SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix D: Socioeconomic Impact Analysis Report O ctober 16, 2008

Applied Development Economics, Inc

. Final Draft Staff Report with Appendices For Proposed Amendments to Rule 4306 and Rule 4307 and Proposed New Rule 4320 D -1 

# APPENDIX D

SOCIOECONOMIC IMPACT ANALYSIS REPORT FOR PROPOSED RULES 4306, 4307, AND 4320

October 16, 2008SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

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## SOCIOECONOMIC ANALYSIS: DRAFT AMENDMENTS TO RULE 4306 AND NEW RULE 4320, AND PROPOSED AMENDMENTS
TO 4307

30 July 2008

Prepared for San Joaquin Valley Unified Air Pollution Control Di strict

1990 E. Gettysburg Avenue Fresno, CA 93726

Prepared by Applied Development Economics, Inc.
100 Pringle Avenue, Suite 560  Walnut Creek, California 94596  (925) 934-8712 2151 River Plaza Drive, Suite 150  Sacramento, CA 95833  (916) 923-1562
www.adeusa.comSAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix D: Socioeconomic Impact Analysis Report October 16, 2008

Applied Development Economics, Inc

. Final Draft Staff Report with Appendices For Proposed Amendments to Rule 4306 and Rule 4307 and Proposed New Rule 4320 D - 4 

## TABLE OF CONTENTS

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

................................................... ..........................5

Section 2. Description of Proposed Amendments to Rules 4306, 4 307, and Proposed

New Rule 4320......................................

................................................... .................6

Section 3. Methodology........................................

................................................... ...................7

Section 4. Impacted Industries Subject to Proposed Amendments: Larger Economic

and Demographic Trends.............................

................................................... ........8
4.1 Larger Economic and Demographic Trends......... .........................................8

4.2 Affected Industries............................

................................................... ............11

4.3 Affected Stakeholders ..........................

................................................... .........12

Section 5. Socioeconomic Impacts ..............................

................................................... ........13

5.1 Compliance Cost Estimates ......................

................................................... ...13

5.2 Business Responses to Compliance Costs......... ...........................................14
5.3 Impacts on Affected Industries.................

................................................... ..15

5.4 Impact on Small Businesses.....................

................................................... ....19

5.5 Definition of a Small Business.................

................................................... ....19SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

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. Final Draft Staff Report with Appendices For Proposed Amendments to Rule 4306 and Rule 4307 and Proposed New Rule 4320 D - 5 

## SECTION 1. EXECUTIVE SUMMARY

The District is amending existing Rules 4306 and 43 07 to satisfy goals described in the District’s 200 7 Eight-Hour Ozone Plan. Through the proposed amendme nts, the District seeks to obtain as much reduction of oxides of nitrogen (NO

x ) from boilers, steam generators, and process heate rs as expeditiously practicable, technologically feasible, and economic ally reasonable, as determined by the District’s Governing Board. In addition to proposed amendment s to Rules 4306 and 4307, the District is proposing a new rule, called Rule 4320. Rule 4320 extends Rul e 4306 by requiring more stringent longer-range lim its. The socioeconomic analysis of Rules 4306 and 4307 i s based on the March 17, 2008 drafts of the rules.

As discussed in the socioeconomic analysis, an esti mated 345 established in various industries will be subject to changes to Rule 4306\4320, and 1,527 est ablishments will be affected by changes to Rule 430 7. Many of the establishments affected by changes to R ule 4307 will also be affected by changes to Rule

4306.

With respect to Rule 4306\4320, the socioeconomic a nalysis examines two cost scenarios, on involving annual compliance cost issued by the SJVUAPCD. The other scenario involves annual compliance cost figures issued by affected industry stakeholders. The analysis shows that affected industries are not significantly impacted when using the District’s co mpliance cost figures. When using industry cost fi gures, industries are also not significantly affected by R ule 4306/4320 for the most part, except for large o il producers. With respect to impacts stemming from costs associated with changes to Rule 4307, the analysis concludes that affected industries are not significantly impacted by the proposed amendments. The analysis also concludes that small businesses a re not disproportionately impacted by changes to Ru les 4306 and 4307, as well as by draft new Rule 4320.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix D: Socioeconomic Impact Analysis Report October 16, 2008

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. Final Draft Staff Report with Appendices For Proposed Amendments to Rule 4306 and Rule 4307 and Proposed New Rule 4320 D - 6 

## SECTION 2. DESCRIPTION OF PROPOSED AMENDMENTS TO RULES 4306 AND 4307 AND PROPOSED NEW RULE
4320

The purpose of Rule 4306 is to limit NO

x and CO emissions from boilers, steam generators, a nd process heaters. The rule applies to any gaseous fuel or li quid fuel fired boiler, steam generator, and proces s heater with a rated heat input greater than 5.0 million Bt u/hr. The current rule does not apply to units that are addressed by other District rules. These units incl ude solid fuel fired units, dryers, glass melting f urnaces, kilns and smelters, unfired or fired waste heat rec overy boilers, and any unit in which the total rate d heat input of each burner is less than or equal to 5 mil lion Btu per hour as specified in the operating per mit, and in which each burner’s products of combustion d oes not come in contact with the products of combustion of any other burner. The rule also conta ins certain exemptions such as burning of any fuel other than natural gas during natural gas curtailme nt for no more than 168 hours.

