2.2 above, EPA determined that in the construction industry, the small business 

is essentially identical to the small business-owned establishment. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

each distribution, but had no direct information concerning the dispersion of establishment income 

around each model facility. EPA therefore developed the distributions by making reasonable 

assumptions about the variance and shape of the distribution. In order to deal with the uncertainty 

caused by the lack of direct evidence about the shape of the distribution, EPA used two different 

assumptions about the distribution of revenues to generate a range of impacts. 

6.4.2.1 Development of Revenue Distributions 

The two curves in Figure 6-1 represent the cumulative distribution functions for two different 

sets of assumptions concerning the distribution of establishment income around a hypothetical model 

facility mean of $1.0 million in annual revenues. The cumulative distribution function is used to 

determine the probability y that a random variable x is less than or equal to some specified value. It is 

appropriate to use the cumulative distribution function for this application because EPA is concerned 

with the probability that an establishment earns less than some specified level of revenues. For example, 

suppose estimated establishment compliance costs for this model facility class are equal to $15,000. Any 

establishment in this model facility class that earns revenues less than $1.5 million will incur compliance 

costs that exceed one percent of revenues. Thus, EPA would use the cumulative distribution function to 

estimate the probability that a facility earns revenues of $1.5 million or less. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Figure 6-1 

Baseline Distribution Functions 

for Facility Revenues 

0.00 

0.25 

0.50 

0.75 

1.00 

$0 $1,000 $2,000 $3,000 $4,000 

Revenues (x $1,000) 

Probability 

Unit Normal 

Lognormal 

Critical Value 

As a starting point for its analysis, EPA examined the implications of assuming that income is 

normally distributed and has a standard deviation equal to the mean. That is, the coefficient of variation 

(standard deviation divided by mean) for this distribution is equal to one. In Figure 6-1, this is 

represented by the curve labeled “unit normal.” An implication of the unit normal distribution for this 

analysis is that some establishments are projected to earn negative revenues. This can be observed by 

examining the y axis; the unit normal distribution assumption results in about a 15 percent probability of 

an establishment earning negative revenues. While negative income (e.g., net income, cash flow) is both 

possible and plausible for a business establishment, negative revenue is not.12 

12 EPA examined an alternative assumption that income is normally distributed, but with standard deviation 

such that there was zero probability of an establishment earning negative revenues. This adjustment results in a 

coefficient of variation equal to about 0.29. EPA determined that this was probably not a reasonable distribution for 

use in this analysis because the probability of an establishment earning low revenues is quite small. For example, 

using the hypothetical mean revenues of $1 million, the probability of an establishment earning revenues less than 

$500,000 is only about 5 percent; the probability of an establishment earning revenues between $500,000 and $1.0 

million is about 45 percent. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

EPA then examined the implications of using a lognormal distribution. EPA estimated the mean 

and standard deviation for the lognormal distribution through a standard transformation of the mean and 

standard deviation of the unit normal distribution. Using this transformation, the lognormal distribution 

can be interpreted as having the same mean and standard deviation as the equivalent unit normal 

distribution, but a skewed distribution (unlike the normal distribution, which is symmetric). In Figure 6-

1, for example, the probability of establishment revenues less than or equal to $1.0 million is 50 percent 

under the unit normal distribution assumption, as is the probability of revenues greater than $1.0 million. 

Under the lognormal distribution assumption, about 66 percent of establishments have income less than 

or equal to $1.0 million, and about 34 percent have income greater than $1.0 million. 

The distribution of establishment revenues may be skewed because it is probable — but 

infrequent — that some establishments in any model class will perform extremely well and earn very 

high revenues relative to other establishments; there is no inherent limit to the revenues such an 

establishment might earn. Conversely, there is a limit to the minimum revenues even the poorest 

performing establishments will earn; poor performers cannot earn less than zero revenues. Such a 

distribution would tend to be skewed as is the lognormal distribution in Figure 6-1. 

6.4.2.2 Application of Revenue Distributions to Estimating Small Business Impacts 

Given the revenue distributions developed in the preceding section, EPA applied the 

distributions to the problem of estimating revenue test impacts as follows. First, EPA used revenues for 

each model facility from the four major construction industries (single-family, multifamily, 

manufacturing and industrial, commercial and institutional) as the mean of the distribution for each 

model class. EPA then set the standard deviation for each model class’ distribution equal to its mean. 

With mean, standard deviation, and two alternative assumptions concerning the shape of the distribution 

6-24
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

(normal or lognormal), EPA calculated the probability that revenues are less than or equal to any given 

value for each model class.13 

After estimating the compliance costs per establishment for each option, EPA calculated the level 

of revenues at which the estimated compliance costs would exactly equal one percent and three percent 

of revenues. EPA then used its two distributions to calculate the probability that establishments have 

revenues less than or equal to these specified levels. These probabilities provide the range for the 

percentage of establishments projected to incur compliance costs exceeding the one percent and three 

percent thresholds. Multiplying these probabilities by the number of establishments in the model class 

provides the range for the number of establishments projected to incur compliance costs exceeding the 

one percent and three percent thresholds. Note that EPA chose to truncate the unit normal distribution at 

zero revenues; EPA calculated the probability that establishments earn revenues equal to the specified 

one or three percent threshold for incurring impacts. This is because analytically the region of the 

distribution showing some probability of negative revenues cannot be appropriately evaluated. 

This process is illustrated in Figure 6-1. The hypothetical model establishment earns $1 million, 

the mean for each distribution. If EPA estimates annual compliance costs of $7,500 will be incurred by 

this business, then any business in this model class earning less than $750,000 will incur compliance 

costs exceeding one percent of revenues, and any business earning less than $22,500 will incur 

compliance costs exceeding three percent of revenues. The “critical value” in Figure 6-1 represents the 

one percent threshold (i.e., revenues of $750,000). Based on the normal distribution, EPA would project 

that 22 percent of establishments incur costs exceeding the one percent threshold (i.e., the probability of 

revenues less than $750,000 is equal to 0.38, while the probability of revenues less than $0 is equal to 

0.16, thus, the net probability equals 0.22). Based on the lognormal distribution, EPA would project that 

54 percent of establishments incur costs exceeding the same threshold. These provide the lower and 

upper bounds for EPA’s impacts estimates. 

13 For calculation purposes, EPA used the @NORMAL and @LOGNORMDIST functions in the Lotus 

spreadsheet program. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

6.4.3 Small Business Impact Analysis Results 

Tables 6-7a and 6-7b present the range of establishments projected to incur compliance costs 

exceeding one percent and three percent of revenues, respectively, for each proposed ESC option under a 

zero percent cost pass through assumption. Tables 6-7c and 6-7d present the same results under an 

estimated cost pass through assumption. In each table, the “A” denotes the results obtained assuming a 

normal distribution and the “B” indicates the results obtained using the lognormal distribution, as 

discussed in Section 6.4.2. 

The number of small business-owned establishments incurring compliance costs exceeding the 

revenue threshold is less than one percent for all options and project types under the zero CPT 

assumption. Impacts under the estimated CPT assumption are even smaller. Under the zero CPT 

scenario, the number of small businesses with costs exceeding one percent of revenues ranges from a low 

of 0 to 126 under Option 1 and from a low of 104 to a high of 627 under Option 2 (Table 6-7a). The 

number of businesses with costs exceeding three percent of revenues ranges from a low of 0 to a high of 

42 under Option 1 and from a low of 0 to a high of 205 under Option 2 (Table 6-7b). 

Under the estimated CPT scenario, the number of small businesses with costs exceeding one 

percent of revenues ranges from a low of 0 to 15 under Option 1 and from a low of 0 to a high of 70 

under Option 2 (Table 6-7c). The number of businesses with costs exceeding three percent of revenues 

ranges from a low of 0 to a high of 5 under Option 1 and from a low of 0 to a high of 24 under Option 2 

(Table 6-7d). 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 6-7a. Estimated Number of Small Business-Owned Establishments 

With Compliance Costs Exceeding 1 Percent of Revenues 

Zero Percent Cost Pass Through 

Option 

Single-family Multifamily Commercial 

Number 

Pct. of Small 

Businesses Number 

Pct. of Small 

Businesses Number 

Pct. of Small 

Businesses 

Low High Low High Low High Low High Low High Low High 

1 0 47 0.000% 0.138% 0 5 0.000% 0.110% 0 62 0.000% 0.159% 

2 40 140 0.118% 0.412% 8 18 0.175% 0.395% 18 234 0.046% 0.599% 

3 0 0 0.000% 0.000% 0 0 0.000% 0.000% 0 0 0.000% 0.000% 

Option 

Industrial Heavy TOTAL 

Number 

Pct. of Small 

Businesses Number 

Pct. of Small 

Businesses Number 

Pct. of Small 

Businesses 

Low High Low High Low High Low High Low High Low High 

1 0 12 0.000% 0.160% 0 0 0.000% 0.000% 0 126 0.000% 0.000% 

2 2 36 0.270% 0.480% 36 199 1.863% 0.337% 104 627 0.109% 0.109% 

3 0 0 0.000% 0.000% 0 0 0.000% 0.000% 0 0 0.000% 0.000% 

Source: EPA estimates based on methodologies presented in this chapter and in Chapter Four. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 6-7b. Estimated Number of Small Business-Owned Establishments 

With Compliance Costs Exceeding 3 Percent of Revenues 

Zero Percent Cost Pass Through 

Option 

Single-family Multifamily Commercial 

Number 

Pct. of Small 

Businesses Number 

Pct. of Small 

Businesses Number 

Pct. of Small 

Businesses 

Low High Low High Low High Low High Low High Low High 

1 0 15 0.000% 0.044% 0 2 0.000% 0.044% 0 21 0.000% 0.054% 

2 0 45 0.000% 0.133% 0 6 0.000% 0.132% 0 77 0.000% 0.197% 

3 0 0 0.000% 0.000% 0 0 0.000% 0.000% 0 0 0.000% 0.000% 

Option 

Industrial Heavy TOTAL 

Number 

Pct. of Small 

Businesses Number 

Pct. of Small 

Businesses Number 

Pct. of Small 

Businesses 

Low High Low High Low High Low High Low High Low High 

1 0 4 0.000% 0.053% 0 0 0.000% 0.000% 0 42 0.000% 0.044% 

2 0 12 0.000% 0.160% 0 65 0.000% 0.607% 0 205 0.000% 0.214% 

3 0 0 0.000% 0.000% 0 0 0.000% 0.000% 0 0 0.000% 0.000% 

Source: EPA estimates based on methodologies presented in this chapter and in Chapter Four. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 6-7c. Estimated Number of Small Business-Owned Establishments 

