### SAN JOAQUIN VALLEY UNIFIED AI R POLLUTION CONTROL DISTRICT

Appendix D: Socioeconomic An alysis August 18, 2011

D-1 Final Staff Report with Appendices

For Revised Proposed New Rule 4566 

# APPENDIX D

Socioeconomic Analysis Revised Proposed New Rule 4566 (Organic Material Composting Operations)

August 18, 2011

### SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICT

Appendix D: Socioeconomic Analysis August 18, 2011

D-2 Final Staff Report with Appendices

For Revised Proposed New Rul e 4566 

### This page intentionally blank.

# SOCIOECONOMIC IMPACT ANALYSIS

REVISED PROPOSED NEW RULE 4566:

ORGANIC MATERIAL COMPOSTING

OPERATIONS

AUGUST 18, 2011

Prepared for 

### San Joaquin Valley Air Pollution Control District

Prepared by 

### Applied Development Economics

100 Pringle Avenue, Suite 560  Walnut Creek, California 94596  (925) 934-8712

2150 River Plaza Drive, Suite 168  Sacramento, CA 95833  (916) 923-1562Applied Development Economics, Inc. www.adeusa.com

# TABLE OF CONTENTS

Executive Su mmary ......................................................................................................... 1

1. Introd uction ............................................................................................................... .. 2

2. Description of Proposed Rule ...................................................................................... 3

3. Method ology ................................................................................................................ 5

4. Impacted Industries S ubject to Propos ed Rule ............................................................. 6

4.1 Regional Demographic and Economic Trends ........................................................... 6

Regional Demograp hic Trends .......................................................... 6

Regional Econom ic Trends ................................................................ 6

Recent Economic Trends ................................................................... 8

4.2 Description of Affe cted Indust ries .............................................................................. 13

5. Socioeconomic Impact Anal ysis of Propos ed Rule ...................................................... 15

5.1 Annual Compliance Cost Esti mates ........................................................................... 15

5.2 Projected Busi ness Impacts ......................................................................................... 15

Definition Of A Small Busi ness ....................................................... 17Applied Development Economics Page 1 

# EXECUTIVE SUMMARY

New Draft Rule 4566 (Organic Material Compos ting Operations) is intended to reduce VOC emissions from organic material com posting operations by requiring a number of mitigation measures such as, but not lim ited to, installing a watering system and covering the windrows with finished compost during the active phase. Sixteen facilities that compost organic material are present with in the District, most of which operate at lower throughput level. Composting operati ons with a total throughput of less than 200,000 wet tons per year of organic material are required to undertake the watering procedure and to limit stockpiling of materi al to either three days or ten days maximum. These procedures are projected to cost $155,512 per year in aggregate for 15

of the affected facilities. Th e cost also includes one facilit y that is subject to both the watering system and finished compost cover requirements, as discussed below, but is already implementing the measures as part of its operation. These costs are equivalent to 9.8 percent of estimated net income for th ese facilities, slightly below the 10 percent threshold of significance fo r socioeconomic impacts.

Composting operations with a total through put of greater than or equal to 200,000 and less than 750,000 wet tons per year of organi c material, would also be subject to the finished compost cover requirement in addition to the watering system. These composting operations would also be subject to a 3 day limit on stockpiling. The cover requirement, in which the windrows are co vered with finished compost during the active phase, is estimated to cost approxim ately $3.53 per wet ton. Two facilities in the

District are of sufficient size to invoke th is requirement, but one already complies with the proposed requirements at a very similar cost of compliance. For the other facility, the total compliance cost of implementing the finished compost cover requirement is estimated to be $936,506. For this singular facility, the implementation cost exceeds the threshold of significance fo r business impacts, meaning that the costs are more than ten percent of estimated annual net income . In order to reduce the costs below the level of significance, the business would pr obably need to undertake a combination of

measures. One measure would be to shift wo rkers (four) from production activities to compliance operations without increasing total staff, while increasing their prices. The affected facility has indicated in comments that market conditions would not permit such a price increase. However, the rule includes provisio ns that allow for lessening the fiscal impact. Specifically, the rule allows for an extended 5 year period prior to requiring the facility to implement the cove r requirements. Although current market conditions would not permit a large price increase; the District believes through a 5- year period, the increase may be achievable . In addition, the rule allows for an alternative compliance option in lieu of impl ementing the finished compost cover, so as technology and research advances within the next 5 years, a less expensive option may become feasible for th e facility to implement.Page 2 Applied Development Economics 

