SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICT

Appendix D: Socioeconomic Analysis 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 Rule 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) 923-1562 
 Applied Development Economics, Inc. 

www.adeusa.com
TABLE OF CONTENTS 

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

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

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

3. Methodology ................................................................................................................ 5

4. Impacted Industries Subject to Proposed Rule ............................................................. 6

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

Regional Demographic Trends .......................................................... 6

Regional Economic Trends ................................................................ 6

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

4.2 Description of Affected Industries .............................................................................. 13

5. Socioeconomic Impact Analysis of Proposed Rule ...................................................... 15

5.1 Annual Compliance Cost Estimates ........................................................................... 15

5.2 Projected Business Impacts ......................................................................................... 15

Definition Of A Small Business ....................................................... 17

Applied Development Economics Page 1 

EXECUTIVE SUMMARY 

New Draft Rule 4566 (Organic Material Composting Operations) is intended to reduce 

VOC emissions from organic material composting operations by requiring a number 

of mitigation measures such as, but not limited to, installing a watering system and 

covering the windrows with finished compost during the active phase. Sixteen facilities 

that compost organic material are present within the District, most of which operate at 

lower throughput level. Composting operations 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 material 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. The cost also includes one facility 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 these facilities, slightly below the 10 percent 

threshold of significance for socioeconomic impacts. 

Composting operations with a total throughput of greater than or equal to 200,000 and 

less than 750,000 wet tons per year of organic 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 covered with finished compost during the 

active phase, is estimated to cost approximately $3.53 per wet ton. Two facilities in the 

District are of sufficient size to invoke this 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 for 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 probably need to undertake a combination of 

measures. One measure would be to shift workers (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 provisions 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 cover 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 implementing the finished compost cover, so 

as technology and research advances within the next 5 years, a less expensive option 

may become feasible for the 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 Operations). Following this introduction, 

the socioeconomic report summarizes the proposed requirements (Section 2) and 

describes the methodology for the socioeconomic analysis (Section 3). In Section 4, the 

socioeconomic report describes the economic characteristics of specific industries 

affected by Proposed New Rule 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 County is not completely in the District. 

FIGURE 1 

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

2. DESCRIPTION OF PROPOSED RULE 

The San Joaquin Valley Unified Air Pollution Control District has developed the 

Proposed New Rule 4566 to reduce VOC emissions 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. However, the District estimates 

that currently composting operations generate 14 tons per day of VOC emissions, 

which is still a significant portion of the total VOC inventory. 

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

stakeholders to conduct research studies to test alternate emissions reductions strategies 

over the past couple years. For the size of facilities currently present in the San Joaquin 

Valley, two primary mitigation strategies appear feasible: a) instituting a watering 

system during the active phase of composting and b) procedures to cover windrows 

with finished compost during the active phase of composting. Engineered control 

systems also exist that would be suitable for exceptionally large operations, but are not 

anticipated to be needed at facilities within the District at this time. 

Proposed New Rule 4566 would establish VOC emission reduction requirements on 

the basis of actual throughputs, rather than 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 organic 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 demonstrates at least 80% 

reduction, by weight, in VOC emissions for organic material during the active 

phase. 

The proposed rule further reduces VOC emission 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 used to describe the industries affected by 

the proposed Rule 4566 (Organic Material Composting 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 relies 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 estimating profits, ADE reviewed industryspecific financial ratios issued by the US Internal Revenue Service. 

With the above information, ADE was able to estimate net after tax profit ratios for 

sources affected by the Proposed New Rule 4566. ADE calculated ratios of profit per 

dollar of revenue for affected industries. The result of the socioeconomic analysis 

shows what proportion of profits the compliance costs represent. With respect to 

calculating revenues and net profits specifically for purposes of comparing profits 

against costs, the socioeconomic impact analysis 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 whether 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 the extent that such job losses appear likely, 

the indirect multiplier effects of the job losses are estimated using a regional IMPLAN 

input-output model. 

When analyzing the socioeconomic impacts 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 ability of California businesses to compete. 

