Document ID: EPA-HQ-OW-2002-0030-0022
Agency: epa
Document Type: Supporting & Related Material
Title: 
Posted Date: 2002-06-24T04:00Z

APPENDIX
5A
Closure
and
Employment
Loss
Analysis
Results
Cash
Flow
Method
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
Table
5A­
1.
Estimated
Closures
as
Percent
of
Total
Establishments
Zero
Cost
Pass
Through
Cash
Flow
Method
Option
Single­
Family
Multifamily
Commercial
Industrial
1
0.0%
­
0.0%
0.0%
­
0.0%
0.0%
­
0.0%
0.0%
­
0.0%

2
0.0%
­
0.0%
0.0%
­
0.0%
0.1%
­
0.2%
0.1%
­
0.1%

3
0.0%
­
0.0%
0.0%
­
0.0%
0.0%
­
0.0%
0.0%
­
0.0%

Table
5A­
2.
Estimated
Closures
as
Percent
of
Total
Establishments
Cost
Pass
Through
Cash
Flow
Method
Option
Single­
Family
Multifamily
Commercial
Industrial
1
0.0%
­
0.0%
0.0%
­
0.0%
0.0%
­
0.0%
0.0%
­
0.0%

2
0.0%
­
0.0%
0.0%
­
0.0%
0.0%
­
0.0%
0.0%
­
0.0%

3
0.0%
­
0.0%
0.0%
­
0.0%
0.0%
­
0.0%
0.0%
­
0.0%

Single
family
cost
pass
through:
85.10%
Multifamily
cost
pass
through:
91.55%
Commercial
cost
pass
through:
89.87%
Industrial
cost
pass
through:
84.75%
Cost
Pass
Through
Values
Calculated
by
EPA.

5A­
1
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
Table
5A­
3.
Estimated
Employment
Losses
as
Percent
of
Total
Employment
Zero
Cost
Pass
Through
Cash
Flow
Method
Option
Single­
Family
Multifamily
Commercial
Industrial
1
0.0%
­
0.0%
0.0%
­
0.0%
0.0%
­
0.0%
0.0%
­
0.0%

2
0.0%
­
0.0%
0.2%
­
0.2%
0.1%
­
0.2%
0.1%
­
0.1%

3
0.0%
­
0.0%
0.0%
­
0.0%
0.0%
­
0.0%
0.0%
­
0.0%

Table
5A­
4.
Estimated
Employment
Losses
as
Percent
of
Total
Employment
Cost
Pass
Through
Cash
Flow
Method
Option
Single­
Family
Multifamily
Commercial
Industrial
1
0.0%
­
0.0%
0.0%
­
0.0%
0.0%
­
0.0%
0.0%
­
0.0%

2
0.0%
­
0.0%
0.0%
­
0.0%
0.0%
­
0.0%
0.0%
­
0.0%

3
0.0%
­
0.0%
0.0%
­
0.0%
0.0%
­
0.0%
0.0%
­
0.0%

Single
family
cost
pass
through:
85.10%
Multifamily
cost
pass
through:
91.55%
Commercial
cost
pass
through:
89.87%
Industrial
cost
pass
through:
84.75%
Cost
Pass
Through
Values
Calculated
by
EPA.

5A­
2
APPENDIX
5B
Sensitivity
Analysis
for
the
National
Partial
Equilibrium
Model
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
5B.
1
Introduction
to
Sensitivity
Analysis
Elasticities
of
supply
and
demand
are
key
parameters
of
the
partial
equilibrium
market
models
which
generate
many
of
the
results
shown
in
Chapter
5.
Values
for
these
parameters
are
derived
from
a
consensus
of
elasticity
estimates
appearing
in
the
literature.
Often
differing
databases
and
estimation
methods
generate
different
estimates,
so
the
literature
contains
a
wide
range
of
elasticities.
Table
5B­
1
shows
the
impact
on
the
results
of
selecting
different
sets
of
elasticities.
The
first
line
in
each
use
category
section
is
the
cost
pass
through
(
CPT)
and
impact
reported
in
Table
5­
16a,
Changes
in
Output
and
Total
Employment
from
the
Baseline,
for
the
proposed
Option
2.
The
succeeding
lines
show
how
the
results
change
with
the
different
combinations
of
supply
and
demand
elasticities
shown
in
the
first
two
columns.
(
As
the
stimulus
is
virtually
the
same
in
all
cases,
the
 