The District is amending existing Rule 4306 to sati sfy goals described in the District’s 2007 Eight-Ho ur Ozone Plan. Through the proposed amendments, the Di strict seeks to obtain as much reduction of oxides of nitrogen (NO

x

) from small boilers, steam generators, and process heaters as expeditiously practicable, technologically feasible, and economically reasonab le, as determined by the District’s Governing Board

.
District staff also seeks to amend Rule 4307, to im plement an emission control measure (S-COM-2) in th e District’s 2007 Eight-Hour Ozone Plan. If adopted, the proposed amendments could reduce additional

NO

x emissions by providing incentives for replacement and retrofit of school boilers, steam generators, and process heaters (units) which are currently exe mpt by existing Rule 4307. Also, the existing annua l heat input threshold of 5 billion Btu per year woul d be lowered to 1.8 billion Btu per year. Additiona lly, the proposed amendments would, if adopted, control units with a heat input greater than 1.8 billion Bt u per calendar year, natural draft units in an oilfie ld or refinery, and glycol reboilers would be requi red to comply with the emission requirements of Section 5. 1 in order to gain additional NO

x emission reductions.

In addition to proposed amendments to Rules 4306 an d 4307, the District is proposing a new rule, calle d Rule 4320. Rule 4320 extends Rule 4306 by requiring more stringent longer-range limits. Rule 4306 must remain as a backstop measure to provide specific em ission limits until all units comply with the futur e limits in Rule 4320. The Alternative Emission Contr ol option is not included in Rule 4320 because the recordkeeping requirements and 10 percent additiona l environmental benefit made this option unattracti ve as a compliance route. Rule 4320 does include an em issions fee option which should prove a more attractive compliance route for units which would o therwise be just above the required emission limit.

The socioeconomic analysis of Rules 4306 and 4307 i s based on the March 17, 2008 drafts of the rules.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix D: Socioeconomic Impact Analysis Report October 16, 2008

Applied Development Economics, Inc

. Final Draft Staff Report with Appendices For Proposed Amendments to Rule 4306 and Rule 4307 and Proposed New Rule 4320 D - 7 

## SECTION 3. METHODOLOGY

The socioeconomic analysis involves the use of info rmation provided directly by affected sources, as w ell as secondary data used to describe the industries a ffected by the proposed amendments to Rules 4306/4307 and proposed new Rule 4320. The approach is briefly described below.

Applied Development Economics (ADE) began the analy sis 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 indic ators for each industry.

This report relies heavily on the most current data available from a variety of sources, such as the 2 002 Economic Census, 1997 Economic Census, Minnesota IM PLAN Group, and the State of California’s Employment Development Department (EDD) Labor Marke t Information Division. For purposes of estimating profits, ADE reviewed a number of source s, including Dun and Bradstreet, the CCH, Inc., the US Internal Revenue Services, and corporate annual reports of companies subject to Rules 4306/4307 and proposed new Rule 4320.

With the above information, ADE was able to estimat e net after tax profit ratios for sources affected by the proposed amendments. ADE calculated ratios of p rofit per dollar of revenue for affected industries

. The result of the socioeconomic analysis shows what proportion of profits the compliance costs represe nt. Based on an assumed threshold of significance, ADE discusses in the report whether the affected source s are likely to reduce jobs as a means of recouping t he cost of rule compliance or as a result of reduci ng business operations. To the extent that such job lo sses appear likely, the indirect multiplier effects of the jobs losses are estimated using a regional IMPLAN i nput-output model.

When analyzing the socioeconomic impacts of propose d new rules and amendments, ADE works closely within the parameters of accepted methodologies dis cussed in a 1995 California Air Resources Board report called “Development of a Methodology to Asse ss the Economic Impact Required by SB513/AB969” (by Peter Berck, PhD, UC Berkeley Depa rtment 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 Pro tection Agency proposed regulations would have on the ability of California businesses to compete. Th e California Air Resources Board (ARB) has incorporated the methodologies described in this re port 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 signific ant impacts. When analyzing the degree to which its rules are significant or insignificant, ARB employs a thr eshold of significance that ADE follows. Berck revi ewed the threshold in his analysis and wrote, “The Air R esources Board’s (ARB) use of a 10 percent change i n [Return on Equity] ROE (i.e. a change in ROE from 10 percent to a ROE of 9 percent) as a threshold for a finding of no significant, adverse impact on eith er competitiveness or jobs seems reasonable or even

conservative.”SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

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. Final Draft Staff Report with Appendices For Proposed Amendments to Rule 4306 and Rule 4307 and Proposed New Rule 4320 D - 8 

## SECTION 4. IMPACTED INDUSTRIES SUBJECT TO PROPOSED AMENDMENTS: LARGER ECONOMIC AND DEMOGRAPHIC TRENDS

This section of the socioeconomic analysis describe s demographic and economic trends in the San Joaqui n Valley region. The first part of this section compa res the San Joaquin Valley region against Californi a as a whole, and provides a context for understanding dem ographic and economic changes that occurred within the San Joaquin Valley region between 1996 and 2006 . 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 changes to Rule 4306\4320 and 4307.