With Compliance Costs Exceeding 1 Percent of Revenues 

Estimated Cost Pass Through 

Option 

Single-family Multifamily Commercial 

Number 

Pct. of Small 

Businesses Number 

Pct. of Small 

Businesses Number 

Pct. of Small 

Businesses 

Low High Low High Low High Low High Low High Low High 

1 0 7 0.000% 0.021% 0 0 0.000% 0.000% 0 6 0.000% 0.015% 

2 0 20 0.000% 0.059% 0 1 0.000% 0.022% 0 24 0.000% 0.061% 

3 0 0 0.000% 0.000% 0 0 0.000% 0.000% 0 0 0.000% 0.000% 

Option 

Industrial Heavy TOTAL 

Number 

Pct. of Small 

Businesses Number 

Pct. of Small 

Businesses Number 

Pct. of Small 

Businesses 

Low High Low High Low High Low High Low High Low High 

1 0 2 0.000% 0.027% 0 0 0.000% 0.000% 0 15 0.000% 0.016% 

2 0 6 0.000% 0.080% 0 19 0.000% 0.178% 0 70 0.000% 0.073% 

3 0 0 0.000% 0.000% 0 0 0.000% 0.000% 0 0 0.000% 0.000% 

Source: EPA estimates based on methodologies presented in this chapter and in Chapter Four. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 6-7d. Estimated Number of Small Business-Owned Establishments 

With Compliance Costs Exceeding 3 Percent of Revenues 

Estimated Cost Pass Through 

Option 

Single-family Multifamily Commercial 

Number 

Pct. of Small 

Businesses Number 

Pct. of Small 

Businesses Number 

Pct. of Small 

Businesses 

Low High Low High Low High Low High Low High Low High 

1 0 2 0.000% 0.006% 0 0 0.000% 0.000% 0 2 0.000% 0.005% 

2 0 7 0.000% 0.021% 0 0 0.000% 0.000% 0 8 0.000% 0.020% 

3 0 0 0.000% 0.000% 0 0 0.000% 0.000% 0 0 0.000% 0.000% 

Option 

Industrial Heavy TOTAL 

Number 

Pct. of Small 

Businesses Number 

Pct. of Small 

Businesses Number 

Pct. of Small 

Businesses 

Low High Low High Low High Low High Low High Low High 

1 0 1 0.000% 0.013% 0 0 0.000% 0.000% 0 5 0.000% 0.005% 

2 0 2 0.000% 0.027% 0 7 0.000% 0.065% 0 24 0.000% 0.025% 

3 0 0 0.000% 0.000% 0 0 0.000% 0.000% 0 0 0.000% 0.000% 

Source: EPA estimates . 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

6.5 REFERENCES 

Otsuji, 2001. Personal communication between Patrick Otsuji, California State Water Resources Control 

Board, Division of Water Quality, Storm Water Section, and Dina Metivier of Eastern Research 

Group, Lexington, MA. April 2001. 

Rappaport B.A., T.A. Cole. (U.S. Census Bureau, Manufacturing and Construction Division). 2000. 

Construction Sector Special Study: Housing Starts Statistics--A Profile of the Homebuilding 

Industry. 

SBA. 1998. Statistics of U.S. Businesses: Firm Size Data. U.S. Small Business Administration, Office 

of Advocacy. Available at: http://www.sba.gov/advo/stats/data.html. 

U.S. Census Bureau. 2000. 1997 Economic Census: Construction, United States. Various Reports. 

Available at: http://www.census.gov/epcd/ec97/us/US000_23.HTM. 

U.S. EPA. 2001. “Final Report of the Small Business Advocacy Review Panel on EPA’s Planned 

Proposed Rule on National Pollutant Discharge Elimination System (NPDES) and Effluent 

Limitations Guideline (ELG) Regulations for Construction and Development Activities.” U.S. 

Environmental Protection Agency. 

U.S. EPA. 1999. Revised Interim Guidance for EPA Rulewriters: Regulatory Flexibility Act as 

Amended by the Small Business Regulatory Enforcement Fairness Act. March 29. 

http://www.epa/gov/sbrefa/documents/igui99.pdf. 

U.S. GPO (U.S. Government Printing Office). 2000. Small Business Size Regulations; Size Standards 

and the North American Industry Classification System; Correction. 13 CFR Part 121. 

Washington, DC: Small Business Administration. Federal Register. 65(172): 53533-53558. 

September 5. http://www.sba.gov/library/lawroom.html 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

CHAPTER SEVEN 

BENEFITS METHODOLOGY 

Previous chapters have considered the costs of implementing the proposed regulations and their 

effect on the industry, markets, and economy. Those chapters discussed the negative impact of the 

regulation on the national economy but the purpose of the regulation is to benefit the nation by improving 

water quality and the environment. These benefits can be measured in economic terms and balanced 

against the costs of implementing the proposed rule. This chapter reviews previous benefits assessments 

for similar regulations to develop a methodology for measuring the benefits of the proposed construction 

and development regulation. 

7.1 PREVIOUS APPROACHES TO BENEFITS ASSESSMENT 

Two basic approaches are used to measure the economic benefits of a policy change. In the “topdown” approach, the analyst defines the total benefits of an improvement (or avoidance of degradation) 

brought about by some policy action or combination of actions, and posits a means of scaling the benefit 

to the size and scope of the action. The overall benefits of the proposed action can then be calculated. 

The alternative, “bottom-up” approach enumerates the pathways through which society derives value 

from the environmental consequences of the proposed action and estimates that value. Reducing 

sediment runoff, for example, reduces the potential need to dredge navigation channels. A bottom-up 

approach makes the connections from changes at the sediment source to deposition in the harbor to the 

savings to society from reduced dredging costs. The following sections establish a framework for 

development of bottom-up methods to estimate benefits of the proposed construction and development 

rule. 

A prominent study of the benefits of reducing sediment in waterways is Ribaudo’s Water Quality 

Benefits from the Conservation Reserve Program (Ribaudo, 1989). For benefit categories where there is 

sufficient information, Ribaudo carefully links soil loss to water quality measures and benefit values. For 

other categories, where he has estimates of total damage costs, he assumes that reductions in sediment 

discharge will lead linearly to similar reductions in damage costs. Fox, et al. (1995) suggest that the 

relationship between sediment loading and water quality is not linear but S-shaped. At high sediment 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

loadings, incremental reductions in sediment discharge may have essentially no effect on water quality. 

At very low loadings, incremental reductions may actually be harmful for some purposes. Some fish, for 

example, prefer some sediment in the water column. The linearity assumption presumes that starting 

sediment loads are in the middle section of the S-curve. This may or may not be valid for a particular 

location and benefit category but is probably a reasonable working assumption. 

In maintaining the connection from physical effects of the policy to changes in welfare, bottomup approaches offer the opportunity to assess different policy options, if they can be well-described and 

have discernible effects. The connections, however, are only as good as the research upon which they 

are based. Poor connections may be bridged with reasonable assumptions. However, weakness at any 

level compromises the credibility of the results. 

7.2 BENEFITS CATEGORIES CONSIDERED 

The Environmental Assessment for the proposed rule (EPA 2002b) accomplishes the first two or 

three steps of Ribaudo’s process. The assessment estimates the sediment loads avoided by 

implementation of the proposed regulation. Sediment load can be linked to services society values and 

therefore to benefit categories. 

EPA used a model watershed approach to estimate the impacts of development on water quality. 

Several studies in Maryland and Pennsylvania provided the basic reference information for what occurs 

in a watershed as the landscape is developed. Attention focused on increased sediment loads from 

construction sites. These case studies were then generalized using appropriate adaptations to different 

weather, slope, and soil conditions in different regions of the country. Table 7-1 summarizes the 

categories of information developed in the baseline environmental assessment and the categories of 

benefits which they were used to estimate. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 7-1. Environmental Measures from the Baseline Environmental Assessment 

Environmental Effect Units Benefit Category 

Settleable Solids Total tons per Year Dredging 

Turbidity Producing Solids Total tons per Year Treatment/Dredging 

The theoretically correct benefit measure is the change in producer and consumer surplus 

ensuing from a change in environmental quality. As most environmental changes entail non-market 

goods, such as clean air and water, demand functions cannot be readily estimated. Economists instead 

use the fact that environmental externalities impose costs on the public to estimate benefits. Most benefit 

assessments in the soil conservation context use the costs of avoiding the consequences of the 

environmental harm as a proxy for the correct benefit measures. It can be shown that averting costs are a 

lower bound on the correct welfare measures (Laughland, et al., 1996). Whether averting costs are a near 

or distant lower bound depends on how closely the product of the averting process substitutes for the 

actual environmental good. Most of the studies cited below rely on avoided cost measures which should 

be considered a lower bound benefit estimate. 

Although benefits are measured in terms of avoided costs, whether those costs are actually 

incurred or not is largely irrelevant. The measures indicate society’s willingness to pay for the 

environmental change or the utility lost due to the change. If a reservoir fills with sediment, for example, 

the community has lost water storage capacity. Whether or not it chooses to replace the lost capacity 

depends on budget constraints and other priorities. Nevertheless, the community has lost some of the 

utility of the resource. If it is not replaced, the loss of utility may be exacted from the community in other 

ways such as increased flood damage or water shortages. Thus, the avoided costs should be viewed as 

the opportunity cost of failing to control sedimentation rather than as a budgetary saving for the 

responsible agency. 

The following sections review benefit categories suggested for this analysis and used in other 

assessments. For each category we discuss the methods, units, and results of prior studies and EPA 

assessments. We also describe the methods used to assess the benefits of the proposed ESC controls for 

each category. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

7.2.1 Decreased Erosion and Sediment Generation 

Faster run off from construction sites and impervious surfaces has ill effects on stream sediment 

and structure both upstream and downstream in the watershed. Upstream, faster run off cuts into 

streambanks and adds to the sediment load. Downstream, additional sediment settles out when flows 

slow or reach larger water bodies. Some of the sediment is suspended degrading water quality. The 

benefits of reducing suspended sediment are discussed in Section 7.2.2. In this section we discuss the 

benefits of reducing larger sediment particles which contribute to sedimentation of water bodies. 