Stimulus
from
Added
Work
 
and
 
Change
in
Employment
from
Stimulus
 
columns
in
Table
5­
­
16a
are
not
shown
here.
)
Except
for
single
family
housing,
all
of
the
categories
were
modeled
at
the
state
level
so
that
local
market
conditions
would
drive
the
model.
Thus,
a
range
of
demand
elasticities
is
chosen
as
a
parameter
of
the
model
but
the
actual
elasticity
used
in
each
state
model
is
calculated
based
on
an
indicator
of
state
market
activity.
The
sensitivity
analysis
for
these
categories
was
conducted
by
adjusting
the
range
of
possible
demand
elasticities.

As
discussed
in
Section
4.5,
housing
supply
is
highly
elastic
which
implies
high
CPT
rates.
The
sensitivity
analysis
shows
that
when
the
elasticity
of
supply
for
single
family
housing
is
reduced
from
4
to
0.5,
the
CPT
falls
from
85
percent
to
42
percent.
This
reduces
the
change
in
the
quantity
of
homes
sold
and
the
impact
on
consumers
so
much
that
the
net
effect
of
the
proposed
regulation
is
a
creation
of
1,800
jobs.
Similar
changes
occur
in
other
use
categories.
Reducing
the
elasticity
of
demand
also
reduces
the
impact
of
the
regulation.

5B.
2
Sensitivity
Analysis
Results
Overall,
the
sensitivity
analysis
shows
that
while
the
results
can
be
changed
by
manipulation
of
the
assumptions,
the
assumptions
used
yield
reasonable
estimates
near
the
middle
of
the
range
of
probable
outcomes.

5B­
1
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
Table
5B­
1.
Sensitivity
Tests
with
Alternative
Elasticities
Supply
Elasticity
Demand
Elasticity
CPT
(
%
)
Loss
of
Output
(
$
Million)
Change
in
Employment
from
Lost
Output
Net
Change
in
Employment
from
Construction
Impacts
Change
in
Employment
from
Consumer
Spending
Net
Change
in
Total
Employment
Single
Family
Housing
4
0.7
85.11
­
71.6
­
2,662
1,805
­
2,792
­
986
10
0.7
93.46
­
78.7
­
2,923
1,544
­
3,066
­
1,522
1
0.7
58.82
­
49.5
­
1,840
2,628
­
1,930
698
0.5
0.7
41.67
­
35.1
­
1,303
3,165
­
1,367
1,798
4
1.0
80.00
­
96.2
­
3,575
892
­
2,624
­
1,732
4
0.5
88.89
­
53.4
­
1,986
2,482
­
2,916
­
434
Multifamily
Housing
4
­
0.8
­
­
0.2
91.54
­
5.2
­
192
317
­
374
­
56
10
­
0.8
­
­
0.2
96.42
­
5.5
­
203
333
­
394
­
61
1
­
0.8
­
­
0.2
73.35
­
4.0
­
150
257
­
299
­
42
4
­
1.0
­
­
0.2
90.40
­
5.9
­
218
284
­
369
­
84
4
­
0.5
­
­
0.2
93.34
­
4.0
­
150
369
­
381
­
12
4
­
0.8
­
­
0.1
93.08
­
4.2
­
158
360
­
380
­
20
Commercial
4
­
0.8
­
­
0.01
89.87
­
67.1
­
2,494
4,740
­
4,857
­
116
10
­
0.8
­
­
0.01
95.62
­
71.5
­
2,656
4,578
­
5,119
­
541
1
­
0.8
­
­
0.01
70.17
­
51.9
­
1,930
5,306
­
3,898
1,408
4
­
1.0
­
­
0.01
87.73
­
81.6
­
3,034
4,199
­
4,757
­
558
4
­
0.5
­
­
0.01
93.32
­
44.0
­
1,633
5,604
­
5,015
588
4
­
0.8
­
­
0.2
88.16
­
83.5
­
3,103
4,130
­
4,744
­
615
Industrial
4
­
1.5
­
­
0.2
84.75
­
17.8
­
662
338
­
616
­
277
10
­
1.5
­
­
0.2
93.21
­
20.0
­
742
258
­
682
­
424
1
­
1.5
­
­
0.2
59.11
­
11.7
­
436
567
­
418
149
4
­
2.0
­
­
0.2
81.43
­
21.8
­
810
190
­
588
­
399
4
­
1.0
­
­
0.2
88.43
­
13.4
­
498
504
­
646
­
142
4
­
1.5
­
­
0.01
86.91
­
15.8
­
585
416
­
630
­
214
5B­
2
APPENDIX
5C
Baseline
Analysis
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
APPENDIX
5C
BASELINE
ANALYSIS
5C.
1
INTRODUCTION
The
main
portion
of
this
economic
analysis
assumes
that,
in
the
baseline,
the
construction
and
development
(
C&
D)
industry
is
in
full
compliance
with
the
existing
Storm
Water
Phase
I
and
Phase
II
regulations
as
they
apply
to
construction
activities.
Since
the
final
deadline
for
implementation
of
Phase
II
is
not
until
March
10,
2003,
some
affected
entities
may
not
yet
have
adjusted
to
the
Phase
II
requirements.