### 4.1 LARGER ECONOMIC AND DEMOGRAPHIC TRENDS

R EGIONAL 

### D EMOGRAPHIC 

### T RENDS
The San Joaquin Valley region experienced tremendou s population growth during the 1990s. Many came to this area because of affordable housing. As a re sult, population increased significantly. The eight -county region’s population increased by 23 percent (or app roximately 2.1 percent annually), from 3.1 million in 1996 to 3.8 million in 2006. Population growth cont inued on its healthy pace, as regional population g rew by 2.5 percent annually between 2001 and 2006. Whil e the State of California’s population increased by 15 percent (or approximately 1.5 percent annually) bet ween 1996 and 2006, all the counties in the region experienced faster rates of growth than California, as Table 1 shows. While, by many standards, Madera County continues to be a small county– at 145,198 r esidents according to the Department of Finance–it still experienced an annual growth rate of 2.9 perc ent between 1996 and 2006. Between 2001 and 2006, this county continued to grow annually by 2.9 perce nt. In the same five-year period, Kern, Merced, and San Joaquin Counties experienced rapid growth, grow ing annually by 3.0 percent, 2.8 percent, and 2.9 percent respectively, as Table 1 below shows. As de monstrated in the following section on regional economic trends, the demographic changes that occur red in the San Joaquin Valley region during the 1990s and into the new century significantly influe nced the economy of this eight-county region.

TABLE 1 POPULATION TRENDS: SAN JOAQUIN VALLEY REGION AND CA LIFORNIA, 1996-2006

-------------------- Year -------------------- --- ---- Change ------- -- Annual % Change --
1996 2001 2006 96-01 01-06 96-01 01-06 California 32,222,873 34,441,561 37,195,240 2,218,6 88 2,753,679 1.3% 1.6% Region 3,101,034 3,369,315 3,820,578 268,281 451,26 3 1.7% 2.5% Fresno 761,855 812,338 899,872 50,483 87,534 1.3% 2.1% Kern 620,383 673,571 779,490 53,188 105,919 1.7% 3.0% Kings 115,297 131,282 148,073 15,985 16,791 2.6% 2.4% Madera 108,340 125,817 145,198 17,477 19,381 3.0% 2.9% Merced 198,443 214,627 246,114 16,184 31,487 1.6% 2.8% San Joaquin 528,894 580,082 668,259 51,188 88,177 1.9% 2.9% Stanislaus 416,126 458,612 513,441 42,486 54,829 2.0% 2.3% Tulare 351,696 372,986 420,131 21,290 47,145 1.2% 2.4% Source: ADE, Inc.,SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

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. Final Draft Staff Report with Appendices For Proposed Amendments to Rule 4306 and Rule 4307 and Proposed New Rule 4320 D - 9 

### R EGIONAL 

### E CONOMIC 

### T RENDS
Economic development practitioners and planners hav e traditionally divided economies into two broad industrial categories—the economic base and local s upport industries. Economic base industries are the drivers of local and regional economies in that the se 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 loca l area in the form of wages and salaries; investmen ts; purchases of fixed assets, goods, and services; and generation of more jobs and wealth.

The economic base is typically comprised of industr ies within the manufacturing, minerals-resource extraction, and agricultural sectors. There are als o 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 realt ors, teachers, and healthcare–increases, as does demand for basic retail items like groceries, gas for comm uting, 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 thi s sector produces and exports throughout the nation a nd the globe. Fourteen percent of all workers in th e region are employed by industries within agricultur e, as Table 2 shows. However, in 1996 slightly over 18 percent of all workers worked in agriculture. By 20 01, this ratio stood at 15 percent. In fact, over t he fiveyear period between 2001 and 2006, employment in ag riculture barely increased, growing by 0.2 percent

per year.

Between 2001 and 2006, local support industries gai ned in prominence within the San Joaquin Valley region. Service-rendering industries employed the m ost workers as a proportion of total employment in the region. As Table 2 shows, service-rendering ind ustries comprise 70 percent of all jobs, including public sector positions. In other words, 931,970 jobs out of a total of 1,326,545 jobs are in service-renderi ng industries. Excluding the public sector, service-re ndering jobs account for 51 percent of all jobs in 2006. In 2001, service-rendering industries (excluding the p ublic sector) represented 50 percent of all jobs, indicating that the transition toward a services ec onomy was in place as early as the mid to late 1990 s with the significant increase in the number of people du ring that time.

Increases in employment in service-rendering indust ries are consistent with regional population growth . In the region, local support industries of constructio n, education and health, and financial activities i ncreased annually by 6.7 percent, 2.8 percent, and 2.3 perce nt respectively between 2001 and 2006.