7.2.1.1 Water Storage Capacity 

People impound water for many reasons. Reservoirs supply municipal water systems and 

mitigate the rising waters of floods. Flow control structures on large rivers enhance navigation. When 

any of these impoundments fill with sediment, they are less capable of fulfilling their purpose. Ribaudo 

(1989) cited an estimate by Crowder (1987) that 820,000 acre-feet of water storage capacity are lost to 

anthropogenic sources annually. Thus, there is a benefit in reducing the amount of sediment that flows 

into these impoundments. Ribaudo estimated the benefits as the costs of constructing replacement 

reservoirs and assumed that a one percent reduction in sediment discharge would result in one percent 

lower replacement costs. 

An alternative approach would estimate the connection from stream bank and overland erosion 

to sediment movement to reservoirs to the need to maintain water storage capacity. The Environmental 

Assessment estimates the total tons of sediment moved from stream bank and overland erosion. This 

total volume affects both water storage capacity in reservoirs and the need for dredging of navigational 

channels. The estimate of total sediment volume can be allocated to these two categories as well as to 

other fates, such as redeposition along watercourses. For example, the regional capacity of reservoirs 

compared to the total capacity of water bodies indicates the proportion of sediments settling in lakes that 

would be subject to dredging. Similarly, the number or area of navigational channels maintained in the 

region compared to natural outlets could indicate the proportion of sediment that would need to be 

removed from channels. Given the animus against new water projects in the current policy climate, 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

construction of replacement water storage capacity is unlikely so all benefits from sediment reduction in 

this category are valued at the average cost of dredging. 

Table 7-2 illustrates such an application using the stream bank erosion figures from the 

Environmental Assessment. The U. S. Army Corps of Engineers’ (USACE) National Inventory of Dams 

indicates that the surface area of reservoirs behind dams represent 35.2 percent of the water area of the 

nation (USACE 2001). EPA adopted this percentage as an estimate of the proportion of sediment 

generated from construction sites that would reach constructed water bodies. The tonnage deposited is 

converted to cubic yards based on 1.82 cubic yards per ton (Sohngren and Rausch, 1998a). Sohngren 

and Rausch (1998a) estimate the variable costs of dredging as $2.10 per cubic yard which is in the same 

range as USACE estimates. As discussed in Section 7.2, the avoided costs should be viewed as the 

opportunity cost of failing to control sedimentation rather than as a cost saved by reducing the volume to 

be dredged. Whether the dam owner chooses to remove the sediment or not is irrelevant. Sedimentation 

reduces the social utility of the resource. Multiplying these factors together yields an estimate of the 

benefits of reduced sedimentation. 

Table 7-2. Sample Calculation of Avoided Loss of Water Storage Capacity 

Row:Formula 

Effect of regulation on sediment load 

(tons per year) 

11,000,000 1 

Allocation to Water Storage Facilities 

Tons 

Amount of sediment reaching reservoirs 35.2% 3,872,000 2: 1×0.352 

Tonnage expressed in cubic yards 7,047,000 3: 2×1.82 

Cost of restoration dredging per cubic yard $2.10 4 

Total cost of re-dredging avoided annually $14,799,000 5: 3×4 

Sources: U.S. EPA, 2002a 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

7.2.1.2 Navigational Dredging 

River channels and harbors are dredged periodically to maintain a mandated depth. Much of the 

sediment removed can be traced to human activities. According to the USACE, more than 400 ports and 

25,000 miles of navigation channels (USACE 2002a) are maintained in the U. S. There are two kinds of 

dredging operations performed, construction, or new, dredging and maintenance dredging. Construction 

dredging involves the removal of sediments not previously disturbed in order to create a new channel, or 

to enlarge an existing channel. Maintenance dredging is the removal of extra sediment in an existing 

waterway (USACE 2002a). 

Both the USACE and members of industry participate in dredging activities under the USACE 

Dredging Program. Under this program, industry and the Corps combined spent $494 million on 

maintenance dredging work and $127 million on new dredging work, for a total of $622 million in 1997. 

This activity removed 253 million cubic yards of material for maintenance and 32 million cubic yards for 

new work, combining for a total of 285 million cubic yards dredged (USACE 2002b). Based on this 

data, the average cost per cubic yard is $1.95 for maintenance dredging, $3.97 for new work, and $2.18 

for both new and maintenance dredging work. 

Relatively little of the sediment dredged from navigation channels comes from urban 

development. The totals above represent material deposited by all forms of sedimentation. EPA has 

estimated that the proposed rule would keep 0.6 to 2.6 million cubic yards from reaching navigational 

channels. This is less than one percent of the annual amount dredged under the USACE Dredging 

Program and an even smaller proportion of the total amount dredged in the U.S. annually. 

Dredging costs have been used to estimate the benefits of sediment reduction in several other 

studies. Ribaudo (1989) assumed directly proportional reductions between erosion and dredging costs 

and used an estimate from Clark et al. (1985) for total dredging costs attributable to eroding soils. 

Sohngren and Rausch (1998b) looked specifically at the Maumee River watershed in Ohio. The marginal 

cost of dredging contaminated sediment there were quite high as an existing confined disposal facility for 

contaminated dredge spoil was near its capacity. This necessitated construction of a new facility. 

Sohngren and Rausch (1998a) make the connections from farm field to harbor and estimate that 12.7 

percent of soil eroded off fields in the watershed ends up in the navigation channel. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

As discussed in the water storage capacity section, the sediment load deposited in navigation 

channels can be estimated and average costs per ton dredged applied to estimate avoided costs from 

policy alternatives. The starting value is the change in sediment delivered to waterways. This value is 

taken from the Environmental Assessment. Table 7-3 shows an allocation of this sediment to navigation 

channels using Sohngren and Rausch’s (1998a) estimate of the proportion of sediment reaching 

navigation channels, 12.7 percent. The Sohngren and Rausch estimate is probably relatively high, as the 

Maumee River which they studied flows into Toledo harbor. Many rivers do not flow to developed, 

commercial harbors. Variable cost avoided is the appropriate metric for this application as the regulation 

is unlikely to prevent dredging operations entirely since other sources of sediment will continue to flow. 

Sohngren and Rausch (1998a) estimate the variable costs as $2.10 per cubic yard. This agrees well with 

the $2.18 per cubic yard estimated from USACE data above. 

Table 7-3. Sample Calculation of Avoided Navigational Dredging 

Row:Formula 

Effect of regulation on total erosion (tons per yr) 11,000,000 1 

Allocation to Navigational Channels 

Assume 12.7 percent reaches maintained channel (tons per yr) 1,397,000 2: 1×0.127 

Amount of sediment to be dredged annually in cubic yards 2,543,000 3: 2×1.82 

Variable cost per cubic yard $2.10 4 

Total avoided cost of navigational dredging $5,339,000 5: 3×4 

Sources: Sohngren and Rausch, 1998a, and U.S. EPA, 2002a. 

7.2.2 Reduced In-Stream TSS and Sediment Concentration 

Sediment and other components of storm water runoff contribute to low water quality in 

receiving waterways. If these waterways are used for public water supplies or industrial processes, the 

water may need treatment before it is used. Excessive sediment in the water causes turbidity which 

impedes the action of disinfectants and results in harmful disinfectant by-products. Conventional 

filtration and flocculation removes the turbidity before further treatment processes. The worse the intake 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

water’s quality the more intense and expensive the treatment required. Three studies in the late 1980's 

and one in 1998 estimated the elasticity of water treatment costs with respect to the turbidity of the intake 

water. The studies used a hedonic method. Dearmont, et al. (1998), for example, regressed the costs of 

chemicals for treatment on turbidity of intake water and other variables for a sample of Texas water 

treatment facilities. They found that a one percent reduction in nephelometric turbidity units (NTUs) in 

the intake water resulted in 0.27 percent reduction in treatment chemical costs. Similar elasticities from 

other studies ranged from 0.07 percent (Holmes, 1988) to 0.333 percent (Moore and McCarl, 1987). 

Ribaudo (1989) used Holmes’ (1988) results to link total suspended solids (TSS) to turbidity to treatment 

costs per gallon for watersheds nationwide. Different studies express their results in various units 

corresponding to different points in the water use process. Sohngren and Rausch (1998b) do not describe 

their methods but estimate that water treatment costs are $0.05 for each ton of gross soil erosion. Fox 

and Dickson (1990) express their results in terms of sediment in waterways, i.e. tons of suspended 

sediment, and find a cost of $13.44 (Canadian) per ton. The two plus orders of magnitude difference 

between these estimates makes sense if only 1 out of 250 tons of soil eroded became suspended 

sediment. Fox and Dickson (1990) adjust their cost estimate based on the probability of the suspended 

sediment from their three sample watersheds reaching water treatment plants given the geography of the 

region. 

The EPA assessment of the benefits and costs of President Clinton’s Clean Water Initiative (U.S. 

EPA, 1994) estimated that improved water quality would reduce nationwide treatment costs by 1 to 5 

percent; storm water was a source of 6.6 percent of the impairment. The nationwide avoided costs from 

improved storm water quality were estimated as $3.2 to $17.0 million per year. 

The Environmental Assessment estimates the TSS loadings reductions from ESC management. 

EPA estimates water treatment benefits from reducing TSS loadings by taking a derivative from Holmes’ 

(1988) equation which shows the change in NTU from changes in sediment loads, given stream flow, and 

water storage capacity. Values for assumptions about stream flow, storage capacity and costs of 

processing intake water are taken from Holmes (1988). The literature contains a range of NTU-to-cost 

elasticities from 0.07 to 0.333. Using this range of elasticities generates the range of benefit estimates 

from $22.49 to $106.97 per 1,000 tons of sediment introduced into waters. Holmes’ costs were reported 

in 1984 values. Updating these values to 1997 price levels using the CPI for urban consumers (CPI-U in 

1984=103.9, CPI-U in 1997=160.5) yields values of $34.74 and $165.24 per 1,000 tons in 1997 dollars. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 7-4. Sample Calculation of Avoided Water Treatment Costs 

Row:Formula 

Change in annual TSS 

after development from pre-development levels 

2,000 1 

Low High 

Calculated range of treatment costs per 1,000 tons/yr $34.74 $165.24 2 

Range of changes in costsb/ $69,480 $330,480 3:1×2 

Sources: Holmes, 1988, and U.S. EPA, 2002a. 