# 1. INTRODUCTION

This socioeconomic report describes the socioeconomic impacts of the proposed New Rule 4566 (Organic Material Composting Op erations). Following this introduction, the socioeconomic report summarizes the proposed requirements (Section 2) and describes the methodology for the socioeconomi c analysis (Section 3). In Section 4, the socioeconomic report describes the economic characteristics of specific industries affected by Proposed New Ru le 4566. The sixth section analyzes the socioeconomic impacts of compliance costs on the affected sources and the regional economy. Figure 1 below is a map of the eight-county region that comprises the San Joaquin Valley Air Basin. As indicated in the map, Kern Co unty is not completely in the District.

FIGURE 1

MAP OF SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICTApplied Development Economics Page 3 

# 2. DESCRIPTION OF PROPOSED RULE

The San Joaquin Valley Unified Air Polluti on Control District has developed the Proposed New Rule 4566 to reduce VOC emissi ons from organic material composting operations within District jurisdiction. The proposed rule has been developed in response to the fact that the San Joaquin Valley Air Basin is nonattainament for both the National Ambient Air Quality Standard (NAAQA) for 8-hour ozone and related

California standards.

Studies by the Federal EPA have indicated that composting provides clear benefits in terms of reducing global warming emissions as well as reducing odors, eliminating pathogens, and reducing the bulk of organic material. Howe ver, the District estimates that currently composting operations gene rate 14 tons per day of VOC emissions, which is still a significant portion of the total VOC inventory.

The District began work on the propos ed rule in 2007 and has worked with

stakeholders to conduct research studies to te st alternate emissions reductions strategies over the past couple years. For the size of facilities currently pres ent in the San Joaquin Valley, two primary mitigation strategies a ppear feasible: a) instituting a watering system during the active phase of composti ng and b) procedures to cover windrows with finished compost during the active phase of composting. Engineered control systems also exist that would be suitable fo r exceptionally large operations, but are not anticipated to be needed at facilitie s within the District at this time.

Proposed New Rule 4566 would establish VOC emission reduction requirements on the basis of actual throughputs, rather th an maximum allowable capacity limits, for the composting operations.

 Composting operations with an organic material receiving throughput of less than 200,000 wet tons per year of organic material would be subject to the

watering system requirements during the active phase.

 Composting operations with an organi c material receiving throughput of greater than or equal to 200,000 wet tons per year and less than 750,000 tons per year would be subject to both the watering system and finished compost cover requirements during the active phase.

 Composting operations with a total throughput of 750,000 tons per year or more would be subject to a mitigation measure that demonstr ates at least 80% reduction, by weight, in VOC emissions for organic material during the active phase.

The proposed rule further reduces VOC emi ssion from the composting operations by limiting the number of days that the organic material could be stockpiled.Page 4 Applied Development Economics 

###  Composting operations with less than 100,000 wet tons per year of organic material would be subject to a 10-day stockpile requirement.

 Composting operations with 100,000 wet tons per year or more of the material would be subject to a 3-day stockpile requirement.Applied Development Economics Page 5 

# 3. METHODOLOGY

The socioeconomic analysis involves the use of information provided directly by affected sources, as well as secondary data us ed to describe the industries affected by the proposed Rule 4566 (Organic Material Co mposting Operations). The approach is briefly described below.

Applied Development Economics (ADE) began the analysis by preparing a statistical description of the industry groups of which the affected sources are a part, analyzing data on the number of jobs, sales levels, the typical profit ratios, and other economic indicators for the industry. This report re lies heavily on the most current data available from a variety of sources, such as the 2007 Economic Census and the State of California’s Employment Development Department (EDD) Labor Market Information Division. For purposes of esti mating profits, ADE reviewed industryspecific financial ratios issued by th e US Internal Revenue Service.