The California Air Resources Board (ARB) has incorporated the methodologies 

described in this report in its own assessment of socioeconomic impacts of rules 

generated by ARB. One methodology relates to determining a level above or below 

which a rule and its associated costs is deemed to have significant impacts. When 
Page 6 Applied Development Economics 

analyzing the degree to which its rules are significant 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. Starting 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 part of this section describes the economic 

characteristics of potentially impacted industries that might be subject to Proposed 

New Rule 4566 (Organic Material Composting Operations). 

4.1 REGIONAL DEMOGRAPHIC AND ECONOMIC TRENDS 

REGIONAL DEMOGRAPHIC TRENDS

The eight-county San Joaquin Valley region’s population increased by 19.7 percent 

between 1999 and 2009, or approximately 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. While the State of California’s population 

increased by 12 percent (or approximately 1.2 percent annually) between 1999 and 

2009, all the counties in the region 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 growth rate of 2.1 percent between 1999 and 

2009. Between 2004 and 2009, this county continued to grow annually but at a slightly 

lesser rate of 1.5 percent. In the same five-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 shows, 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 influenced the economy of this eight-county 

region. 

REGIONAL ECONOMIC TRENDS

Economic development practitioners and planners have traditionally divided 

economies into two broad industrial categories—the economic base and local support 

industries. Economic base industries are the drivers of local and regional economies in 
Applied 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 industries of a national economy. Accrued 

earnings then circulate throughout the local area in the form of wages and salaries; 

investments; purchases of fixed assets, goods, and services; and generation of more jobs 

and wealth. 

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 California 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 than the former. As 

population increases in a given area, demand for services–such as realtors, teachers, and 

healthcare–increases, as does demand for basic retail items like groceries, gas for 

commuting, or clothing at the local apparel shops. 

Agriculture is the economic base of the San Joaquin Valley region by virtue of the 

amount of goods this sector produces and exports throughout the nation and the 

globe. Slightly 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 between 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 transportation 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 support industries gained in prominence within the San 

Joaquin Valley region. Service-rendering industries employed the most workers as a 

proportion of total employment in the region. Service-rendering industries comprise 

72 percent of all jobs, including public sector positions. In other words, 921,221 jobs 

out of a total of 1,272,553 jobs are in service-rendering industries. Excluding the public 

sector, service-rendering jobs account for 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 industries 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 surge; 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 negative 6.4 percent per 

year. Likewise, financial services grew annually by 1.7 percent between 1999 and 2004, 

but dropped significantly by a negative rate of 0.9 percent per year between 2004 and 

2009. 

Close examination of Table 2 shows that the region experienced declines also in 

manufacturing, as employment in this sector dropped annually by 0.9 percent between 

2004 and 2009. What was a regional bright spot between 1999 and 2004, 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 previous five-year 1999-2004 

period. 

RECENT ECONOMIC TRENDS

Much of the declining and/or slow employment growth described above is due to the 

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

accelerated in 2008, and continues to this day. The charts below illustrate the effect of 

the downturn in the San Joaquin Valley region. 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 employment that occurred in a short time period. 

Since first quarter 2009, private sector employment (excluding agriculture) has 

remained flat, and actually dropped-off slightly 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 been affected by the downturn. Figure 3 

below controls for the seasonal nature of education. Between second and third quarter 

2008, public sector employment dropped dramatically by almost 5,000 jobs, going 

from 150,549 to 145,701 jobs. While employment 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 sector went from 144,300 in the third quarter 

to 147,108 in the fourth quarter. While the 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 Economics 

TABLE 2 

ECONOMIC TRENDS: SAN JOAQUIN VALLEY, 1999-2009 

 1999 2004 2009 

 NAICS Estab. Employment Average Pay Estab. Employment Average Pay Estab. Employment Average Pay 