Because
of
the
overlap
between
the
proposal
of
the
effluent
limitation
guideline
(
ELG)
and
the
implementation
of
the
Phase
II
regulations,
EPA
has
completed
this
alternate
baseline
analysis.
The
analysis
presents
the
following:

 
Combined
national
compliance
costs
and
social
costs
of
Phase
II
and
the
C&
D
Effluent
Limitation
Guideline
(
ELG)
 
This
analysis
simply
adds
together
the
compliance
and
government
costs
of
the
rules.

 
Impact
of
the
combined
Phase
II
and
ELG
costs
on
representative
model
projects
 
This
analysis
would
apply
to
projects
that
take
place
in
jurisdictions
not
yet
in
compliance
with
Phase
II.

 
Impact
of
the
combined
Phase
II
and
ELG
costs
on
representative
model
firms
 
This
analysis
would
apply
to
firms
for
whom
100
percent
of
operations
take
place
in
jurisdictions
not
yet
in
compliance
with
Phase
II.

 
Impact
of
the
combined
Phase
II
and
ELG
costs
on
facility
closures
and
employment
levels.
This
part
of
the
analysis
is
the
most
speculative
because
we
have
no
way
of
identifying
how
many
firms
and
what
share
of
their
operations
would
be
subject
to
both
rules.
To
derive
these
estimates
we
have
assumed
that
(
1)
firms
within
a
certain
size
class
are
most
likely
to
be
affected
(
because
Phase
II
applies
only
to
sites
of
1
to
5
acres
in
size)
,
and
(
2)
within
this
group
we
have
estimated
only
those
firms
located
in
non
Phase
II
compliant
states
would
be
affected.
This
second
assumption
ignores
the
fact
that
it
is
site
location,
not
firm
location,
that
would
determine
coverage
under
Phase
II,
and
that
many
construction
firms
operate
outside
their
home
state.

Note
that
EPA
has
not
assessed
the
potential
combined
benefits
of
the
Phase
II
and
effluent
guidelines
requirements.
The
Phase
II
rule
EA
indicated
benefits
from
the
construction
part
of
the
rule
of
$
540
to
$
686
million
per
year
(
U.
S.
EPA
1999,
Table
6­
20)
.

5C­
1
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
5C.
2
BASELINE
ANALYSIS
Throughout
the
economic
analysis
of
the
proposed
C&
D
effluent
guidelines,
EPA
has
assumed
the
industry
is
in
full
compliance
with
all
applicable
existing
laws
and
regulations
related
to
storm
water
management
(
see
U.
S.
EPA
2002,
Section
4.11)
.
This
includes
the
final
storm
water
Phase
II
regulations,

which
were
published
on
December
8,
1999
(
64
FR
235;
page
68794)
.
The
Phase
II
rules
apply
to
sites
between
one
and
five
acres
in
size.