(1,000 tons/yr) 

7.2.3 Non-Quantified Benefits 

Several categories of benefits discussed in other studies were considered for this benefit 

assessment. For the most part, the benefits expected to be derived from these categories are relatively 

small and difficult to quantify. Rather than expend inordinate resources to quantify small benefits, EPA 

focused on the more promising, larger categories. 

7.2.3.1 Water Contact Recreation 

One of the salutary effects of improved water quality is wider opportunities for water contact 

recreation. Ribaudo and Young (1989) used a criteria-based approach to estimate the benefits of 

improved water quality on recreation. They established levels of suspended sediment, nitrogen, and 

phosphorous which would show whether or not the water body was safe for swimming. They then 

estimated the changes in runoff and ensuing change in water quality indicator levels to assess whether the 

program being considered would bring the water body within the criteria for swimmable waters. 

Ribaudo and Young found that the changes in erosion they assessed were too small to result in any water 

quality changes that would upgrade the receiving waters’ status. So there were no water-based recreation 

benefits attributable to the program. 

Feather and Hellerstein (1997) took a different approach. They used information from the 

National Resource Inventory and National Survey of Recreation and the Environment to estimate a direct 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

relationship between soil loss and consumer welfare from water-based recreation. They were able to 

estimate improvements in recreation consumer surplus from erosion reductions from alternative 

agricultural practices. 

While the ESC regulations would reduce TSS loadings, they are not expected to affect many of 

the other water quality indicators that preclude water contact recreation. Like the Ribaudo and Young 

study, estimation of recreation benefits could consume a great deal of analytical resources and not 

generate any measurable benefits. 

7.2.3.2 Biodiversity Effects 

Excess sediment can play havoc with natural stream ecosystems. Salmon and trout lay their eggs 

in scrapes on sand or gravel substrates. Flowing sediment can bury the eggs and prevent their hatching. 

Similarly, mussel beds can be buried by excessive sediment movement, smothering the mussels. Even 

relatively small sediment loads may become harmful during storm events when bed loads shift rapidly. 

More than half of the freshwater mussel species in the U.S. are imperiled or already extinct (Stein and 

Flack 1997). It is difficult to quantify either the value society places on preservation of endangered 

species or the contribution the proposed regulation may make to species preservation. 

7.2.3.3 Other Sources of Benefits 

Roads and irrigation ditches provide transportation services to people. When sediment and 

vegetation clog ditches these services are impeded. Ribaudo (1989) and Fox and Dickson (1990) both 

use government highway ditch maintenance costs as the starting point for valuing decreased roadside 

sedimentation. Ribaudo estimates state removal costs as a function of rural road mileage, gross erosion, 

and the reported costs to remove one cubic yard of material. This process yields an average cost of $79 

per thousand tons of gross erosion. Fox and Dickson divide provincial expenses for ditch maintenance 

by the cropland area to arrive at a cost of $3.41 per hectare. Both studies then estimate the benefits of 

different practices by assuming directly proportional reductions in costs with reductions in gross erosion. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

While maintenance of roadside swales is among the BMPs suggested under this regulation, major 

reductions in offsite road maintenance are not anticipated in the Environmental Assessment. 

Ribaudo (1989) also estimates the benefits for irrigation ditch maintenance. He accepts Clark, et 

al.’s (1985) estimate of overall damage to irrigation systems from cropland erosion and assumes 

reductions in erosion would result in proportional reductions in damage. Sohngren and Rausch (1998b) 

estimate that drainage ditch maintenance costs are $0.15 per ton of gross soil erosion without explaining 

their methodology. Agricultural water management is probably not relevant to this proposed regulation. 

7.3 CONCLUSION 

These methods form a coherent assessment of the benefits of the proposed regulations. There are 

several opportunities for reality and sensitivity testing of benefit values to ensure that they are within the 

realm of possibility. Information on total navigational and reservoir dredging costs in the region can be 

compared to the final results to determine if the benefits estimates are in a reasonable range. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

7.4 REFERENCES

Clark, E. H. II, J. A. Haverkamp, and W. A. Chapman. 1985. Eroding Soils: The off-farm impacts. 

Washington, DC: The Conservation Foundation. Cited in Ribaudo, 1989. 

Crowder, B. M. 1987. Economic Costs of Reservoir Sedimentation: A regional approach to estimating 

erosion damage. Journal of Soil and Water Conservation, 42(3):194-197. Cited in Ribaudo, 

1989. 

Dearmont, David, Bruce McCarl, and Deborah A. Tolman. 1998. Cost of Water Treatment Due to 

Diminished Water Quality: A case study in Texas. Water Resources Research, 34(4):849-855. 

Feather, Peter and Daniel Hellerstein. 1997. Calibrating Benefit Function Transfer to Assess the 

Conservation Reserve Program. American Journal of Agricultural Economics, 79(1):151-162. 

Fox, Glenn, and Ed J. Dickson. 1990. The Economics of Erosion and Sediment Control in Southwestern 

Ontario. Canadian Journal of Agricultural Economics, 38:23-44. 

Fox, Glenn, Gloria Umali, and Trevor Dickinson. 1995. An Economic Analysis of Targeting Soil 

Conservation Measures with Respect to Off-site Water Quality. Canadian Journal of 

Agricultural Economics, 43:105-118. 

Holmes, Thomas P. 1988. The Offsite Impact of Soil Erosion on the Water Treatment Industry. Land 

Economics 64(4):356-366. 

Laughland, Andrew S., Wesley N. Musser, James S. Shortle, and Lynn M. Musser. 1996. Construct 

Validity of Averting Cost Measures of Environmental Benefits. Land Economics 72(1):100-112. 

Moore, W. B. and B. A. McCarl. 1987. Off-site Costs of Soil Erosion: A case study in the Wilamette 

Valley. Western Journal of Agricultural Economics, 12:42-49. Cited in Dearmont, et al., 1998. 

Ribaudo, Marc O. 1989. Water Quality Benefits from the Conservation Reserve Program. U. S. 

Department of Agriculture, Economic Research Service, Agriculture Economic Report No. 606. 

February. 

Ribaudo, Marc O., and C. Edwin Young. 1989. Estimating Water Quality Benefits from Soil Erosion 

Control. Water Resources Bulletin, 25(1):71-78. 

Sohngren, Brent and Jonathan Rausch. 1998a. Soil Erosion in the Maumee River Basin: A case study 

using market methods to value environmental externalities. Ohio State University Working 

Paper. Dated June 5, 1998. 

Sohngren, Brent and Jonathan Rausch, 1998b. Benefits of Controlling Soil Erosion in the Maumee River 

Basin. Ohio State University, Department of Agricultural, Environmental, and Development 

Economics, Natural Resource and Environmental Economics Research News. November, 1998. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Stein, Bruce A. and Stephanie R. Flack. 1997. 1997 Species Report Card: The State of U.S. Plants and 

Animals. Arlington, Va:The Nature Conservancy. Available at: 

http://www.natureserve.org/publications/97reportcard/title.html Accessed on February 20, 2002. 

USACE 2002a. U.S. Army Corps of Engineers, Philadelphia District - Navigation. Available at: 

http://www.nap.usace.army.mil/sb/nav.htm. Accessed on February 12, 2002. 

USACE 2002b. Actual Dredging Cost Data for 1963-2000: Summary of Corps and Industry Activities. 

U.S. Army Corps of Engineers Navigation Data Center. Available at: 

http://www.wrsc.usace.army.mil/ndc/ddhisbth.htm. Accessed on February 14, 2002. 

USACE 2001. National Inventory of Dams Database. U.S. Army Corps of Engineers Topographical 

Engineering Center. Available at: 

http://crunch.tec.army.mil/nid/webpages/niddownloaddamsdata.html Accessed on November 12, 

2001. 

U.S. EPA. 2002a. Development Document for the Proposed Effluent Guidelines for the Construction 

and Development Point Source Category. Washington, D.C.: U.S. Environmental Protection 

Agency. EPA-821-R-02-007. Available at: 

http://www.epa.gov/waterscience/guide/construction/. 

U.S. EPA. 2002b. Environmental Assessment of Effluent Guidelines for the Construction and 

Development Point Source Category. Washington, D.C.: U.S. Environmental Protection Agency. 

EPA-821-R-02-009. Available at: http://www.epa.gov/waterscience/guide/construction/. 

U.S. EPA. 1999. Economic Analysis of the Final Phase II Storm Water Rule. Washington, D.C.: U.S. 

Environmental Protection Agency. EPA-833-R-99-002. Available from National Environmental 

Publications Information at: http://www.epa.gov/clariton/. 

U.S. EPA. 1995. Economic Benefits of Runoff Controls. EPA 841-S-95-002. Available at: 

http://www.epa.gov/nps/runoff.html. Accessed on May 23, 2001. 

U.S. EPA. 1994. President Clinton’s Clean Water Initiative: Analysis of Benefits and Costs. Cited in 

U.S. EPA, 1999. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

CHAPTER EIGHT

BENEFITS ASSESSMENT RESULTS

The purpose of the proposed regulation is to benefit the nation by improving water quality and the 

environment. These benefits can be measured in economic terms and balanced against the costs of 

implementing the proposed rule. The preceding chapter described the methodology EPA developed to 

measure the benefits of the ESC regulation. This chapter summarizes the results of that analysis. The 

first section draws on the Environmental Assessment to show the changes in sediment loads and other 

factors that indicate the environmental effects of the regulation. The second section describes the results 

of applying these environmental changes to the benefit estimation model described in Chapter Seven. 

8.1 ENVIRONMENTAL ASSESSMENT RESULTS 

The Environmental Assessment used a model watershed approach to estimate several indicators 

of water quality in the baseline condition and under the alternative options. The primary environmental 

indicator selected was sediment entering waterways which was divided into turbidity producing solids and 

settleable solids, i.e. particle size 20 microns or less and greater than 20 microns. Sediment is a good 

indicator of the regulation’s effectiveness as metals and organic compounds enter the environment 

attached to sediment particles. Table 8-1 shows the estimated difference between sediment tonnage 

released under the baseline and that released with each regulatory option. 