With the above information, AD E was able to estimate net after tax profit ratios for sources affected by the Proposed New Rule 4566. ADE calcula ted ratios of profit per

dollar of revenue for affected industries. The result of the socioeconomic analysis shows what proportion of profits the comp liance costs represent. With respect to calculating revenues and net profits speci fically for purposes of comparing profits against costs, the socioeconomic impact an alysis focuses only on revenues and net profits generated by entities affected by the proposed rule, not revenues and net profits generated by all establishments in affected industries. Based on assumed thresholds of significance, ADE discusses in the report wh ether the affected sources are likely to reduce jobs as a means of recouping the cost stemming from the proposed rule or as a result of reducing business operations. To th e extent that such job losses appear likely, the indirect multiplier effects of the job lo sses are estimated using a regional IMPLAN input-output model.

When analyzing the socioeconomic impact s of the recommendations for specific business types, ADE works closely within the parameters of accepted methodologies

discussed in a 1995 California Air Resources Board report called “Development of a Methodology to Assess the Economic Impact Required by SB513/AB969” (by Peter Berck, PhD, UC Berkeley Department of Agricultural and Resources Economics, Contract No. 93-314, August, 1995). The author of this report reviewed a methodology to assess the impact that California Environmental Protection Agency proposed regulations would have on the ab ility of California businesses to compete. The California Air Resources Board (ARB) has incorporated the methodologies described in this report in its own asse ssment of socioeconomic impacts of rules generated by ARB. One methodology relates to determining a level above or below

which a rule and its associated costs is d eemed to have significant impacts. WhenPage 6 Applied Development Economics 

### analyzing the degree to which its rules are si gnificant or insignificant, ARB employs a threshold of significance that ADE follows.



# 4. IMPACTED INDUSTRIES SUBJECT TO PROPOSED

RULE

This section of the socioeconomic analysis describes demographic and economic trends in the San Joaquin Valley region. The first part of this section compares the San Joaquin Valley region against California as a whole, and provides a context for understanding demographic and economic changes that occurred within the San Joaquin Valley region between 1999 and 2009. St arting with sub-section 4.2, the second part of this section narrows the focus of the socioeconomic analysis to industries affected by the proposed rule. The second pa rt of this section describes the economic characteristics of potentially impacted indu stries that might be subject to Proposed New Rule 4566 (Organic Material Composting Operations).



## 4.1 REGIONAL DEMOGRAPHIC AND ECONOMIC TRENDS

R EGIONAL 

## D EMOGRAPHIC 

## T RENDS



### The eight-county San Joaquin Valley regi on’s population increased by 19.7 percent

between 1999 and 2009, or a pproximately 1.8 percent annually, from 3.3 million in 1999 to 3.9 million in 2009. In the last five years, the region grew at a slower rate of 1.2 percent per year between 2004 and 2009. Wh ile the State of California’s population increased by 12 percent (or approximatel y 1.2 percent annually) between 1999 and

2009, all the counties in the re gion experienced faster rates of growth than California over the same period, as Table 1 shows. While, by many standards, Madera County continues to be a small county– at 150,887 residents according to the Department of Finance–it still experienced an annual gr owth rate of 2.1 percent between 1999 and 2009. Between 2004 and 2009, this county contin ued to grow annually but at a slightly lesser rate of 1.5 percent. In the same fi ve-year 2004-2009 period, Kern (1.6 percent), Merced (1.3 percent), and San Joaquin (1.0 percent) Counties experienced rapid annual growth relative to California, which, as Table 1 below sh ows, grew by 0.7 percent per year between 2004 and 2009. As demonstrated in the following section, the demographic changes that occurred in the San Joaquin Valley region during the 1990s and into the new century significantly infl uenced the economy of this eight-county

region.



## R EGIONAL 

## E CONOMIC 

## T RENDS



### Economic development practitioners and planners have traditionally divided economies into two broad industrial categ ories—the economic base and local support

industries. Economic base industries are the drivers of local and regional economies inApplied Development Economics Page 7 

### that these industries draw income into a local economy by selling products outside of the local economy, much like the export in dustries of a national economy. Accrued earnings then circulate throughout the local area in the form of wages and salaries; investments; purchases of fixe d assets, goods, and services; and generation of more jobs

and wealth.