While
many
permitting
authorities
have
already
begun
implementing
the
Phase
II
requirements,

the
deadline
for
obtaining
permit
coverage
is
not
until
March
10,
2003.
As
a
result,
it
is
likely
that
the
C&
D
industry
is
not
uniformly
compliant
with
these
requirements
at
this
time.
One
implication
is
that
the
economic
baseline
used
to
assess
the
impacts
of
the
proposed
effluent
guideline
may
not
reflect
industry
conditions
once
the
Phase
II
regulations
have
been
fully
implemented.
To
account
for
this,
EPA
has
conducted
a
supplemental
analysis
that
includes
the
combined
costs
and
impacts
of
meeting
the
Phase
II
requirements
and
the
proposed
effluent
guidelines.
This
section
describes
the
methodology
used
to
conduct
this
analysis
and
presents
the
results.

5C.
2.1
National
Compliance
Costs
The
economic
analysis
for
the
construction
component
of
the
final
Phase
II
storm
water
rule
was
based
on
engineering
costs
developed
for
three
site
size
classes:
1­
,
3­
,
and
5­
acres.
Within
each
site
size
class
EPA
developed
costs
for
erosion
and
sediment
control
(
ESC)
specific
to
sites
in
low,
medium,
and
high
rainfall
regions
and
with
low,
medium,
and
high
slope
conditions.
Since
EPA
did
not
have
a
distribution
of
sites
by
rainfall
region
or
slope
condition,
a
simple
average
of
the
costs
across
all
site
types
was
used
within
each
size
class.
Table
5C­
1
shows
the
costs
and
costs
per
acre
for
the
three
site
size
classes,
with
costs
updated
to
1997
dollars.

5C­
2
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
Table
5C­
1.
Costs
of
Phase
II
Erosion
and
Sediment
Control,
by
Site
Size
(
$
1997)

Site
Size
(
Acres)
ESC
Costs
ESC
Costs
per
Acre
1
$
1,187
$
1,187
3
$
4,524
$
1,508
5
$
8,569
$
1,714
Source:
Economic
Analysis
of
the
Final
Storm
Water
Phase
II
Rules.
U.
S.
EPA
(
1999)
;
ENR
(
2001)
.

In
addition
to
the
ESC
costs,
EPA
estimated
the
industry
would
incur
$
937.46
in
administrative
costs
(
$
922.42
in
$
1997)
for
each
permitted
construction
project.
These
include
costs
associated
with
the
following
elements:
notification
of
intent,
municipal
notification,
storm
water
pollution
prevention
plan,

record
retention,
and
notification
of
termination.
Thus,
the
total
costs
to
industry
of
compliance
with
the
construction
portion
of
the
Phase
II
rules
include
the
costs
of
ESC
controls
and
the
administrative
costs.

The
Phase
II
compliance
costs
were
applied
to
EPA
 
s
estimate
of
the
number
of
projects
falling
within
the
one
to
five
acre
size
class.
Projects
in
areas
with
equivalent
programs
were
excluded,
including
14
states
covered
by
equivalent
existing
state
programs
and
two
states
and
parts
of
four
other
states
covered
by
requirements
equivalent
to
those
implemented
under
the
Coastal
Zone
Act
Reauthorization
Amendments
(
CZARA)
(
which
covers
nonpoint
sources
of
pollution,
including
construction
activities,
in
coastal
regions)
.
The
national
compliance
costs
of
the
Phase
II
rules
were
estimated
in
1998
dollars
to
be
$
545
­
$
679
million.
1
EPA
added
the
Phase
II
compliance
cost
estimates
to
the
compliance
costs
of
the
proposed
ELG
to
obtain
an
alternate
estimate
of
the
compliance
costs
(
and
social
costs)
of
the
proposed
rule
under
the
alternative
baseline.
Table
5C­
2
shows
the
national
costs
under
the
alternative
baseline
scenario,
obtained
by
adding
the
national
ESC
and
administrative
costs
from
the
Phase
II
analysis
to
the
national
compliance
costs
associated
with
the
proposed
effluent
guidelines.
The
combined
industry
compliance
costs
are
$
539.3
million
under
Option
1
and
$
890.3
million
under
Option
2.
Table
5C­
3
indicates
the
combined
social
costs
are
$
891.1
million
for
Option
2
(
1997
dollars)
.