8.2 BENEFITS ASSESSMENT RESULTS 

As discussed in Chapter Seven, the sediment loadings drive benefit analyses for several 

categories of benefits. Table 8-2 shows the low and high values for the range of annual benefit estimates. 

The point estimate represents EPA’s best judgment of the most probable benefit value after weighing the 

accuracy and distribution of the information used to develop the benefit range. Most of the benefits arise 

from the avoided costs of lost water storage capacity. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 8-1. Total Suspended Sediment (TSS) - Differences from Baseline 

Source: U.S. EPA, 2002. 

Decrease from 

Baseline in: 

Option 1 - Inspection and 

Certification 

Option 2 - Codify CGP, Inspection and 

Certification 

Turbidity 

Producing Load 

(Tons/Year) 

Settleable Solids 

Load 

(Tons/Year) 

Turbidity 

Producing Load 

(Tons/Year) 

Settleable Solids 

Load (Tons/Year) 

High Estimate 1,582,541 7,912,707 2,225,328 11,126,639 

Low Estimate 527,514 2,637,569 2,225,328 11,126,639 

Table 8-2. Benefits Estimates 

Benefit Category 

Type of 

Estimate 

Option 1 

Inspection and 

Certification 

Option 2 

Codify CGP + Inspectn 

& Certn 

Water Treatment Point 0.1 0.2 

Low 0.0 0.1 

High 0.3 0.4 

Water Storage Point 7.1 15.0 

Low 3.5 15.0 

High 10.6 15.0 

Navigational Dredging Point 2.6 5.4 

Low 1.3 5.4 

High 3.8 5.4 

Total Point 9.7 20.6 

Low 4.8 20.5 

High 14.4 20.8 

Source: EPA estimates based on the methodologies presented in Chapter Seven. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

8.3 REFERENCES 

U.S. EPA. 2002. Development Document for the Effluent Guidelines for the Construction and 

Development Point Source Category. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

CHAPTER NINE

COSTS AND BENEFITS OF THE PROPOSED RULE

9.1 INTRODUCTION 

This chapter addresses the net social costs of the proposed rule. It brings together the results 

described in Chapters 5 and 8 to directly compare the estimated costs and benefits of the proposed 

regulation in accordance with Executive Order 12866 and other administrative regulations. The economic 

analysis describes a typical year’s impacts subsequent to implementation of the proposed rule. When 

flows of costs and benefits vary through time, it is common practice to calculate the net present value of 

each series of flows and then compare the annual payments that would be necessary to amortize that 

value. For example, when new regulation requires investment in capital equipment there may be a large 

cost to retrofit plants and smaller maintenance costs in later years while benefits do not begin to accrue 

for several years. To compare the two, their net present values are placed on an annual basis, i.e. 

annualized. When flows are constant, and the same discount rate is used to calculate the net present 

value as well as the amortization, the annualized value is the same as the annual value. The impacts in 

this report represent typical annual values for costs and benefits and so are constant throughout the 

evaluation period. Thus, all years are considered the same and annualization is unnecessary. Section 9.2 

describes the direct social costs of the proposed rule, while Section 9.3 describes the proposed rule’s 

indirect effects. Section 9.4 compares these costs with the benefits estimated in Chapter 8. 

9.2 SOCIAL COSTS OF THE PROPOSED RULE 

9.2.1 Direct Social Costs 

Direct social costs are the real resource opportunity costs to the private sector, and to the 

government, of implementing the regulation. The largest component of social cost is the cost to firms to 

comply with the CGP provisions. Installation of improved ESC management is a direct cost to 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

construction firms. In addition, firms would also bear increased design, certification, and inspection costs. 

Operation and maintenance (O&M) of improved ESCs also adds to costs. Governments at the Federal, 

State, and Municipal level would have roles in implementing this regulation. These public resources spent 

by government entities might have been used for other purposes and so represent a direct social cost. 

Each of these direct cost categories was quantified in Chapter 5 and is briefly discussed below. 

9.2.1.1 Compliance Costs 

Implementation of the proposed rule requires the firm to devote real resources, which might have 

been used for other purposes, to compliance. EPA estimated design, installation, certification, and 

inspection costs per acre for the baseline and each regulatory option in Chapter 5. These figures are 

adjusted to constant 1997 dollars using the Engineering News-Record Construction Cost Index (ENR 

CCI) to represent the real private opportunity cost. These costs were shown in Table 5-4. 

The ESCs in the proposed rule do not depart significantly from current practices. The basic 

operations of construction would change little from existing practices. Potential changes in the inputs or 

production processes are minimal. No radically new technology is proposed that would require a 

substantial learning period to operate or essentially change the production process. Nor would the 

proposed regulation generate new waste products which might raise issues for disposal, sale, or reuse. 

9.2.1.2 Government Regulatory Costs 

Codification of the CGP would require only a few hours of activity at the Federal, State, and local 

levels of government. Administration would, in most instances, be conducted at the State or local levels, 

though some oversight would remain with EPA. These activities impose opportunity costs as they draw 

resources from other government functions. EPA estimates that each state would require approximately 

200 labor hours to codify the CGP. To a large extent the proposed regulation utilizes administrative and 

enforcement institutions established by prior zoning, building code, and storm water regulation. EPA 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

estimates that this one-time activity would cost $260,000 per year for five years as states revise their 

permitting language and programs. 

In addition, government entities conduct many projects that would be subject to the proposed 

regulations. Approximately 24.7 percent of the value of construction put in place would be incurred by 

government entities. The breakdown is 10.1 percent Federal, 8.5 percent State, and 6.1 percent local. 

Much of this expenditure is for maintenance of existing structures and so does not entail new ground 

disturbance. 

9.2.2 Social Welfare Losses 

Social welfare losses occur when compliance costs result in higher prices for the goods in 

question. Individuals gain utility from products when the market price is lower than the value they derive 

from the product. This difference between value and price is termed “consumer surplus.” Producers 

also gain a surplus, or profit, when they can sell a product for more than the cost of production. The 

proposed regulations are likely to affect new construction prices and so shift the market supply function. 

Market models for each sector estimate the transfer of surplus from consumers to producers as buyers 

pay more to builders for the added storm water facilities. In addition, the higher price would discourage 

some buyers so the number of homes or buildings that will be sold would fall slightly. Such reductions in 

sales result in losses of both consumer and producer surplus without any offsetting gain, and so are 

termed “deadweight loss.” The market models estimate these surplus changes based on linear supply and 

demand curves with elasticities taken from the literature. 

Consumer and producer surplus losses were reported in Table 5-19 as the gross loss attributable 

to the proposed rule and include the deadweight loss. Although lost as profits, much of the producer 

surplus figure is spent in the industry to comply with the new regulations. Similarly, most of the consumer 

surplus loss is spent in the construction industry absorbing the “passed on” costs of compliance with the 

regulations. The loss in consumers’ utility becomes spending for improved storm water management. 

Only the deadweight loss, estimated at $10,000 for Option 1 and $185,000 for Option 2, is completely lost 

to society. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

9.2.3 Transitional Effects 

Traditional environmental regulations may have resulted in some plant closings and 

unemployment. The local impact of such effects is generally not considered a social impact issue since, in 

general, the effects are transitory. The employees shift to other jobs and the capital invested in the plant 

shifts to other uses. There is a small social loss in job search costs and unemployment time. However, 

when workers are specialized or unable to adapt to new labor market conditions, they may be 

permanently unemployed which would result in a loss of social welfare. 

Construction is a highly flexible industry. It is normal practice for employees and firms to move 

from job to job applying their individual skills to the task at hand. Job search costs and shifting 

investments are standard elements of the industry. EPA does not foresee any major disruptions in the 

industry as a result of the proposed rule. 

9.3 INDIRECT EFFECTS 

Beyond shifting the market supply for the regulated commodity, the regulation could affect the 

structure of the industry, change labor or capital productivity or discourage innovation. These effects 

would have wider impacts on society as they ripple through related markets and industries. EPA 

determined that the proposed rule has relatively little possibility of causing indirect social welfare effects. 

No substantial changes in market structure are anticipated from this proposed rule. While some 

forms of regulation may result in advantages to large firms or encourage vertical integration, this 

regulation builds on existing practices of design and certification already common in the industry. 

The proposed regulation is expected to have little effect on labor or capital productivity. It may 

require firms to employ more workers without increasing output, e.g., to maintain silt fencing, but this 

opportunity cost is captured in the installation, operating, and maintenance cost. No substantial changes in 

productivity are anticipated. Nor is the proposed regulation expected to have substantial affects on 

research, innovation, or investment toward future technological development of the industry. EPA 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

expects that other costs to society not specifically addressed by the analyses presented in this report 

would be modest. 

9.4 COMPARISON OF ESTIMATED COSTS AND BENEFITS 

Chapter 8 described the results of the environmental assessment and benefit monetization. All of 

the benefits estimated represent incremental social benefits from the baseline case. Table 9-1 compares 

the sum of social costs discussed above with the benefits estimated in Table 8-5. Anticipated social costs 

are greater than the monetized benefits. 

The social benefit estimate includes only those benefits that could be monetized. Section 7.2.6 

discusses several other classes of benefits that could not be quantified yet provide real social benefits. 

These included increased utility from water-based recreation and biodiversity preservation. 

Table 9-1. Social Costs and Benefits 

(1997 $Million per year) 

Option 

Installation, 

Design and 

Permitting 

Operation and 

Maintenance 

Government 

Costs 

Deadweight 

Loss 

Total Social 

Costs 

Total 

Benefits 

1 $118.1 $0.0 $0.0 $0.1 $118.2 $9.7 

2 $421.2 $48.0 $0.3 $0.2 $469.6 $20.6 

3 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 

Source: EPA estimates based on the methodologies presented in Chapter Four and Chapter Seven. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

CHAPTER TEN

UNFUNDED MANDATES REFORM ACT

10.1 INTRODUCTION 

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), P.L. 104-4, establishes 

requirements for Federal agencies to assess the effects of their regulatory actions on state, local, and 

tribal governments and the private sector. Under section 202 of the UMRA, EPA generally prepares a 

written statement, including a cost-benefit analysis, for proposed and final rules with “Federal mandates” 

that may result in expenditures to State, local, and tribal governments, in the aggregate, or to the private 

sector, of $100 million or more in any one year. 