TABLE 1

SAN JOAQUIN VALLEY REGION POPULATION TRENDS, 2000-2010

2000 2005 2010 00-05 05-10 00-10

State 33,873,086 36,676,931 38,648,090 1.6% 1.1% 1.3%

Region 3,302,800 3,724,661 4,034,478 2.4% 1.6% 2.0%

Fresno 799,407 881,009 953,761 2.0% 1.6% 1.8%

Kern 661,653 753,863 839,587 2.6% 2.2% 2.4%

Kings 129,461 145,443 156,289 2.4% 1.4% 1.9%

Madera 123,109 140,298 153,655 2.6% 1.8% 2.2%

Merced 210,554 239,836 258,495 2.6% 1.5% 2.1%

San Joaquin 563,598 652,339 694,293 3.0% 1.3% 2.1%

Stanislaus 446,997 503,191 530,584 2.4% 1.1% 1.7%

Tulare 368,021 408,682 447,814 2.1% 1.8% 2.0% Source: ADE, Inc., based on Ca lifornia Department of Finance



### The economic base is typically comprised of industries within the manufacturing,

minerals-resource extraction, and agricultural sectors. There are also the “local support

industries” such as retail or service sectors, the progress of which is a function of the economic base and demographic changes, and more so the latter th an the former. As population increases in a given area, demand for services–suc h as realtors, teachers, and

healthcare–increases, as does demand for ba sic retail items like groceries, gas for commuting, or clothing at the local apparel shops.

Agriculture is the economic base of the Sa n Joaquin Valley region by virtue of the amount of goods this sector produces an d exports throughout the nation and the globe. Slightly over than 14 percent of all workers in the region are employed by industries within agriculture, as Table 2 shows. In 1999, approximately 12 percent of all workers worked in agriculture. In other words, in relative terms, agriculture as a share of total employment increased betw een 1999 and 2009. At 180,115 in 2009, agriculture employed the most workers, and many jobs in other industries such as manufacturing, wholesale, and warehouse tr ansportation depend on agriculture. Underscoring the importance of this sector, agricultural employment grew in absolute

terms between 2004 and 2009, from 169,556 to 180, 115, an annual rate of growth of 1.2 percent between 2004 and 2009.Page 8 Applied Development Economics 

### Between 2004 and 2009, local s upport industries gained in prominence within the San Joaquin Valley region. Service-rendering in dustries employed the most workers as a proportion of total employment in the region . Service-rendering industries comprise 72 percent of all jobs, including public sect or positions. In other words, 921,221 jobs out of a total of 1,272,553 jobs are in serv ice-rendering industries. Excluding the public sector, service-rendering jobs account fo r 52 percent of all jobs in 2009. In 1999, service-rendering industries (excluding the public sector) represented 52 percent of all jobs.

Employment increases in service-rendering in dustries are consistent with regional population growth, although employment increased at faster rates than population. In the region, local support industries of public /private education and health services increased annually by 2.1 percent and 3.0 percent between 2004 and 2009.

Construction and financial services are two other local support industries that grew in accordance with the region’s population surg e; however, with the downturn in the national economy, these industries’ rates of growth have lowered dramatically. Employment in construction grew by a 4.9 percent per year between 1999 and 2004.

Between 2004 and 2008, construction declined dramatically by nega tive 6.4 percent per year. Likewise, financial services grew a nnually by 1.7 percent between 1999 and 2004, but dropped significantly by a negative rate of 0.9 percent per y ear between 2004 and

2009.

Close examination of Table 2 shows that th e region experienced declines also in manufacturing, as employment in this sect or dropped annually by 0.9 percent between 2004 and 2009. What was a regional bright s pot between 1999 and 20 04, transportation and warehousing experienced tepid annual growth of 0.2 percent between 2004 and 2009, as compared to the 1.9 percent annual growth in the prev ious five-year 1999-2004 period.



## R ECENT 

## E CONOMIC 

## T RENDS



### Much of the declining and/or slow employm ent growth described above is due to the

dramatic downturn in the national and st ate economies, which began in late 2007,

accelerated in 2008, and continues to this day. The charts be low illustrate the effect of the downturn in the San Joaquin Valley regi on. As Figure 2 below shows, in third quarter 2008, there were approximately 899, 617 jobs in various private sector industries, excluding agriculture, which was excluded to control for seasonal variations. The following quarter, there were 822,120 positions, and by first quarter 2009, private sector employment dropped to 839, 613 in the region. The steep slope of the curve in the chart below between third quarter 2008 and first quarter 2009 underscores the dramatic change in employmen t that occurred in a short time period. Since first quarter 2009, private sector employment (excluding agriculture) has remained flat, and actually dropped-off slight ly between third and fourth quarter 2009, when employment dropped by slightly over 9,000 jobs, going from 834,872 to 825,356.Applied Development Economics Page 9 