1
Source:
Phase
II
final
EA,
Table
4­
18,
p.
4­
25.

5C­
3
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
Table
5C­
2.
Estimated
National
Costs
of
Erosion
and
Sediment
Controls
Alternative
Baseline
Scenario
(
No
Phase
II
Compliance)
(
$
1997
millions,
pre­
tax)

Option
National
Costs
by
Type
of
Construction
(
$
millions)

Total
Single­
Family
Multifamily
Commercial
Industrial
1
$
64.6
$
39.3
$
413.4
$
22.0
$
539.3
2
$
161.9
$
86.8
$
612.3
$
29.3
$
890.3
3
$
0.0
$
0.0
$
0.0
$
0.0
$
0.0
Source:
EPA
estimates
based
on
the
methodologies
presented
in
Chapter
Four.

Table
5C­
3.
Social
Costs
and
Benefits
Erosion
and
Sediment
Controls
Alternative
Baseline
Scenario
(
No
Phase
II
Compliance)
(
$
1997
millions,
pre­
tax)

Option
Installation,
Design
and
Permitting
Operation
and
Maintenance
Government
Costs
Deadweight
Loss
Total
Social
Costs
Total
Benefits
a
1
$
539.3
$
0.0
$
0.0
$
0.1
$
539.4
$
9.7
2
$
842.4
$
48.0
$
0.3
$
0.4
$
891.1
$
20.6
3
$
0.0
$
0.0
$
0.0
$
0.0
$
0.0
$
0.0
a
Benefits
do
not
include
benefits
of
Phase
II
rule.
Source:
EPA
estimates
based
on
the
methodologies
presented
in
Chapter
Four.

5C.
2.2
Economic
Impacts
EPA
assessed
the
economic
impacts
under
the
alternative
baseline
using
a
similar
approach
to
that
described
in
Chapter
Four
of
the
draft
Economic
Analysis
(
EA)
.
The
impacts
on
key
financial
ratios
were
assessed
for
model
projects
and
model
firms.
The
model
firm
impact
analysis
was
then
extended
to
estimate
the
number
of
firm
closures
and
the
associated
employment
losses.

5C.
2.2.1
Analysis
of
Impacts
on
Model
Projects
EPA
assessed
the
impacts
of
the
combined
costs
of
the
Phase
II
and
proposed
effluent
guidelines
requirements
on
model
projects
using
the
same
approach
described
in
Section
4.2.
EPA
developed
a
series
of
model
C&
D
projects
and
flowed
the
incremental
costs
through
these
models
to
assess
the
impacts
on
project
viability.
The
model
project
scenarios
were
analyzed
under
the
alternative
assumptions
of
100
5C­
4
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
percent
cost
pass
through
(
the
end
consumer
bears
all
of
the
cost)
and
zero
cost
pass
through
(
the
developer­
builder
bears
all
of
the
cost)
.
In
the
former
case
the
impacts
are
reflected
in
a
higher
price
for
the
finished
product
(
home,
apartment,
commercial
or
industrial
building)
while
in
the
latter
case
the
impacts
are
reflected
in
reduced
profits
to
the
builder­
developer.

Table
5C­
4a
shows
the
combined
impact
of
the
Phase
II
and
proposed
effluent
guidelines
costs
on
model
project
financials
under
the
100
percent
cost
pass
through
scenario.
Table
5C­
4b
shows
the
same
impacts
under
the
zero
percent
cost
pass
through
scenario.