Before promulgating an EPA rule for which a written statement is needed, section 205 of the 

UMRA generally directs EPA to identify and consider a reasonable number of regulatory alternatives and 

adopt the least costly, most cost-effective or least burdensome alternative that achieves the objectives of 

the rule. The provisions of section 205 do not apply when they are inconsistent with applicable law. 

Moreover, section 205 allows EPA to adopt an alternative other than the least costly, most cost-effective 

or least burdensome alternative, if the Administrator publishes with the final rule an explanation of why 

that alternative was not adopted. 

Before EPA establishes any regulatory requirements that may significantly or uniquely affect 

small governments, including tribal governments, it is to develop, under section 203 of the UMRA, a small 

government agency plan. The plan is to provide for notifying potentially affected small governments, thus 

enabling officials of affected small governments to have meaningful and timely input in the development 

of EPA regulatory proposals with significant Federal intergovernmental mandates, and informing, 

educating, and advising small governments on compliance with the regulatory requirements. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

10.2 ANALYSIS AND RESULTS 

EPA has determined that the proposed C&D regulations may contain a federal mandate that may 

result in expenditures of $100 million or more by State, local or Tribal governments in the aggregate, or to 

the private sector in any one year. Accordingly, EPA has prepared the written statement in accordance 

with section 202 of the UMRA. This and previous sections of the EA constitute this statement: Chapter 

Five of the EA identifies costs and impacts (burdens) on construction firms that would be subject to the 

proposed regulations, as well as other market affects. Chapter Eight presents estimated monetary 

benefits that may accrue under the proposed regulations, in accordance with UMRA when costs of a 

federal mandate exceed $100 million in any one year. 

EPA determined that the smallest unit of government potentially affected by the proposed rule 

would be on the sub-county (i.e., municipal or township) government level. Census data was used to 

determine financial and other information (e.g., population) for local government entities (Census 2000a, 

Census 1999). This information was combined with data from several other sources to assess the 

impacts of the proposed rule on small (serving populations of less than 50,000) government entities. 

The estimated total cost of the proposed rule under ESC option 1 is approximately $118 million.1 

Based on the value of construction work done, approximately 24.7 percent of this cost, or $29 million, 

would be borne by public entities. Under ESC option 2, the estimated total cost of the proposed rule is 

$469 million, with public entities incurring approximately $116 million of this total. 

Approximately 83 percent of the total U.S. population in 1996 (219 million out of 265 million) lived 

in areas governed by a municipality or town/township. Of those served by these sub-county governments, 

approximately 43 percent (114 million) lived in areas served by municipal or town/township governments 

with populations of less than 50,000. The remaining portion of the total U.S. population (i.e., those not 

served by municipal or town/township governments) may be served only by a county government, a 

1

 Total compliance cost equals the installation, design, and permitting costs plus operation and 

maintenance costs. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

special district government, or some other form of local government not covered by the Census report 

(Census 1999). 

The value of construction work done by government agencies (federal, state, and local) is 

approximately 24.7 percent of the total value of construction work done, with the remainder performed by 

private entities. EPA applied the 24.7 percent factor to the total national compliance costs for each option 

to determine the portion of costs accruing to government entities. 

EPA then used data on the funding of capital outlay for highway projects to determine the portion 

of compliance costs accruing to each level of government (i.e., to federal, state, and local entities). Based 

on this data, approximately 41 percent of government compliance costs would be borne by the Federal 

government, 34 percent would be borne by state governments, and the remaining 25 percent would be 

borne by local governments. 

EPA compared the local government share of compliance costs against several financial 

indicators to determine the extent of the impacts on small governmental units. The indicators used were 

total revenues, capital outlay, and capital outlay for construction only. In all cases, compliance costs were 

less than 0.2 percent of the financial measure, indicating no significant impact on small governmental 

units. The calculations are shown in Table 10-1 below. 

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

Table 10-1. Impacts of Proposed Rule Compliance Costs on Government Units 

Government Component 

Option 1 Option 2 

Costs 

As Percent 

of Total 

Costs Costs 

As Percent 

of Total 

Costs 

Total Compliance Costs $118,100,000 100.00% $469,200,000 100.00% 

Private Compliance Costs (75.3%) [a] $88,929,300 75.30% $353,307,600 75.30% 

Public Compliance Costs (24.7%) [a] $29,170,700 24.70% $115,892,400 24.70% 

Federal (41.07%) [b] $11,980,406 10.14% $47,597,009 10.14% 

State (34.29%) [b] $10,002,633 8.47% $39,739,504 8.47% 

Local (24.64%) [b] $7,187,660 6.09% $28,555,887 6.09% 

Small Government Entities 

(< 50,000) [c] $3,098,600 2.62% $12,310,443 2.62% 

Total Revenues: Small Government $103,640,793,000 $103,640,793,000 

Compliance Costs as % of Total Revenues 0.00% 0.01% 

Capital Outlay: Small Government $11,262,360,000 $11,262,360,000 

Compliance Costs as % of Total Capital 

Outlay 0.03% 0.11% 

Construction Outlay Only: Small 

Government $6,901,826,000 $6,901,826,000 

Compliance Costs as % of Construction 

Outlay 0.04% 0.18% 

[a] Based on value of construction work done by government entity. 1997 Census of Construction.

[b] Based on the percent of capital outlay for highways funded by governmental unit. 1999 FHWA Conditions and

Performance Report to Congress.

[c] Based on the percent of U.S. population living in municipalities or towns/townships serving < 50,000 (43.11% of the

population in 1996).

Note: Approximately 83% of the U.S. population ( or 219,004,000) lives in an area governed by a municipality or a

town/township. The remaining population may be served only by a county government, a special district government, or other

governmental organization not covered here. Of the 219 million served by these subcounty governments, approximately

114,347,000 (or 43 percent) are served by municipal or town/township governments with populations of < 50,000. 

Sources: 1997 Census of Governments: Compendium of Government Finances; 1997 Census of Governments: Government

Organization; 1999 Status of the Nation's Highways, Bridges, and Transit: Conditions and Performance, Report to Congress;

1997 Census of Construction.

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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 

10.3 REFERENCES 

Census 2000a. 1997 Census of Governments: Compendium of Government Finances. Volume 4. U.S. 

Census Bureau. December. 

Census 2000b. 1997 Economic Census: Construction - Industry Summary 

Census 1999. 1997 Census of Governments: Government Organization. Volume 1. U.S. Census 

Bureau. August. 

FHWA 2000. Status of the Nation’s Highways, Bridges, and Transit: Conditions and Performance. 

Report to Congress. Federal Highway Administration. May. 

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Index 

Page(s) 

accounts payable to sales ratio ..................................................................... 2-74, 2-75

active construction .................................................... ES-74, 3-2, 1-4, 4-6, 4-11, 4-46, 4-58, 6-13

affordability .................................................... ES-58, ES-87, 2-1, 2-52, 4-2, 4-58-60, 4-67, 5-24

assets to sales ratio .................................................................................. 2-74

barrier to entry .............................................. ES-83, ES-84, 2-31, 2-44-46, 4-2, 4-44, 4-45, 5-20-23

benefits ........................................ ES-91-95, 1-6, 1-8, 2-9, 2-17-19, 2-47, 2-49, 3-11, 4-66, 5-37, 5-38, 

5-42, 7-1-6, 7-8-14, 8-70, 8-71, 8-73, 9-1, 9-3, 9-4, 10-2

Best Available Technology Economically Achievable (BAT) ..................................... ES-74, 3-1, 3-2, 3-6

Best Conventional Pollutant Control Technology (BCT) ......................................... ES-74, 3-1, 3-2, 3-6

best management practices (BMPs) ...................... ES-74, 1-3, 2-48, 3-2, 3-4, 3-6, 3-8, 3-10, 4-12, 4-70, 6-12, 7-10

Best Practicable Control Technology Currently Available (BPT) .................................. ES-74, 3-1, 3-2, 3-6

building permit(s) ................................ ES-57, ES-70, 1-6, 2-31-35, 2-38, 2-76, 2-77, 2-78, 2-80, 4-46, 4-48, 

4-50, 4-53, 4-67, 4-69-72, 5-7

Census Bureau ................ ES-57, ES-60, ES-61, ES-63, ES-65, ES-67, ES-68, ES-73, ES-97, 1-5-7, 2-3, 2-4, 2-5, 2-7,

2-8, 2-11-14, 2-16, 2-18-22, 2-28, 2-30, 2-31, 2-33, 2-34, 2-36, 2-38, 2-45, 2-53, 2-55, 2-57,

2-61-63, 2-65, 2-66, 2-68-70, 2-78, 2-78, 2-80, 2-81, 4-25, 4-34, 4-49, 4-50, 4-61, 4-62, 4-66,

4-69, 4-77, 4-78, 5-24, 5-41, 6-6, 10-5

C&P Report ..................................................................................... 2-39-41

capital costs .......................................................................... 2-67, 4-12, 4-58, 4-78

cashflow .......................................................................... 4-13, 4-14, 4-35, 4-41-44

Clean Water Act (CWA) .......................................................... 1-2, 1-5, 3-1, 4-7, 6-12, 6-14

collection period ................................................................................ 2-74, 2-75

commercial construction ................ ES-60, ES-69, ES-70, ES-75-84, ES-86, ES-87, ES-90, ES-91, ES-93, ES-94, 1-5,

2-7, 2-19, 2-22, 2-24, 2-25, 2-28, 2-30, 2-47, 2-48, 2-54, 2-79, 4-5, 4-8, 4-13, 4-14,

4-26, 4-27, 4-34, 4-36, 4-37, 4-41, 4-45, 4-47, 4-50-57, 4-69-71, 4A-1, 4A-2, 4B-1-3, 

5-1-10, 5-13-15, 5-17-22, 5-27, 5-29-32, 5-34, 6-4, 6-6, 6-10, 6-14, 6-20, 7-7

Construction General Permit (CGP) .................. ES-73, ES-74, 1-2-5, 2-5, 3-1-3, 3-5, 3-11, 5-35, 6-12, 8-71, 9-1, 9-2

consumer ............................ ES-58, ES-76, 2-1, 2-50-52, 4-59, 4-66, 4-72, 4-73, 4B-4, 5-2, 5-10, 5-29-31, 7-3,