### Employment in the public sector has also be en affected by the downturn. Figure 3

below controls for the seasonal nature of ed ucation. Between second and third quarter 2008, public sector employment dropped dram atically by almost 5,000 jobs, going from 150,549 to 145,701 jobs. While empl oyment rebounded the following quarter, another steep dropped occurred between second and third quarters 2009, when almost 6,000 positions were lost, as public sector employment went from 150,144 to 144,300. The surge in public sector employment in fourth quarter 2009 is attributable to temporary census workers, as the public s ector went from 144,300 in the third quarter to 147,108 in the fourth quarter. While th e downturn has affected the public sector (excluding education), as Figure 3 illustrates, employment in this sector has been trending upward since first quarter 2004, albeit with some up and down volatility from one quarter to the next.Page 10 Applied Development EconomicsTABLE 2ECONOMIC TRENDS: SAN JOAQUIN VALLEY, 1999-2009EmploymentDistributionEmployment:Annual PercentChange1999 2004 2009 2009NAICS Estab. EmploymentAverage PayEstab. EmploymentAverage PayEstab. EmploymentAverage PayRegion California 99-04 04-09ALL82,6061,119,855$34,21492,231 1,209,849 $40,577103,0321,272,553$37,254100.00% 100.00%1.6%1.0%Ag, Natural Resources 117,501135,744$18,8708,646 169,556 $23,3547,601180,115$22,24114.2% 2.5% 4.5% 1.2%Utilities 212378,029$66,335213 8,340 $81,3091989,671$78,6680.8% 0.0% 0.8% 3.0%Mining 221714,592$66,949179 5,071 $86,0651756,112$87,8960.5% 0.4% 2.0% 3.8%Construction 236,25154,443$38,8326,074 69,065 $46,8706,11550,246$46,6753.9% 5.7% 4.9%-6.2%Manufacturing 31-332,968114,175$41,0102,779 110,002 $48,7352,642105,188$44,5658.3% 9.3%-0.7%-0.9%Wholesale 422,79034,492$47,2272,722 37,124 $53,0532,96343,135$47,5773.4% 4.6% 1.5% 3.0%Retail 44-459,635123,115$27,0148,941 132,956 $31,3498,725131,065$25,87910.3% 10.8% 1.5%-0.3%Transport Warehousing 48-492,42635,142$38,8542,237 38,554 $44,9622,19638,960$40,7803.1% 2.7% 1.9% 0.2%Information 5167814,976$45,880692 14,257 $53,69560313,482$50,4071.1% 3.0%-1.0%-1.1%Finance and Insurance 522,72528,229$46,6853,046 30,690 $59,5303,13829,299$50,5772.3% 4.0% 1.7%-0.9%Real Estate 532,63013,959$25,9072,607 15,932 $34,1442,63615,409$32,4491.2% 1.8% 2.7%-0.7%Prof Technical Services 544,15425,424$44,5764,501 31,812 $52,4674,81833,890$48,1672.7% 6.8% 4.6% 1.3%Mgmt. of Companies 5533119,095$52,168316 13,988 $60,04529510,581$62,5650.8% 1.3%-6.0%-5.4%Admn and Waste Services 563,00147,405$23,1902,768 48,182 $28,9862,84653,011$28,2834.2% 6.4% 0.3% 1.9%Private Educational Serv. 614637,187$26,438480 9,298 $29,53250011,985$28,8080.9% 1.7% 5.3% 5.2%Health Services 626,24594,205$37,7936,526 110,647 $47,8677,013128,206$47,37510.1% 8.8% 3.3% 3.0%Arts, Entertainment, Rec 7163210,734$17,514621 10,244 $20,19264110,708$17,8400.8% 1.6%-0.9% 0.9%Food & Accommodations 725,14572,016$12,8734,942 78,805 $15,8315,32587,167$14,3386.8% 8.3% 1.8% 2.0%Other Services 8120,64943,227$20,61930,390 47,370 $25,73138,94653,408$21,0834.2% 4.6% 1.8% 2.4%Unclassified 9926017,771$56,82185 199 $38,0331,6782,039$28,7830.2% 0.3%Local Govt.47656,892$45,318437 60,768 $56,30768577,495$52,3286.1% 5.2% 1.3% 5.0%Local Govt., Education1,218106,682$40,0931,487 109,087 $48,3041,814119,580$42,7989.4% 5.9% 0.4% 1.9%State, ALL1,68624,854$45,0531,166 28,463 $56,5151,06333,167$49,9642.6% 2.9% 2.7% 3.1%Federal, ALL33427,467$53,124376 29,439 $66,39541628,634$59,6602.3% 1.6% 1.4%-0.6%Source: ADE, Inc., based on CaliforniaEmployment Development Department, LMIDApplied Development Economics11FIGURE 2QUARTERLY PRIVATE SECTOR EMPLOYMENT TRENDS, 2004-2009EXCLUDING AGRICULTURE810,057836,134859,399852,264831,564858,128883,805871,597888,229906,406900,903888,306899,823913,640905,508880,050891,619899,617882,120839,613834,872825,356740,000760,000780,000800,000820,000840,000860,000880,000900,000920,000940,0001stQtr2ndQtr3rdQtr4thQtr1stQtr2ndQtr3rdQtr4thQtr1stQtr2ndQtr3rdQtr4thQtr1stQtr2ndQtr3rdQtr4thQtr1stQtr2ndQtr3rdQtr4thQtr1stQtr2ndQtr3rdQtr4thQtr2004 2004 2004 2004 2005 2005 2005 2005 2006 2006 2006 2006 2007 200 7 2007 2007 2008 2008 2008 2008 20 09 2009 2009 2009Chart1.QuarterlyPrivateSectorEmploymentTrends,2004‐2009ExcludingAgriculturePage 12 Applied Development EconomicsFIGURE 3QUARTERLY PUBLIC SECTOR EMPLOYMENT TRENDS, 2004-2009EXCLUDING PUBLIC EDUCATION135,560137,451133,846136,959134,870136,384133,359136,679137,437140,092136,782142,174144,900142,737147,533148,495150,549145,701149,227148,358150,144144,300147,108120,000125,000130,000135,000140,000145,000150,000155,0001stQtr2ndQtr3rdQtr4thQtr1stQtr2ndQtr3rdQtr4thQtr1stQtr2ndQtr3rdQtr4thQtr1stQtr2ndQtr3rdQtr4thQtr1stQtr2ndQtr3rdQtr4thQtr1stQtr2ndQtr3rdQtr4thQtr2004 2004 2004 2004 2005 2005 200 5 2005 2006 2006 2006 2 006 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009QuarterlyPublicSectorEmploymentTrends,2004‐2009ExcludingPublicEducationDevelopment Economics Page 13 