Table
5C­
4a.
Impact
of
Combined
Phase
II
and
Proposed
Effluent
Guidelines
Costs
on
Model
Project
Financials
 
100
Percent
Cost
Pass­
Through
and
All
Project
Sizes
Option
Percent
Change
in
Project
Price
to
Buyer
Single­
Family
Multifamily
Commercial
Industrial
Min
Max
Min
Max
Min
Max
Min
Max
1
0.00%
0.47%
0.00%
0.26%
0.00%
0.24%
0.00%
0.37%

2
0.00%
0.44%
0.00%
0.24%
0.00%
0.22%
0.00%
0.34%

3
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%

Source:
EPA
estimates
based
on
the
methodologies
presented
in
Chapter
Four.

Table
5C­
4b.
Impact
of
Combined
Phase
II
and
Proposed
Effluent
Guidelines
Costs
on
Model
Project
Financials
 
Zero
Cost
Pass­
Through
and
All
Project
Sizes
Option
Percent
Change
in
Builder­
Developer
Profit
Single­
Family
Multifamily
Commercial
Industrial
Min
Max
Min
Max
Min
Max
Min
Max
1
0.00%
­
4.60%
0.00%
­
2.35%
0.00%
­
2.13%
0.00%
­
3.36%

2
0.00%
­
4.23%
0.00%
­
2.15%
0.00%
­
1.96%
0.00%
­
3.09%

3
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%

Source:
EPA
estimates
based
on
the
methodologies
presented
in
Chapter
Four.

5C­
5
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
For
Option
1,
under
the
alternate
baseline,
the
maximum
percent
change
in
project
cost
to
the
buyer
ranges
from
0.24
percent
(
commercial
project)
to
0.47
percent
(
single­
family
project)
.
This
is
higher
than
the
range
of
maximum
impact
given
in
Table
5­
2a
of
the
draft
EA,
Chapter
5
(
0.02
percent
for
a
commercial
project
to
0.04
percent
for
a
single­
family
project)
.

Impacts
on
builder
profits
are
also
greater
under
the
alternate
baseline
assumption.
As
shown
in
Table
5C­
4b,
the
maximum
impacts
range
from
­
4.60
percent
for
a
single­
family
project
under
Option
1,

up
to
­
1.96
percent
for
a
commercial
project
under
Option
2.
This
is
2
to
3
percent
higher
than
the
impacts
shown
in
Chapter
5
of
this
EA,
Table
5­
2b,
where
the
maximum
impact
ranges
from
­
0.17
percent
for
a
commercial
project
up
to
­
0.80
percent
for
a
single­
family
project.

5C.
2.2.2
Analysis
of
Impacts
on
Model
Establishments
In
Section
4.3
EPA
developed
a
series
of
model
firms
based
on
composite
industry
financial
data
collected
by
Dun
&
Bradstreet
(
D&
B
2000)
.
For
single­
family
and
multifamily
housing
EPA
constructed
one
model
for
each
starts
size
class
while
for
commercial
and
industrial
construction
there
is
a
single
model
firm.
EPA
examined
the
impact
of
the
regulatory
costs
on
model
firm
financial
performance
by
analyzing
changes
in
key
financial
ratios
as
the
annual
regulatory
costs
are
absorbed
into
the
model
firm
 
s
financial
statement.
Complete
details
on
the
methodology
can
be
found
in
Chapter
Four,
Section
4.3
of
this
economic
analysis.

Under
this
baseline
scenario
some
firms
will
be
impacted
to
a
greater
extent
than
others
because
they
operate
on
sites
subject
to
the
Phase
II
storm
water
requirements
and
in
jurisdictions
that
have
not
yet
fully
implemented
the
Phase
II
requirements.
As
a
result,
the
baseline
financial
conditions
for
these
firms
used
in
the
economic
analysis
may
not
fully
reflect
adjustments
necessary
to
meet
the
Phase
II
requirements.
To
address
this,
EPA
has
analyzed
the
impacts
associated
with
meeting
the
combined
requirements
of
Phase
II
and
the
C&
D
effluent
guidelines.