Close examination of Table 2 shows that the region experienced modest growth in manufacturing, as employment in this sector grew annually by 0.3 perc ent between 2001 and 2006. In comparison, manufacturing jobs declined annually by 3.4 percent in the state as a whole. Another regional bright s pot was transportation\utilities, as jobs increased by a healthy clip of 2.2 percent per year between 2001 and 2006, compared to 1.4 percent per year in the state as a whole.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICTAppendix D: Socioeconomic Impact Analysis ReportOctober 16, 2008Applied Development Economics, Inc.Final Draft Staff Report with AppendicesFor Proposed Amendments to Rule 4306and Rule 4307 and Proposed New Rule 4320D - 10TABLE 2ECONOMIC TRENDS: SAN JOAQUIN VALLEY REGION AND CALIFORNIA, 1996-2006------------------ San Joaquin Valley Region ----------------------------------------- State of California ------------------------------------ Year ------------- Distr. Ann % Chg------------------- Year --------------- Distr. Ann% Chg1996 2001 2006 200696-01 01-061996 2001 2006 200696-01 01-06Total, all industries (public and private) 1,102,386 1,204,868 1,326,545 100% 1.8% 1.9% 13,134,288 14,981,759 15,503,144 100% 2.7% 0.7%Private SectorGoods-Producing 367,661 366,383 394,575 -0.1%1.5% 2,737,099 2,960,124 2,827,855 1.6% -0.9%Agriculture207,186 181,777 183,335 14% -2.6% 0.2% 411,823 383,347 378,942 2% -1.4% -0.2%Natural resources\Mining 10,816 9,043 9,770 1% -3.5% 1.6% 27,263 23,620 23,929 0% -2.8% 0.3%Construction41,574 63,841 88,132 7% 9.0% 6.7% 517,539 774,145 929,950 6% 8.4% 3.7%Manufacturing 108,085 111,722 113,338 9% 0.7% 0.3% 1,780,474 1,779,012 1,495,034 10% 0.0% -3.4%Service-Rendering 528,232 603,018 681,888 2.7% 2.5% 8,332,062 9,708,100 10,297,954 3.1% 1.2%Retail117,700 129,200 144,100 11% 1.9% 2.2% 1,413,438 1,571,994 1,678,141 11% 2.1% 1.3%Wholesale32,800 36,400 43,200 3% 2.1% 3.5% 577,465 652,968 700,019 5% 2.5% 1.4%Transportation\Utilities 38,235 41,161 45,927 3% 1.5% 2.2% 455,239 494,509 476,563 3% 1.7% -0.7%Information13,904 15,316 15,375 1% 2.0% 0.1% 440,225 528,794 470,144 3% 3.7% -2.3%Financial Activities 40,445 44,014 49,3524% 1.7% 2.3% 746,884 833,189 934,448 6% 2.2% 2.3%Professional and Business Services 76,282 95,708 105,836 8% 4.6% 2.0% 1,755,920 2,211,872 2,222,644 14% 4.7% 0.1%Education and Health Services 92,302 111,175 127,736 10% 3.8% 2.8% 1,220,977 1,412,810 1,576,182 10% 3.0% 2.2%Leisure and Hospitality 79,918 86,979 99,849 8% 1.7% 2.8% 1,231,930 1,361,700 1,514,160 10% 2.0% 2.1%Other Services36,646 43,065 50,513 4% 3.3% 3.2% 489,984 640,264 725,653 5% 5.5% 2.5%Public sectorFederal Government 31,266 28,577 27,794 2% -1.8% -0.6% 295,250 253,020 247,109 2% -3.0% -0.5%State Government 22,843 26,747 29,427 2% 3.2%1.9% 371,300 428,239 447,576 3% 2.9% 0.9%Local Government 152,384 180,143 192,861 15%3.4% 1.4% 1,398,577 1,632,276 1,682,650 11% 3.1% 0.6%Source: ADE, Inc., based on California EDD LMIDSAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix D: Socioeconomic Impact Analysis Report October 16, 2008

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. Final Draft Staff Report with Appendices For Proposed Amendments to Rule 4306 and Rule 4307 and Proposed New Rule 4320 D - 11 The emergence of local support industries in the Sa n Joaquin Valley region mirrors and leads statewide trends, as Table 2 shows. In the region, construction, and health-education increased annually by 6.7 percent and 2.8 percent, whereas, s tatewide, these industries grew by 3.7 percent and 2.2 percent between 2001 and 2006. In short, while agriculture remains the leading edge of the economy, the San Joaquin Valley region’s economy ha s become more diverse, with the growth occurring within population-driven local support in dustries rather than the export-focused economic base industries of manufacturing and agriculture.



### 4.2 AFFECTED INDUSTRIES

The proposed amendments and new rule affect a wide range of industries. This section of the report examines economic trends in the region for affected industries. In doing so, this section describes

the broader economic context under which the Distri ct is promulgating proposed amendments and

new rule.

Table 3 below shows that most industries potentiall y impacted by the proposed amendments and new rule have experienced some growth between 2001 and 2006. Oil production employment increased by 2.4 percent annually during this perio d (342 jobs), going from 2,730 to 3,072 workers. Employment in refineries increased significantly by 12.3 percent annually. Table 3 shows that government increased for the most part in the Valle y, except for correctional facilities, which declined by almost three percent annually between 2 001 and 2006.

Table 3 Economic Trends: Industries Subject to Proposed Ame ndments to Rules

4306/4307 and new RUle 4320: San Joaquin Valley

2001 2006 01-06 01-06 Oil producers 2,730 3,072 342 2.4% Oil refineries 423 756 333 12.3%
Government General Government 78,802 82,734 3,932 1.0% Health 7,753 10,312 2,559 5.9% Education 42,602 68,595 25,993 10.0% Correctional 10,916 9,414 -1,502 -2.9% Food Processing and Related Industries Agriculture 181,643 183,856 2,213 0.2% Food processing 45,293 47,804 2,511 1.1% Manufacturing (less food processing) 66,429 65,5 34 -895 -0.3% Warehousing 8,698 11,358 2,660 5.5%
Other Mining\Natural Resources 6,313 6,698 385 1.2% Pipeline\Natural gas 1,248 1,303 55 0.9% Electric, Gas, Sanitary Services 4,851 5,665 814 3.2% Financial Services 28,977 32,772 3,795 2.5% Personal Services 2,765 3,000 235 1.6% Business Services 93,121 102,358 9,237 1.9% Health Services 89,921 101,141 11,220 2.4% Source: ADE, Inc.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

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Applied Development Economics, Inc

. Final Draft Staff Report with Appendices For Proposed Amendments to Rule 4306 and Rule 4307 and Proposed New Rule 4320 D - 12 

### 4.3 AFFECTED STAKEHOLDERS

The previous section described trends for industrie s whose specific businesses are potentially subject to the proposed amendments and new rule. This secti on provides employment, revenue, and net profit estimates for businesses actually subject to the proposed rule and amendments. These privateand public-sector entities are in the databases of the SJVUAPCD.