## 4.2 DESCRIPTION OF AFFECTED INDUSTRIES

Whereas the previous section described the larger economic context within which the District is contemplating the impacts of the Proposed New Rule 4566 (Organic Material Composting Operations), this sectio n analyzes trends of industries directly affected by the proposed rule. The proposed requirements would affect a narrow set of

industries, which are identified in the tabl e below. Two wineries with composting operations are among the affected businesses an d have been included with the fertilizer manufacturers for purposes of this analysis. The 16 facilities represented in Table 3 are currently estimated to process more than 1 million wet tons of organic material per

year.

TABLE 3

INDUSTRIES AFFECTED BY PROPOSED NEW RULE 4566

NAICS Industry Establishments Employment Payroll (000's) Sales (000's)

325314 Fertilizer Mfg (mixing only) 13 108 $4,880 $47,601

562219 Other Waste Treatment 3 13 $676 $1,614

Total 16 121 $5,556 $49,215 Source: ADE Inc., based on data provided by the District an d stakeholders as well as the 2007 Economic Census for the US and California. All dollar figures updated to 2011.



### Because of the limited number of facilities of this type in the region, specific data on employment, payroll and sales are not availa ble. ADE estimated the values shown in

the table based on ratios from state and federa l facilities of similar types as well as local market data on sales prices for finished products. Similar to landfill operations, composting facilities receive “tipping fees” to take in organic material, which is then processed into compost. The finished com post is then sold as a soil amendment both to household markets as well as agricult ural operations and landscaping concerns.