As
noted
above,
the
Phase
II
rules
apply
to
construction
sites
greater
than
one
acre
and
less
than
five
acres
in
size.
EPA
currently
lacks
information
on
how
frequently
firms
operate
on
sites
that
fall
within
this
size
range.
As
a
result,
EPA
cannot
present
reliable
data
on
the
extent
to
which
firms
might
5C­
6
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
be
subject
to
both
the
Phase
II
requirements
and
the
proposed
effluent
guidelines
requirements.
At
one
extreme
there
may
be
firms
that
operate
only
on
sites
greater
than
five
acres.
Such
firms
are
likely
be
already
compliant
with
the
existing
Phase
I
requirements
and
thus
would
face
only
the
incremental
requirements
associated
with
the
proposed
effluent
guidelines.
On
the
other
extreme
are
firms
that
may
operate
exclusively
on
sites
between
one
and
five
acres
in
size
and
in
jurisdictions
that
have
not
fully
implemented
the
Phase
II
requirements.
These
firms
would
incur
the
combined
costs
of
the
Phase
II
and
proposed
effluent
guidelines
Option
1
requirements
on
100
percent
of
their
projects.
In
between
there
will
be
firms
who
operate
only
part
of
the
time
on
sites
subject
to
the
combined
Phase
II
and
proposed
effluent
guidelines
requirements.

Insufficient
data
is
available
to
allow
EPA
to
develop
a
distribution
of
firms
by
the
extent
of
exposure
to
both
the
Phase
II
requirements
and
the
proposed
effluent
guidelines
requirements.
As
a
result,
EPA
has
modeled
this
baseline
scenario
only
for
firms
with
100
percent
exposure
to
both
sets
of
requirements.
This
represents
an
absolute
worst­
case
scenario
in
terms
of
potential
impacts.
EPA
expects
that
only
a
small
proportion
of
the
industry
would
actually
be
represented
by
this
model
firm
scenario.

Table
5C­
5
shows
the
impact
of
the
combined
Phase
II
and
proposed
effluent
guidelines
compliance
costs
on
model
firm
financial
ratios
under
the
zero
cost
pass
through
assumption
(
i.
e.
,
the
firm
absorbs
100
percent
of
the
compliance
costs)
.

Table
5C­
5.
Impact
of
Combined
Phase
II
and
Proposed
Effluent
Guidelines
Costs
on
Model
Firm
Financials
 
Zero
Cost
Pass
Through
Option
Percent
Change
in
Financial
Ratios
From
Baseline
Gross
Profit
Return
on
Net
Worth
Current
Ratio
Debt
to
Assets
Min
Max
Min
Max
Min
Max
Min
Max
Single­
family
Residential
1
0.00%
­
2.40%
0.00%
­
27.04%
0.00%
­
0.21%
0.00%
0.96%
2
0.00%
­
2.20%
0.00%
­
24.83%
0.00%
­
0.20%
0.00%
0.88%
3
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Multifamily
Residential
1
0.00%
­
1.73%
0.00%
­
5.57%
0.00%
­
0.30%
0.00%
1.15%
2
0.00%
­
1.59%
0.00%
­
5.11%
0.00%
­
0.27%
0.00%
1.06%
3
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Source:
EPA
estimates
based
on
the
methodologies
presented
in
Chapter
Four.

5C­
7
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
For
Option
1,
the
largest
impacts
generally
occur
in
the
multifamily
sector.
Percent
change
in
gross
profit
for
the
single­
family
sector
ranges
from
­
2.20
percent
to
­
2.40
percent.
Under
the
initial
baseline,
the
range
was
from
­
0.23
percent
to
­
0.52
percent.
For
the
multifamily
residential
sector,
the
change
in
gross
profit
ranges
from
­
1.59
percent
to
­
1.73
percent.
The
change
in
gross
profit
for
the
multifamily
sector
is
also
higher
under
the
alternate
baseline
than
under
the
initial
baseline
assumption.

Change
in
gross
profit
from
the
initial
baseline
was
from
­
0.31
percent
to
­
0.95
percent.

The
current
ratio
shows
the
least
change
from
baseline
of
all
four
financial
ratios
in
both
sectors.