Tables 4 and 5 below profile entities impacted by R ule 4306/4230 and Rule 4307 respectively. Approximately 345 establishments will be affected b y Rule 4306/4230, while 1,454 establishments will be affected by amendments to Rule 4307. Many o f the establishments affected by amendments to Rule 4703 are also subject to proposed amendment s to Rule 4306 and new Rule 4230.

Table 4 Industries Subject to Proposed Amendments to Rule 4 306 and Draft New Rule 4230

Establishments Employment Revenues Est. Net Profit s Oil Production 27 2,833 $9,906,843,015 $1,027,276,042 Large producers 5 2,731 $9,012,547,135 $939,107,412 Small producers 22 102 $894,295,880 $88,168,631 Oil Refineries 5 386 $2,344,312,500 $150,504,863
Government 40 21,057 $3,450,097,946 Food Processing and Related Industries 130 9,135 $1 1,561,782,674 $511,205,727 Other Affected Sources 116 12,997 $3,430,818,724 $1 42,339,802 345 49,241 $40,600,697,875 $2,858,602,477 Source: ADE, Inc.

Table 5

Industries Subject to Proposed Amendments to Rule 4 307 Establishments Employment Revenues Est. Net Profit s Oil Producers 27 2,833 $9,906,843,015 $1,027,276,042 Large producers 5 2,731 $9,012,547,135 $939,107,412 Small producers 22 102 $894,295,880 $88,168,631 Oil Refineries 5 386 $2,344,312,500 $150,504,863 Entities With Glycol Reboilers 4 2,200 $12,720,666, 162 $907,062,265 Schools 1,375 89,848 $8,189,696 Others 116 12,997 $3,430,818,724 $142,339,802 1,527 108,264 $28,410,830,097 $2,227,182,973 Source: ADE, Inc.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix D: Socioeconomic Impact Analysis Report October 16, 2008

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. Final Draft Staff Report with Appendices For Proposed Amendments to Rule 4306 and Rule 4307 and Proposed New Rule 4320 D - 13 

## SECTION 5. SOCIOECONOMIC IMPACTS

This section of the report compares the economic ch aracteristics of affected industries against the compliance costs. The first part of this section di scusses annual compliance costs. This section discusses general business responses to compliance costs and analyzes the socioeconomic impacts of proposed amendments to Rule 4306 and proposed new r ule 4320, as well as impacts of proposed

amendments to Rule 4307.



### COMPLIANCE COST ESTIMATES

Table 6 below includes information on the estimated costs associated with Rule 4306/4320. The District issued a summary of costs associated with the rule in a separate report called “Appendix C: Preliminary Cost Effectiveness Analysis for Rules 3 206 and 4320” (July 15, 2008). In that report, the District pegs aggregate annual cost of the Rule 430 6/4320 at $67.7 million (rounded). Industry stakeholders reviewed the District’s annual complia nce cost estimate. They place cost much higher, at $177.8 million (rounded), which is almost three times higher than the District's $67.7 million. For the purposes of analysis, this report evaluates the socioeconomic impacts associated with the District’s $67.7 million annual compliance cost and industry’s $177.8 million annual compliance cost.

TABLE 6 ANNUAL COST OF RULE 4306 (AMENDMENTS) AND RULE 4320 (NEW RULE)

Industry Type of

Control #Units Annual Cost
Low Annual Cost

High Total Costs

Low Total Costs

High
Crude Petrol. Large Producers ULNB 29 $44,546 $1,291,834 $1,291, 834 SCR 351 $74,941 $346,432 $26,304,291 $121,597,632 Total $27,596,125 $122,889,466 Small Producers ULNB 18 $44,546 $801,828 $801,828 SCR 28 $74,941 $2,098,348 $2,098,348 Total $2,900,176 $2,900,176 Petrol. Refining ULNB 53 $44,546 $2,360,938 $2,360,938 SCR 9 $66,781 $627,118 $601,029 $5,644,062 Total $2,961,967 $8,005,000
Food Production ULNB 121 $44,546 $5,390,066 $5,390,066 SCR 226 $66,781 $110,116 $15,092,506 $24,886,216 Total $20,482,572 $30,276,282
General Gov. ULNB 78 $44,546 $3,474,588 $3,474,588 SCR 10 $66,781 $667,810 $667,810 Total $4,142,398 $4,142,398
Other ULNB 147 $44,546 $6,548,262 $6,548,262 SCR 46 $66,781 $3,071,926 $3,071,926 Total $9,620,188 $9,620,188

GRAND TOTAL 1,116 $67,703,426 $177,833,510 Source: SJVUAPCD

In addition to the above numbers, the socioeconomic analysis also examines impacts associated with

a scenario in which affected entities utilize “scru bbers.” Costs associated with “scrubbers” are added on top of annual costs depicted above. These additi onal costs are in the table below. In aggregate,SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix D: Socioeconomic Impact Analysis Report October 16, 2008

Applied Development Economics, Inc

. Final Draft Staff Report with Appendices For Proposed Amendments to Rule 4306 and Rule 4307 and Proposed New Rule 4320 D - 14 these costs amount to $179.4 million, the bulk of w hich, at $169.2 million, would be borne by large oil producers. District staff below believes that, more than likely, affected stakeholders will not utilize scrubbers, resulting in annual costs that w ill range between $67.7 million (District scenario) and $177.8 million (industry scenario). For purpose s of the socioeconomic analysis, we examine impacts of District annual costs without scrubbers, District annual costs with scrubbers, and Industry annual costs with scrubbers.