In the San Joaquin Valley region, tipping fees for organic material typically range from $20 to $35 per ton. Finished compost material is resold for $7.00 to $25.00 per cubic yard, depending on volume, quality and tran sportation charges. In the processing phase, the organic material undergoes a 30 to 50 percent shrinkage and usually achieves a finished weight of about 0.5 ton per cubic yard. The sales figures in Table 3 reflect a

combined revenue stream of about $46.00 per wet ton of input material. Larger facilities serving mainly commercial/agricult ural markets are estimated to reach sales equal to about $62.00 per wet ton. ( Note: Industry sales figures provided in the draft socioeconomic report, dated June 16, 2011 we re expressed in 2007 dollars. The figures in Table 3 above are inflated to 2011 dollars).

In addition to the direct onsite employm ent and payrolls shown in Table 3, this industry supports additional economic act ivity in the Valley through business-tobusiness transactions (indirect effects) and from employee household spending for local retail goods and services (induced effects) . These economic “multiplier effects” are

estimated in Table 4 below.Page 14 Applied Development Economics TABLE 4

ECONOMIC MULTIPLIER EFFECTS OF COMPOSTING INDUSTRY

Impact Type Employment Labor

Income (000's) Value

Added (000's) Output (000's)

Indirect Effect 99 $6,159 $10,074 $25,843

Induced Effect 28 $1,126 $2,025 $3,525

Total Multiplier Effect 127 $7,286 $12,099 $29,368 Source: ADE Inc., based on IMPLAN 3 Input/Output Model for combined

SJVAPCD countiesDevelopment Economics Page 15 

# 5. SOCIOECONOMIC IMPACT ANALYSIS OF

PROPOSED RULE

This section of the report compares the econo mic characteristics of affected industries against compliance costs. The first part of this section discusses compliance costs, which have been estimated by the District in consultation with affected businesses. Section 5.2 analyzes the socioeconomic im pacts of the Proposed New Rule 4566, in

terms of how the affected businesses are anticipated to respond and what economic dislocations may occur, if any, as a result of incurring the new costs.



## 5.1 ANNUAL COMPLIANCE COST ESTIMATES

As indicated in the proposed rule descriptio n, affected businesses would be required to implement the watering system on the wi ndrows during the active phase to reduce

VOC emissions. The District has determined that for most of the businesses affected by the proposed rule this procedure would en tail an additional cost of $0.19 per wet

ton, with total annual costs of $155,312 acro ss all 15 facilities. One facility would incur higher costs, at $0.36 per wet ton for an annual co st of $86,669.

For composting operations with a total throug hput of more than 200,000 tons per year and less than 750,000 tons per year of or ganic material, of which there are two currently within the District, both the wate ring procedure and finished compost cover procedure would be required. The covering procedure involves covering windrows during the active phase with new layers of finished compost after each mechanical turn, which effectively reduces emission of VOC during the composting process. One of the affected facilities subject to these re quirements already performs these measures and is not expected to incur any significant additional impact as a result of the proposed rule. The additional cost for this facility is included above for the watering system requirements. The other affected facility does not currently implement the finished compost cover measure, and esti mates a total cost of about $849,800 to comply with this measure. Combined with the watering procedure, the total compliance cost for this facility is projected to be $936,506 per year.



## 5.2 PROJECTED BUSINESS IMPACTS

The impact analysis is divided between the 15 establishments that are impacted only by the watering procedure and the single fac ility that would be subject to the finished compost cover procedure. In terms of determ ining the potential significance of the cost impacts on individual businesses, ADE and the District utilize a threshold of ten percent of annual net income. If compliance costs exceed this threshold, it is deemed likely that significant economic impacts woul d occur to the affected businesses, with additional multiplier effects affecting the re gional economy. Costs that are below this threshold are generally anticipated to be absorbed by the affected businesses without significant consequence.Page 16 Applied Development Economics 

### In order to estimate net incomes, or prof its, for the affected businesses, ADE has reviewed data published by the US Intern al Revenue Service for these types of industry categories. This is a national da taset and does not necessarily reflect local conditions for firms in the San Joaquin Va lley. However, no lo cal data exists on company profit levels for the types of busine ss affected by this rule. However, the IRS does include a large number of firms for each industry in its data, so the industry-level profit ratios are generally good indicators of typical performance for outfits of this

type.