ALL 82,606 1,119,855 $34,214 92,231 1,209,849 $40,577 103,032 1,272,553 $37,254 1Ag, Natural Resources 11 7,501 135,744 $18,870 8,646 169,556 $23,354 7,601 180,115 $22,241 Utilities 21 237 8,029 $66,335 213 8,340 $81,309 198 9,671 $78,668 Mining 22 171 4,592 $66,949 179 5,071 $86,065 175 6,112 $87,896 Construction 23 6,251 54,443 $38,832 6,074 69,065 $46,870 6,115 50,246 $46,675 Manufacturing 31-33 2,968 114,175 $41,010 2,779 110,002 $48,735 2,642 105,188 $44,565 Wholesale 42 2,790 34,492 $47,227 2,722 37,124 $53,053 2,963 43,135 $47,577 Retail 44-45 9,635 123,115 $27,014 8,941 132,956 $31,349 8,725 131,065 $25,879 Transport Warehousing 48-49 2,426 35,142 $38,854 2,237 38,554 $44,962 2,196 38,960 $40,780 Information 51 678 14,976 $45,880 692 14,257 $53,695 603 13,482 $50,407 Finance and Insurance 52 2,725 28,229 $46,685 3,046 30,690 $59,530 3,138 29,299 $50,577 Real Estate 53 2,630 13,959 $25,907 2,607 15,932 $34,144 2,636 15,409 $32,449 Prof Technical Services 54 4,154 25,424 $44,576 4,501 31,812 $52,467 4,818 33,890 $48,167 Mgmt. of Companies 55 331 19,095 $52,168 316 13,988 $60,045 295 10,581 $62,565 Admn and Waste Services 56 3,001 47,405 $23,190 2,768 48,182 $28,986 2,846 53,011 $28,283 Private Educational Serv. 61 463 7,187 $26,438 480 9,298 $29,532 500 11,985 $28,808 Health Services 62 6,245 94,205 $37,793 6,526 110,647 $47,867 7,013 128,206 $47,375 Arts, Entertainment, Rec 71 632 10,734 $17,514 621 10,244 $20,192 641 10,708 $17,840 Food & Accommodations 72 5,145 72,016 $12,873 4,942 78,805 $15,831 5,325 87,167 $14,338 Other Services 81 20,649 43,227 $20,619 30,390 47,370 $25,731 38,946 53,408 $21,083 Unclassified 99 260 17,771 $56,821 85 199 $38,033 1,678 2,039 $28,783 Local Govt. 476 56,892 $45,318 437 60,768 $56,307 685 77,495 $52,328 Local Govt., Education 1,218 106,682 $40,093 1,487 109,087 $48,304 1,814 119,580 $42,798 State, ALL 1,686 24,854 $45,053 1,166 28,463 $56,515 1,063 33,167 $49,964 Federal, ALL 334 27,467 $53,124 376 29,439 $66,395 416 28,634 $59,660 Source: ADE, Inc., based on California Employment Development Department, LMID
Applied Development Economics 

FIGURE 2 

QUARTERLY PRIVATE SECTOR EMPLOYMENT TRENDS, 2004-2009 

EXCLUDING AGRICULTURE 

810,057

836,134

859,399

852,264

831,564

858,128

883,805

871,597

888,229

906,406

900,903

888,306

899,823

913,640

905,508

880,050

891,619

899,617

882,120

839,613

834,

740,000760,000780,000800,000820,000840,000860,000880,000900,000920,000940,000

1stQtr

2ndQtr

3rdQtr 4thQtr 1stQtr 2ndQtr 3rdQtr 4thQtr 1stQtr 2ndQtr 3rdQtr 4thQtr 1stQtr 2ndQtr 3rdQtr 4thQtr 1stQtr 2ndQtr 3rdQtr 4thQtr 1stQtr 2ndQtr 3rdQtr 

2004 2004 2004 2004 2005 2005 2005 2005 2006 2006 2006 2006 2007 200 7 2007 2007 2008 2008 2008 2008 20 09 2009 2009 

Chart 1. Quarterly Private Sector Employment Trends, 2004‐2009

Excluding Agriculture
Page 12 Applied Development Economics 

FIGURE 3 

QUARTERLY PUBLIC SECTOR EMPLOYMENT TRENDS, 2004-2009 

EXCLUDING PUBLIC EDUCATION 

135,560

137,451

133,846

136,959

134,870

136,384

133,359

136,679

137,437

140,092

136,782

142,174

144,900

142,737

147,533

148,495

150,549

145,701

149,227

148,358

150,144

1

120,000125,000130,000135,000140,000145,000150,000155,000

1stQtr

2ndQtr

3rdQtr

4thQtr

1stQtr

2ndQtr

3rdQtr

4thQtr

1stQtr

2ndQtr

3rdQtr

4thQtr

1stQtr

2ndQtr

3rdQtr

4th

Qtr

1stQtr

2ndQtr

3rdQtr

4thQtr

1stQtr

2ndQtr

3rdQtr

2004 2004 2004 2004 2005 2005 200 5 2005 2006 2006 2006 2 006 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 