TABLE 7 ANNUAL COST OF “SCRUBBERS”: RULE 4306/RULE 4320 Large oil producers $169,231,347 Small oil producers $3,254,000 Oil refineries $5,694,500 Government $813,500 Other $406,750 $179,400,097 Source: SJVUAPCD

In addition to costs associated with Rules 4306\432 0, this report analyzes socioeconomic impacts of proposed amendments to Rule 4307. Table 8 below inc ludes information on the estimated costs

associated with amendments to Rule 4307. The Distri ct issued a summary of costs associated with the rule in a separate report called “Appendix C: P reliminary Cost Effectiveness Analysis for Rules 4307” (July 15, 2008). In that report, the District pegs aggregate annual cost of the Rule 4307 at $5. 5 million (rounded).

TABLE 8
ANNUAL COST OF PROPOSED AMENDMENTS TO RULE 4307

OILFIELD & REFINERY NATURAL DRAFT UNITS 27 $315,468
GLYCOL REBOILERS RATED BETWEEN 2.0 MMBtu/hr to 5.0 MMBtu/hr 8 $93,472
SCHOOL UNITS RATED BETWEEN 2.0 MMBtu/hr to 5.0 MMBt u/hr 380 $4,439,920

LOW USE UNITS 54 $630,936
469 $5,479,796 Source: SJVUAPCD



### BUSINESS RESPONSES TO COMPLIANCE COSTS

Industries impacted by the draft rule may respond i n a variety of ways when faced with new regulatory costs. These responses may range from si mply absorbing the costs and accepting a lower rate of return, to shutting down the affected busin ess operation altogether and, where practical, shif t from lower-value to higher-value product and or ser vice. These issues were raised and reviewed atSAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix D: Socioeconomic Impact Analysis Report October 16, 2008

Applied Development Economics, Inc

. Final Draft Staff Report with Appendices For Proposed Amendments to Rule 4306 and Rule 4307 and Proposed New Rule 4320 D - 15 the Socioeconomic Focus Group Meeting of March 17, 2008. In general, industry stakeholders indicated difficulty in absorbing and or passing on costs in this particular recessionary economic

climate.



### IMPACTS ON AFFECTED INDUSTRIES

This section of the report analyzes estimated after tax net profits of affected industries against anticipated costs associated with implementation of the draft rule. The estimated annual compliance costs used in this analysis were provided to ADE by District staff and stakeholders.

In calculating impacts of the proposed rules on pro fits, ADE used net profit data analyzed financial data issued by the US Internal Revenue Service for the ten-year period from 1994 to 2004. According to the US IRS, over the long-term period stretching from 1994 to 2004, oil producers generated on average an after-tax net profit rate o f 11.14 percent. This long-term weighted-average after-tax net profit rate is based on a pool of app roximately 16,000 to 17,000 oil producers and natural gas extractors (SIC 1311). The overall rate for SIC 1311 is adjusted downward to 10.11 percent to account for the fact that it costs more to produce oil in California relative to other stat es. For oil refineries, the report used a long-term aft er-tax net profit rate of 6.46 percent, which also comes from the US IRS. For food processors, the rep ort used a rate of 4.14 percent.

Tables 9 and 10 show impacts of the what the Distri ct believe Rule 4306\Rule 4320 will cost annually. Three-hundred forty-five establishments w ill be affected by these new rules, and, together, these establishments generate in aggregate $40.6 bi llion in revenues and $2.9 billion in net profits. Affected large oil producer, small oil producers, a nd refineries generate $9 billion, $894 million, an d $2.3 billion in revenues per year, while affected p ublic sector establishments, food processors and related industries, and other affected establishmen ts generate $3.5 billion, $11.6 billion, and $3.4 billion respectively. Table 9 shows that, when expr essed as a ratio of annual cost to annual profits, the cost of the Rule 4306\Rule 4320 falls below the 10 percent threshold of significance level. Table 10 adds the costs of “scrubbers” on top of District ’s original cost and, in this scenario, the impacts again are less than significant, except for large o il producers. At $196.8 million in annual costs, th e cost associated with Rule 4306\Rule 4320 in the Dis trict cost scenario that includes “scrubbers” amounts to almost 21 percent of annual net profits.

Table 11 shows impacts of Rule 4306\Rule 4320 using industry’s costs. This table includes the costs of “scrubbers” on top of Industry’s original cost. In this scenario, impacts are less than significant except for large oil producers. At $292.1 million i n annual costs, the cost associated with Rule 4306\Rule 4320 in the Industry cost scenario that i ncludes “scrubbers” amounts to almost 31 percent of annual net profits.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix D: Socioeconomic Impact Analysis Report October 16, 2008

Applied Development Economics, Inc

. Final Draft Staff Report with Appendices For Proposed Amendments to Rule 4306 and Rule 4307 and Proposed New Rule 4320 D - 16 TABLE 9
SOCIOECONOMIC IMPACTS OF PROPOSED AMENDMENTS TO RUL E 4306 AND DRAFT NEW RULE 4320 (DISTRICT COST SCENARIO WITHOUT SCRUBBERS)

Establishments Revenues Est. Net Profits District Annual Cost Scenario: Rule 4306 Cost-toNet Profit Ratio
Oil Production 27 $9,906,843,015 $1,027,276,042 $30,496,301 Large 5 $9,012,547,135 $939,107,412 $27,596,125 2.94% Small 22 $894,295,880 $88,168,631 $2,900,176 3.29% Oil Refineries 5 $2,344,312,500 $150,504,863 $2,961,967 1.97%
Government 40 $3,450,097,946 $0 $4,142,398 0.12% Food Processing and Related Industries 130 $11,561, 782,674 $511,205,727 $20,482,572 4.01% Other Affected Sources 116 $3,430,818,724 $142,339, 802 $9,620,188 6.76% 345 $40,600,697,875 $2,858,602,477 $67,703,426 Source: ADE, Inc.