The specific ratios for fertilizer producti on and other waste treatment operations are 4.7 percent and 4.3 perc ent of sales, respectively. Appl ying these ratios to the sales

estimates in Table 3 above, the net income of the fifteen firms that would be affected by the watering system requirements is $1.59 million per year. The annual compliance cost for these firms, projected above at $155,312 , is 9.8 percent of this estimated profit. This is very close to the 10 percent thresh old of significance, and may affect some operations more substantially than others. Howe ver, overall, it would be expected that these companies could absorb these costs wi thout significant adverse economic effect.

Regarding the facility affected by both wate ring and covering requirements, based on industry standards, it is estimated the f acility has sales of appr oximately $15.2 million per year. Using the national average of net income ratios for fertilizer manufacturing businesses, at 4.7 percent of gross sales, the business would be expected to show a profit of about $711,000 per year.

The estimated cost of compliance provided by the affected facility required to implement new measures under the proposed rule, at $936,506 per year, represents 6.2 percent of sales and is more than 30 per cent above the total esti mated net income of the facility. Based on this cost and consid ering the multiplier effect in Table 4, the proposed rule could have a facility and regi onal impact well above the threshold of significance for socioeconomic impacts. It is worth noting, however, that the other affected facility has been able to implem ent the proposed rule requirements for a number of years, and that the District will continue to work with the affected operator to evaluate and develop effective control strategies to comply with the proposed

requirements.

Since the compliance costs are calculated on a per ton basis, changing the volume of production would not have a material effect on the impact to the business. Based on the costs provided by the affected facilit y, the business would probably need to

undertake a combination of measures in or der to reduce the costs below the level of significance. Much of the cost of the covering procedure would be to hire at least four new staff to operate the covering equipment on a full time basis. To help reduce the impact of the additional costs, the facilit y would probably need to shift four workers from regular production activities to this new labor effort and attempt to maintain production levels with fewer production staff. In addition, a price increase of about 4.7Development Economics Page 17 

### percent would be needed to generate suffi cient revenue to reduce the balance of the compliance cost below the level of signifi cance. The price increase would be $1.65 per ton for tipping fees and $0.94 per cubic ya rd of finished compost. After these measures, the remaining costs would be equi valent to about 9 percent of net income.

The facility has indicated in its comments on the draft socioeconomic report that its prices are inelastic and cannot be raised. In th is analysis, ADE has in fact projected this facility to charge prices at the very top of the price structure observed in the Valley, so it is likely the firm is correct in this asse rtion. However, the rule includes provisions that may allow the facility the ability to lesseni ng the fiscal impact associated with rule compliance. In fact, to address the facilit y’s concerns, the District extended the compliance schedule to allow for a 5 year period prior to requiring the facility to implement the cover requirements. Althoug h current market conditions would not permit a large price increase, the District believes the increase may be achievable by incrementally increasing costs through a 5-y ear period (equal to a $0.70/ton increase per year). In addition, the rule allows fo r an alternative compliance option in lieu of implementing the finished compost cover, so as technology and research advances within the next 5 years, a le ss expensive option may become feasible for the facility to implement and demonstrate compliance.



## D EFINITION 

## O F 

## A S MALL 

## B USINESS



### The socioeconomic analysis should also consider whether small businesses are disproportionately affected by the proposed rule. For purposes of qualifying small businesses for bid preferences on state co ntracts and other benefits, the State of

California defines small busine sses in the following manner 1 

### . To be eligible for small

business certification, a business:

 

### Must be independently owned and operated;

 

### Cannot be dominant in its field of operation;

 

### Must have its principal office located in California

 

### Must have its owners (or officers in th e case of a corporation) domiciled in

California; and

 

### Together with its a ffiliates, be either:

 

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

 

### A manufacturer with 100 or fewer employees

1 State of California. Department of General Services. “California Small Business Certification” (http: www.pd.dgs.ca.gov/smbus/sbcert.htm)Page 18 Applied Development Economics 

### The facility affected most significantly by th e rule does not appear to meet the gross receipts limit to qualify as a small business. Some of the businesses affected only by the watering requirements would meet the defini tion of a small business; however, since the cost impact is scaled to the level of production, these businesses are not affected more significantly than larg er businesses in the group.

### SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICT

Appendix D: Socioeconomic Analysis August 18, 2011

D-24 Final Staff Report with Appendices

For Revised Proposed New Rul e 4566 

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