Quarterly Public Sector Employment Trends, 2004‐2009

Excluding Public Education
Development 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 section 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 table below. Two wineries with composting 

operations are among the affected businesses and 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 and 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 available. ADE estimated the values shown in 

the table based on ratios from state and federal 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 compost is then sold as a soil amendment both 

to household markets as well as agricultural 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 transportation 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/agricultural 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 were expressed in 2007 dollars. The figures 

in Table 3 above are inflated to 2011 dollars). 

In addition to the direct onsite employment and payrolls shown in Table 3, this 

industry supports additional economic activity 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 counties 
Development Economics Page 15 

5. SOCIOECONOMIC IMPACT ANALYSIS OF 

PROPOSED RULE 

This section of the report compares the economic 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 impacts 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 description, affected businesses would be required to 

implement the watering system on the windrows 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 entail an additional cost of $0.19 per wet 

ton, with total annual costs of $155,312 across all 15 facilities. One facility would incur 

higher costs, at $0.36 per wet ton for an annual cost of $86,669. 

For composting operations with a total throughput of more than 200,000 tons per year 

and less than 750,000 tons per year of organic material, of which there are two 

currently within the District, both the watering 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 requirements 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 estimates 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 facility that would be subject to the finished 

compost cover procedure. In terms of determining 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 would occur to the affected businesses, with 

additional multiplier effects affecting the regional 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 profits, for the affected businesses, ADE has 

reviewed data published by the US Internal Revenue Service for these types of 

industry categories. This is a national dataset and does not necessarily reflect local 

conditions for firms in the San Joaquin Valley. However, no local data exists on 

company profit levels for the types of business 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 production and other waste treatment operations are 

4.7 percent and 4.3 percent of sales, respectively. Applying 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 threshold of significance, and may affect some 

operations more substantially than others. However, overall, it would be expected that 

these companies could absorb these costs without significant adverse economic effect. 

Regarding the facility affected by both watering and covering requirements, based on 

industry standards, it is estimated the facility has sales of approximately $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 percent above the total estimated net income of 

the facility. Based on this cost and considering the multiplier effect in Table 4, the 

proposed rule could have a facility and regional impact well above the threshold of 

significance for socioeconomic impacts. It is worth noting, however, that the other 

affected facility has been able to implement 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 facility, the business would probably need to 

undertake a combination of measures in order 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 facility 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 4.7 
Development Economics Page 17 

percent would be needed to generate sufficient revenue to reduce the balance of the 

compliance cost below the level of significance. The price increase would be $1.65 per 

ton for tipping fees and $0.94 per cubic yard of finished compost. After these 

measures, the remaining costs would be equivalent 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 this 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 assertion. However, the rule includes provisions 

that may allow the facility the ability to lessening the fiscal impact associated with rule 

compliance. In fact, to address the facility’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. Although 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-year period (equal to a $0.70/ton increase 

per year). In addition, the rule allows for an alternative compliance option in lieu of 

implementing the finished compost cover, so as technology and research advances 

within the next 5 years, a less expensive option may become feasible for the facility to 

implement and demonstrate compliance. 

DEFINITION OF A SMALL BUSINESS

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 contracts and other benefits, the State of 

California defines small businesses in the following manner1. To be eligible for small 

business certification, a business: 

 Must be independently owned and operated; 

 Cannot be dominant in its field of operation; 

 Must have its principal office located in California 

 Must have its owners (or officers in the case of a corporation) domiciled in 

California; and 

 Together with its affiliates, be either: 

 A business with 100 or fewer employees, and an average gross receipts of $10 

million or less over the previous tax years, or 

 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 the 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 definition of a small business; however, since 

the cost impact is scaled to the level of production, these businesses are not affected 

more significantly than larger 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 Rule 4566

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