TABLE 10
SOCIOECONOMIC IMPACTS OF PROPOSED AMENDMENTS TO RUL E 4306 AND DRAFT NEW RULE 4320 (DISTRICT COST SCENARIO WITH SCRUBBERS)

Establishments Revenues Est. Net Profits District Annual Cost Scenario: Rule 4306 (including scrubbers) Cost-toNet Profit Ratio
Oil Production 27 $9,906,843,015 $1,027,276,042 $202,981,648 Large 5 $9,012,547,135 $939,107,412 $196,827,472 20.96% Small 22 $894,295,880 $88,168,631 $6,154,176 6.98% Oil Refineries 5 $2,344,312,500 $150,504,863 $8,656,467 5.75%
Government 40 $3,450,097,946 $4,955,898 0.14% Food Processing and Related Industries 130 $11,561, 782,674 $511,205,727 $20,482,572 4.01% Other Affected Sources 116 $3,430,818,724 $142,339, 802 $10,026,938 7.04% 345 $40,600,697,875 $2,858,602,477 $247,103,523 Source: ADE, Inc.

TABLE 11
SOCIOECONOMIC IMPACTS OF PROPOSED AMENDMENTS TO RUL E 4306 AND DRAFT NEW RULE 4320 (INDUSTRY COST SCENARIO WITH SCRUBBERS)

Establishments Revenues Est. Net Profits Industry Annual Cost Scenario: Rule 4306 (including scrubbers) Costto-Net Profit Ratio
Oil Production 27 $9,906,843,015 $1,027,276,042 $298,274,989 Large 5 $9,012,547,135 $939,107,412 $292,120,813 31.11% Small 22 $894,295,880 $88,168,631 $6,154,176 6.98% Oil Refineries 5 $2,344,312,500 $150,504,863 $13,699,500 9.10%
Government 40 $3,450,097,946 $0 $4,955,898 0.14% Food Processing and Related Industries 130 $11,561, 782,674 $511,205,727 $30,276,282 5.92% Other Affected Sources 116 $3,430,818,724 $142,339, 802 $10,026,938 7.04% 345 $40,600,697,875 $2,858,602,477 $357,233,607 Source: ADE, Inc.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix D: Socioeconomic Impact Analysis Report October 16, 2008

Applied Development Economics, Inc

. Final Draft Staff Report with Appendices For Proposed Amendments to Rule 4306 and Rule 4307 and Proposed New Rule 4320 D - 17 Table 12 below shows impacts of proposed amendments to Rule 4307. As Table 12 shows, impacts are less than significant across the board.

TABLE 12

SOCIOECONOMIC IMPACTS OF PROPOSED AMENDMENTS TO RUL E 4307

Establishments Revenues Est. Net Profits District Annual Cost Scenario: Rule 4307 Cost-toNet Profit Ratio Oil Producers 27 $9,906,843,015 $1,027,276,042 Large producers 5 $9,012,547,135 $939,107,412 $26 7,635 0.03% Small producers 22 $894,295,880 $88,168,631 $9,99 9 0.01% Oil Refineries 5 $2,344,312,500 $150,504,863 $37,83 3 0.03% Entities With Glycol Reboilers 4 $12,720,666,162 $907,062,265 $93,472 0.01% Schools 1,375 $8,189,150,696 $4,439,920 0.05% Others 116 $3,430,818,724 $142,339,802 $630,936 0.44% 1,554 $46,498,634,112 $2,227,182,973 $5,479,795 Source: ADE, Inc.

Impacts above are significant only for large oil pr oducers (see Tables 10 and 11). At $196.8 million, the District’s annual compliance cost is approximat ely $102.9 million above ten-percent of net profits of large oil producers, or $93.9 million. A ffected stakeholders may attempt to re-coup the cost of compliance in part or in full, i.e. that po rtion above the ten-percent threshold ($102.9 million) or all of the $196.8 million in annual cos t. At $102.9 million, the annual compliance cost above the threshold of significance amounts to 409 full-time equivalent (FTE) positions, meaning that the impacted project could re-coup the cost of compliance above the threshold by reducing its workforce by 409 FTEs. The impacted project could r e-coup the full compliance cost of $196.8 million by reducing its workforce by 602 FTEs.

At $292.1 million (see Table 11), industry’s annual compliance cost is approximately $198.2 million above ten-percent of net profits of large oil produ cers, or $93.9 million. This project may attempt to re-coup the cost of compliance in part or in full, i.e. that portion above the ten-percent threshold ($198.2 million) or all of the $292.1 million in an nual cost. At $198.2 million, the annual compliance cost above the threshold of significance amounts to 788 full-time equivalent (FTE) positions. The impacted project might seek to re-coup the full com pliance cost of $292.1 million by reducing its workforce by 1,161 FTEs.