7-10, 9-2

consumer surplus .......................................................... 4-66, 4-72, 5-29, 5-31, 7-3, 7-10, 9-2

cost pass through (CPT) ............. ES-58, ES-76-78, ES-80, ES-81-84, ES-90, ES-91, 2-1, 4-3, 4-4, 4-5, 4-6, 4-14, 4-19, 

4-21, 4-29, 4-31, 4-58, 4-65, 4-71, 5-3, 5-5, 5-6, 5-10, 5-11, 5-13, 5-14, 5-16-19, 5-20, 5-21-23

current ratio ......................................... ES-79-81, 2-70, 2-71, 2-73, 4-32, 4-38-40, 5-10, 5-12-14, 5-16

deadweight loss ................................................................. ES-87, ES-95, 5-31, 9-2, 9-4

debt to equity ................................................. ES-79, ES-81, 4-28, 4-29, 4-33, 4-40, 5-10-14, 5-16

demand .......................... ES-73, ES-86, ES-87, 2-4, 2-30, 2-50-52, 2-54, 2-55, 2-79, 3-2-6, 4-59, 4-63-67, 4-69-

72, 4-74, 5-23, 5-38, 7-3, 9-2

developer-builder .......................................................... 2-44, 4-10-14, 4-29, 4B-4, 5-2, 5-10

Dun & Bradstreet (D&B) .......................... ES-78, ES-81, 2-70, 2-75, 4-26-28, 4-34, 4-35, 4-38, 4-40, 4-76, 5-11

employment ........................... ES-56, ES-57, ES-63, ES-69, ES-75, ES-81, ES-82, ES-87-89, 1-1, 1-6, 2-8, 2-9,

2-11, 2-15-17, 2-21, 2-22, 4-2, 4-25, 4-26, 4-35-38, 4-40, 4-41, 4-43, 4-66, 4-72-

74, 4-78, 5-75, 5-1, 5-15, 5-16, 5-18, 5-19, 5-24, 5-29-32, 5-34, 6-3, 6-7, 6-8, 6-18

entry costs ..................................................................................... 2-46, 4-44

equipment ...................................... ES-60, 2-5, 2-7, 2-17, 2-19, 2-58, 2-61, 2-63-68, 3-8, 4-41, 4-44, 9-1

erosion ....................... ES-73, ES-74, 1-3-5, 2-28, 3-2-6, 3-9, 3-10, 4-1, 5-24, 5-39, 6-12, 6-13, 6-16, 6-17, 7-4-12

erosion and sediment .......................... ES-73, ES-74, 1-3, 1-4, 2-28, 3-2-6, 3-9, 3-10, 4-1, 5-24, 5-39, 7-4, 7-12

erosion and sediment controls (ESCs) ........................ ES-73, ES-74, 1-3, 1-4, 3-2, 3-3-6, 3-9, 3-10, 4-1, 4-2, 4-6, 

4-10, 4-11, 4-12, 4-72, 5-29, 5-39, 9-1

Executive Order 12866 .......................................................... ES-56, 1-1, 1-8, 5-37, 5-38, 9-1

Federal government ........................................................................ 2-55, 2-57, 10-3

Federal Highway Administration (FHWA) ................. 2-39, 2-40, 2-41, 2-42, 2-43, 2-79, 4-23, 4-24, 4-76, 10-4, 10-5

Federal Water Pollution Control Act .................................................................. 1-2, 3-1

fixed assets to net worth ratio ................................................................. 2-70, 2-71, 2-74

geographic distribution ........................................................................ 2-8, 2-9, 2-15

11-1
Index (cont.) 

Page(s) 

gross profit ratio ..................................... ES-79, ES-81, 2-73, 4-28, 4-29, 4-31, 4-32, 4-40, 5-10-14, 5-16

heavy construction ........................... ES-58-61, ES-63, ES-65, ES-66, ES-68, ES-70, ES-79, ES-84, 1-5, 2-1-3,

2-6-12, 2-14, 2-16, 2-19, 2-21, 2-22, 2-24, 2-25, 2-27, 2-29-31, 2-39, 2-46, 2-50,

2-54-62, 2-64-70, 2-80, 4-77, 4A-3, 4A-4, 5-14, 5-15, 6-4, 6-6, 6-8, 6-10, 6-14, 6-20

hedonic values ...................................................................................... 7-8

homebuilding ........................................ ES-58, ES-67, ES-97, 2-1, 2-44-46, 2-80, 4-25, 4-26, 4-77, 6-5

homebuyers ......................................................................... ES-58, 2-1, 2-47, 2-52

Housing Opportunity Index (HOI) ..................................... ES-87, 4-58, 4-66, 4-67, 4-68, 5-23, 5-24, 5-25

industrial construction ............... ES-60, ES-69, ES-70, ES-75, ES-76, ES-78, ES-79, ES-81-84, ES-86, ES-87, ES-90-

92, ES-94, 1-2, 1-5, 2-2, 2-5, 2-7, 2-8, 2-19, 2-22, 2-24, 2-25, 2-28, 2-30, 2-54,

2-55, 2-63, 2-65, 2-72, 2-79, 3-1, 4-4-8, 4-14, 4-26, 4-27, 4-29, 4-34, 4-36, 4-37,

4-41, 4-45, 4-47, 4-50-57, 4-70, 4-71, 4-73, 4A-1, 4A-3, 4B-1-3, 5-1-10, 5-13-15,

5-17-22, 5-28, 5-30, 5-32, 5-34, 6-3, 6-4, 6-6, 6-10, 6-14, 6-20, 7-7

infrastructure savings ................................................................................ 2-48

Initial Regulatory Flexibility Analysis (IRFA) .......................................... ES-88, ES-89, 1-8, 6-1, 6-11

institutional construction ......................... ES-60, ES-70, 1-5, 2-7, 2-19, 2-22, 2-24, 2-25, 2-30, 2-47, 4-27, 4-47, 

4-50, 6-4, 6-6, 6-10, 6-14, 6-20

inventory ......................................... 1-6, 2-45, 2-68-75, 4-4, 4-28, 4-45, 4-54, 4-78, 5-7, 7-5, 7-9, 7-13

Joint Center for Housing Studies .............................. ES-57, ES-66, ES-68, ES-97, 2-8, 2-12, 2-26, 2-27, 2-80

land developer ..................................................................................... 2-44

land development .......................... ES-58, ES-61, ES-63, ES-65, ES-68, ES-69, 2-1-3, 2-8-12, 2-15, 2-16, 2-19,

2-22, 2-25, 2-28, 2-61, 2-66, 2-68, 2-69, 2-80, 4-5, 4-12, 4-15-17, 4-20, 4-21, 4-37,

4-77, 4A-2, 4A-4, 4A-5, 4B-4, 6-4, 6-5

lane-mile(s) .................................................................................... 2-39, 2-40

low impact development (LID) ............................................. 2-47, 2-47, 2-48, 2-49, 2-50, 2-79, 2-80

machinery ....................................................................................... 2-63-68

manufacturing construction .................. ES-60, ES-70, ES-97, 1-5, 2-7, 2-19, 2-24, 2-25, 2-30, 2-58, 2-61, 2-80, 4-8,

4-14, 4-27, 4-29, 4-34, 4-41, 6-4, 6-6, 6-10, 6-14, 6-20

market model ...................................... ES-87, 4-2, 4-29, 4-58, 4-59, 4-63, 4-68-71, 4-73, 5-2, 5-26, 5-31

metropolitan statistical area (MSA) ......................................... 2-32, 4-58, 4-66, 4-67, 4-68, 4B-1, 5-31

model project(s) .......................... ES-75, ES-76, 1-7, 3-90, 4-1, 4-5, 4-7-10, 4-12-15, 4-17-19, 4-21, 4-23, 4-25,

4-51, 4-72, 4A-79, 5-2-6

multifamily construction ................... ES-60, ES-69, ES-70, ES-73, ES-75, ES-76, ES-78-84, ES-86, ES-87, ES-90,

ES-91, 1-5, 2-7, 2-19, 2-22, 2-24, 2-25, 2-28, 2-29, 2-50, 4-5, 4-8, 4-13, 4-26,

4-27, 4-29, 4-34, 4-36, 4-37, 4-41, 4-45, 4-48-50, 4-53, 4-54, 4-56, 4-57, 4-69,

4-71, 4-72, 4-77, 4A-1, 4A-2, 4B-1-3, 5-1, 5-2, 5-4-8, 5-10, 5-13, 5-14, 5-17-22,

5-26, 5-27, 5-30-32, 5-34, 6-4, 6-7, 6-8, 6-10, 6-14, 6-18, 6-19

municipal ............................................................... ES-92, 1-2, 5-36, 7-4, 9-1, 10-2, 10-4

NAICS 23 ................................................................. ES-59, ES-61, ES-63, 2-5, 2-6, 6-3

NAICS 233 ............................. ES-59, ES-61, ES-63, ES-65, ES-68, ES-89, 2-2, 2-6, 2-8-12, 2-15, 2-25, 2-55,

2-58, 2-59, 2-63, 2-67, 2-70, 6-3

NAICS 2331 ............................. ES-61, ES-63, 2-2, 2-8, 2-9, 2-11-13, 2-15, 2-28, 2-29, 2-58, 2-59, 2-63, 2-67,

2-70, 6-5

NAICS 234 .............................. ES-59, ES-63, ES-65, ES-66, ES-68, 2-6, 2-8-10, 2-12, 2-16, 2-25, 2-27, 2-29,

2-39, 2-55, 2-58, 2-59, 2-64, 2-67, 2-70, 5-14

NAICS 235 ........................ ES-59, ES-61, ES-69, 2-3, 2-6, 2-8, 2-9, 2-11, 2-13, 2-29, 2-55, 2-67, 2-70, 6-5, 6-14

NAICS 23593 ........................... ES-59, ES-61, ES-63, ES-65-68, 2-3, 2-6, 2-8-12, 2-14, 2-16, 2-19, 2-26, 2-27,

2-30, 2-58, 2-59, 2-61-63, 2-65, 2-66, 2-68, 2-69

NAICS 23594 .............................................................................. 2-8, 2-10, 2-66

National Association of Home Builders (NAHB) ........... ES-57, ES-66, ES-71, ES-73, ES-97, 1-7, 2-8, 2-26, 2-27, 2-79, 

2-80, 4-4, 4-5, 4-10, 4-11, 4-15-17, 4-49, 4-67, 4-68, 4-76, 4-77, 4A-1-3, 4A-5, 4B-1-5, 5-23, 6-11

National Governors Association (NGA) .............................................................. 2-46, 2-80

11-2
Index (cont.) 