In the District annual compliance cost scenario, th e direct loss of 409 to 602 workers represents 15 to 22 percent of the workforce of the five business es impacted by the proposed amendments to Rule 4306. In the industry annual compliance cost s cenario, the direct loss of 788 to 1,161 represents 28 to 44 percent of affected oil producers’ workfor ce. Because of the way in which one business in one industry interacts through buyer and supplier r elations with businesses in the same or other industries, we also need to understand the indirect and what are called induced impacts associated

with the draft rule.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix D: Socioeconomic Impact Analysis Report October 16, 2008

Applied Development Economics, Inc

. Final Draft Staff Report with Appendices For Proposed Amendments to Rule 4306 and Rule 4307 and Proposed New Rule 4320 D - 18 Using the IMPLAN Impro Professional input-output mo del, the consultant estimated the multiplier impacts associated with the cost of compliance abov e the threshold of significance, looking particularly at two measures – employment and indus try output. These measures are defined as

follows:

 Employment indicates the number of jobs lost given the level of compliance cost. This employment total includes self-employment.

 Industry output represents the sum of all economic activity lost b y affected industries and ancillary activities. This activity includes all co mmodity inputs, labor income, property income, and other value added components.

The multiplier impacts for these measures come from the Type II multipliers. These multipliers include the direct, indirect, and induced impacts. These multiplier descriptions are summarized

below.

 Direct impacts represent the jobs losses and other economic impact s that are directly related to costs associated by affected industries as a result of implementation of the draft rule.

 Indirect impacts represent the jobs and other economic effects that will potentially be lost elsewhere in the eight-county region as a result of the direct impacts on affected industries resulting from the draft rule. These indirect impac ts result from supplier purchases.

 Induced impacts represent the economic losses associated with reduc tions in household purchases tied to direct and indirect employment lo sses in the region. These induced impacts most typically occur in retail and other local-serv ing industry categories such as personal services, education, and health care.

Table 13 shows the direct, indirect, and induced em ployment impacts associated with annual cost of compliance resulting from Rule 4306\4320. In additi on to the direct loss of 409 to 602 workers (District cost scenario), there will be an indirect loss of 262 to 386 additional workers in businesse s with whom the six directly affected businesses enga ge in buyer-supplier relations. The direct loss of

409 to 602 workers and the indirect loss of another 262 to 386 workers, in turn, will induce the loss of another 230 to 339 workers, mainly those who are employed in retail and services. Thus, the total number of jobs lost as a result of the costs associ ated with Rule 4306\4320 amounts to 901 to 1,327 workers, using the District’s annual compliance cos t figures. With respect to impacts stemming from industry’s annual compliance cost scenarios, there could be a total impact ranging from 1,737 to 2,559 jobs, as the table below shows.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix D: Socioeconomic Impact Analysis Report October 16, 2008

Applied Development Economics, Inc

. Final Draft Staff Report with Appendices For Proposed Amendments to Rule 4306 and Rule 4307 and Proposed New Rule 4320 D - 19 TABLE 13 DIRECT, INDIRECT, AND INDUCED JOB IMPACTS RESULTING FROM SITUATIONS WHERE
ANNUAL COST COMPLIANCE EXCEEDS THRESHOLD OF SIGNIFI CANCE: PROPOSED

AMENDMENTS TO 4306 AND NEW RULE 4320

District Compliance Cost Scenario (with scrubbers) Industry Compliance Cost Scenario (with scrubbers) Impacts Associated

with Recovering Impacts Above 10 Percent Threshold Impacts Associated with Recovering Full Impacts Impacts Associated with Recovering Impacts Above 10 Percent Threshold Impacts Associated with Recovering Full Impacts Direct Impacts 409 602 788 1,161 Indirect Impacts 262 386 505 744 Induced Impacts 230 339 444 654 Total 901 1,327 1,737 2,559 Source: ADE, Inc., based on Impro Professional inpu t-output model



### IMPACT ON SMALL BUSINESSES

In addition to analyzing the employment impacts of the Rule 4306\4320 and Rule 4307, state legislation requires that the socioeconomic analysi s assess whether small businesses are disproportionately affected by air quality rules. T his section begins by briefly summarizing how the state government defines small businesses for the p urposes of qualifying certain businesses for various programs. This section concludes with a dis cussion as to whether the affected industries

include small businesses and assesses whether those small businesses are disproportionately impacted by the new rules.



### DEFINITION OF A SMALL BUSINESS

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

the State of California defines small businesses in the following 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 Californi a

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

 Together with its affiliates, be either:

A business with 100 or fewer employees, and an aver age 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 Service s. “California Small Business Certification” (http: www.pd.dgs.ca.gov/smbus/sbcert.htm)SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix D: Socioeconomic Impact Analysis Report October 16, 2008

Applied Development Economics, Inc

. Final Draft Staff Report with Appendices For Proposed Amendments to Rule 4306 and Rule 4307 and Proposed New Rule 4320 D - 20 Due to limitations of the data set, it is difficult to ascertain how many of the establishments are sm all businesses per the features identified directly abo ve. It is possible to estimate how many affected establishments employ more than 100 workers, as wel l as to estimate the average revenues generated by affected establishments of a given size. However , as the previous discussion showed, impacts stemming from these new rules are less than signifi cant for most if not all businesses except large oi l producers, which are not small businesses. Thus, sm all businesses are not disproportionately impacted.