Page(s) 

National Pollutant Discharge Elimination System ( NPDES) ........ ES-56, ES-57, ES-59, ES-67, ES-73-75, 1-1-4, 1-6, 2-5, 

2-6, 2-26, 2-27, 2-29, 3-1-4, 3-6, 4-2, 4-3, 4-7, 4-17, 4-48,

4-53, 4-54, 4-75, 4-78, 5-2, 5-7, 5-35, 6-5, 6-11, 6-17

National Resources Inventory (NRI) ............................................. 1-6, 4-45-47, 4-53, 4-54, 4-78, 5-7

New Community Design (NCD) ..................................................... 2-46, 2-47, 2-48, 2-50, 2-79

New Source Performance Standards (NSPS) .................................................. ES-74, 3-2, 4-6, 4-7

nonemployer establishments ....................................................................... 2-11, 2-12

non-residential construction .................................................................. 4-69, 4-71, 5-27

North American Industrial Classification System (NAICS) ............................................. 2-2, 2-5, 6-3

Notice of Intent (NOI) ................................................................................ 1-6

Notice of Termination (NOT) ....................................................................... 3-5, 3-10

operation and maintenance (O&M) .......................................... ES-94, ES-95, 4-6, 4-58, 9-1, 9-4, 10-2

payroll .............................................................. ES-61, ES-63, ES-68, 2-2, 2-9, 4-41, 4-42

permittee(s) ................................ ES-59, ES-67, 1-3, 2-6, 2-27, 2-29, 3-2, 3-4, 3-5, 3-6, 6-5, 6-12, 6-14, 6-18

Phase I ............................................. ES-75, 1-2, 2-5, 3-1, 3-3, 4-2, 4-17, 4-75, 5-2, 5-35, 6-15, 6-16

Phase II .................................... ES-57, ES-75, 1-2, 1-3, 1-7, 2-5, 2-81, 3-1, 3-3, 4-2, 4-3, 4-17, 4-48, 4-53,

4-54, 4-75, 4-78, 5-2, 5-7, 5-35, 6-12, 6-15, 6-17, 7-13

post-construction .............................................................. ES-74, 1-3, 3-2, 3-8, 4-12, 6-12

potentially affected entities .............................. ES-57, ES-67, ES-68, ES-70, ES-89, 1-1, 1-4-7, 2-4, 2-9, 2-25,

2-27-30, 4-36-38, 6-2, 6-5, 6-9, 6-10, 6-14, 10-1, 10-2

Pretreatment Standards for Existing Sources (PSES) ......................................................... 3-2

Pretreatment Standards for New Sources (PSNS) ........................................................... 3-2

principal, interest, taxes, and insurance (PITI) .................................. 2-52, 4-59, 4-60, 4-61, 4-67, 4-68, 4-69

producer surplus ............................................................................ 4-72, 5-31, 9-2

profit margin ................................................................................... 2-75, 4-14

quick ratio .................................................................................... 2-70, 2-73

rainfall ............................................................................... 1-3, 3-11, 4-73, 6-17

Regulatory Flexibility Act (RFA) ......................... ES-56, ES-58, ES-88, ES-97, 1-1, 1-8, 2-1, 6-1, 6-5, 6-10, 6-11

remodelers ................................................................... ES-66, ES-67, 2-12, 2-26, 2-27

remodeling .................................. ES-57, ES-58, ES-66-68, ES-97, 2-2, 2-8, 2-12, 2-26-28, 2-80, 4-37, 6-5

residential construction ........................... 2-2, 2-31, 2-32, 2-54, 2-55, 2-79, 4-4, 4-9, 4-15, 4-26-28, 4-34, 4-36,

4-38, 4-46, 4-49, 4-58, 4-69, 4-71, 4-77, 4B-2, 5-7, 5-9, 5-10, 5-12, 

5-24, 5-27, 6-7, 6-14

return on assets ................................................................................. 2-74, 2-75

return on equity .................................................................................... 2-75

return on net worth ................................... ES-79, ES-81, 2-74, 2-75, 4-28, 4-29, 4-31, 4-32, 4-40, 5-10-16

return on sales ................................................................................. 2-74, 2-75

runoff ......................................... ES-56, ES-93, 1-3, 1-4, 1-8, 2-1, 2-48, 2-50, 3-6-9, 4-12, 5-38, 6-13, 

6-17, 7-1, 7-7, 7-9, 7-13

sales to inventory ratio ........................................................................... 2-74, 2-75

sales to net working capital ratio ................................................................... 2-74, 2-75

sediment .............................. ES-56, ES-73, ES-74, ES-91-93, 1-1, 1-3-5, 2-28, 2-48, 3-2-7, 3-9-11, 4-1, 5-24,

5-38, 5-39, 6-12, 6-13, 6-16, 7-1-10, 7-12, 8-70, 8-71

single-family construction ................ ES-60, ES-68-71, ES-73, ES-75, ES-76, ES-78-84, ES-86, ES-87, ES-90, ES-91,

1-5, 2-7, 2-9, 2-10, 2-18-20, 2-22, 2-24, 2-25, 2-28-30, 2-32, 2-35, 2-44, 2-45,

2-50, 2-60, 2-72, 2-79, 4-3, 4-5, 4-8-10, 4-13, 4-15, 4-16, 4-18, 4-26-28, 4-34,

4-36-38, 4-45-49, 4-53-57, 4-72, 4-77, 4A-1-5, 4B-1-14, 5-17-23, 5-25,

5-26, 5-29-32, 5-34, 6-4, 6-6, 6-8, 6-10, 6-14, 6-18, 6-19

small business ........................ ES-56, ES-58, ES-68, ES-70, ES-88-91, ES-97, 1-1, 1-8, 2-1, 2-3, 2-11, 2-22, 2-25,

2-81, 4-42, 4-78, 6-1, 6-2, 6-3, 6-4, 6-5, 6-7, 6-9, 6-10, 6-11, 6-16, 6-18, 6-20, 6-21

Small Business Administration (SBA) .................. ES-68, ES-88, ES-97, 2-3, 2-4, 2-10, 2-21, 2-22, 2-24, 2-25, 2-81, 

4-42, 4-78, 6-2, 6-3, 6-4, 6-6, 6-10, 6-18, 6-20

Small Business Advocacy Review (SBAR) ............................................. ES-88, 6-1, 6-10, 6-11, 6-16

11-3
Index (cont.) 

Page(s) 

Small Business Regulatory Enforcement Fairness Act (SBREFA) .................. ES-56, ES-58, ES-88, ES-97, 1-1, 1-8,

2-1, 6-1, 6-10, 6-11 6-10, 6-11, 6-16, 6-18, 6-20, 6-21

small entities ................................................... ES-68, ES-69, ES-88, ES-89, 2-3, 2-9, 2-10, 2-11, 

2-21, 2-25, 4-2, 6-1, 6-2, 6-5, 6-11, 6-14, 6-17

specialization ratio .......................................................................... 2-9, 2-18, 2-20

storm water .............................. ES-56-58, ES-67, ES-73-75, ES-87, ES-93, 1-1-4, 1-7, 1-8, 2-1, 2-5, 2-47-49,

2-79, 2-81, 3-1-5, 3-7-9, 3-11, 4-2, 4-3, 4-6, 4-15, 4-17-19, 4-21, 4-48, 4-51, 4-53,

4-54, 4-58, 4-73-75, 4-76, 4-77, 4-78, 4B-4, 5-2, 5-7-9, 5-35, 5-39, 6-5, 6-12, 

6-13, 6-15, 7-7, 7-8, 7-13, 9-2

storm water pollution prevention plan (SWPPP) .......................... ES-73, ES-74, 1-3, 3-2, 3-6, 3-7, 3-8, 3-9, 6-12

subdevelopment ..................................................... ES-61, 2-3, 2-9, 2-11, 2-12, 2-66, 2-68, 2-69

subdivision ........................... ES-58, ES-60, ES-63, ES-65, ES-68, ES-89, 1-5, 2-1, 2-2, 2-7, 2-8, 2-10, 2-13-16,

2-19, 2-22, 2-24, 2-25, 2-46, 2-48, 2-61, 2-65, 2-66, 2-68, 2-69, 4-5, 4-10, 4-17, 6-3, 6-4

supply ............................. ES-73, ES-86, ES-87, 2-4, 2-30, 2-31, 2-44, 2-46, 2-48, 2-54, 2-69, 2-79, 4-6, 4-58,

4-59, 4-63-67, 4-72, 5-30, 7-4, 9-2, 9-3

surplus .................................................................. 4-66, 4-72, 5-29, 5-31, 7-3, 7-10, 9-2

Survey of Construction ............................................................................... 2-31

system enhancement ............................................................................... 2-41-43

system expansion ................................................................................. 2-41-43

system preservation ............................................................................... 2-41-43

Total Maximum Daily Load (TMDL) .................................................................... 1-3

total suspended solids (TSS) ................................................. ES-91, 3-2, 7-7, 7-8, 7-9, 7-10, 8-71

Unfunded Mandates Reform Act (UMRA) ........................... ES-56, ES-95, 1-1, 1-8, 5-37, 5-39, 9-5, 10-1, 10-2

value of business done ...................................................................... 2-12, 2-58, 2-61

value of construction work .......................... ES-65, lxii, 2-18, 2-20, 2-32, 2-39, 2-55, 2-57-62, 2-69, 4-26, 4-75,

10-2-4

value put in place ............................................................ ES-57, 1-6, 2-32, 2-37, 2-38, 2-80

watershed(s) ............................................. 4-16, 4-34, 4-49, 4-76, 4A-1, 6-13, 7-2, 7-4, 7-6, 7-8, 8-70

welfare .......................... ES-94, 2-18, 2-19, 4-58, 4-59, 4-66, 4-67, 4-69, 4-72, 5-24, 5-30, 5-31, 7-2, 7-3, 7-10,

9-2, 9-3

willingness to pay .................................................................................... 7-3

11-4