The
maximum
percent
change
in
current
ratio
for
the
single­
family
sector
ranges
from
­
0.20
percent
to
­

0.21
percent.
Under
the
initial
baseline,
these
impacts
were
lower,
ranging
from
­
0.02
percent
to
­
0.05
percent.
For
the
multifamily
sector
the
change
ranges
from
­
0.27
percent
to
­
0.30
percent.
Again,
impacts
were
less
severe
under
the
initial
baseline
assumption,
where
change
in
current
ratio
for
the
multifamily
sector
ranged
from
­
0.05
percent
to
­
0.16
percent.

As
with
the
analysis
in
the
EA,
the
largest
impacts
over
all
model
firm
financials
under
the
alternate
baseline
is
on
the
return
on
net
worth.
Here,
the
percent
change
from
baseline
ranges
from
­
24.83
percent
to
­
27.04
percent
in
the
single­
family
sector
and
from
­
5.11
percent
to
­
5.57
percent
in
the
multifamily
sector
(
both
under
zero
cost
pass
through)
.
Under
the
initial
baseline,
change
in
return
on
net
worth
ranges
from
­
2.54
percent
to
­
5.85
percent
for
single­
family
and
from
­
0.99
percent
to
­
3.07
percent
for
multifamily.

Incremental
impacts
on
debt­
to­
assets
ratios
(
also
called
the
debt­
to­
equity
ratio)
for
the
single­

family
sector
range
from
0.88
percent
to
0.96
percent.
Under
the
initial
baseline,
change
in
the
debt­
to­

assets
ratio
in
this
sector
range
from
0.21
percent
to
0.90
percent.
For
the
multifamily
sector,
the
percent
change
in
debt­
to­
assets
ratio
over
baseline
ranges
from
1.06
percent
to
1.15
percent.
The
impacts
under
the
initial
baseline
for
this
sector
range
from
0.20
percent
to
0.64
percent.

5C­
8
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
5C.
2.2.3
Analysis
of
Impacts
on
Closures
and
Employment
Losses
EPA
examined
the
potential
impact
of
the
combined
Phase
II
and
proposed
effluent
guidelines
requirements
on
closures
and
employment
losses
using
the
general
approach
developed
in
Section
4.3.2.

The
approach
is
based
on
the
model
firm
analysis
presented
in
the
section
above.
EPA
estimated
the
change
in
the
number
of
firms
considered
financially
 
stressed
 
(
(
and
their
employment)
as
a
result
of
the
regulatory
action
by
examining
key
financial
ratios
with
and
without
the
compliance
cost
impacts.
The
financial
stress
indicators
were
used
to
identify
firms
that
could
potentially
shut
down
and
close
as
a
result
of
the
regulatory
action.

As
explained
above,
EPA
lacks
reliable
data
on
the
distribution
of
firms
by
extent
of
exposure
to
the
Phase
II
requirements.
Although
key
information
on
the
exposure
of
firms
to
the
combined
effect
of
Phase
II
and
the
proposed
effluent
guidelines
was
not
available,
EPA
developed
closure
estimates
for
the
single­
family
and
multifamily
homebuilding
sector
only
by
making
a
number
of
assumptions.
2
First,
EPA
assumed
that
the
firms
most
likely
to
operate
on
sites
subject
to
the
Phase
II
requirements
(
i.
e.
,
sites
between
one
and
five
acres
in
size)
are
those
in
the
5­
9
and
10­
24
starts
per
year
class.
3
At
the
national
average
lot
size
of
0.31
acres
this
translates
to
disturbance
of
between
1.55
and
7.44
acres.
EPA
further
assumed
that
all
of
the
activities
of
firms
in
these
size
classes
takes
place
on
sites
between
1
and
5
acres
in
size.
4
2
EPA
has
a
distribution
of
establishments
by
starts
size
class
for
the
single­
family
and
multifamily
sectors
only
and
therefore
could
not
conduct
the
same
analysis
for
the
commercial
and
industrial
sector.

3
These
establishments
represent
35
percent
of
all
establishments
and
account
for
21
percent
of
new
single­
family
homes.
See
Table
2­
20.
Builders
in
the
1­
4
starts
class
(
accounting
for
43
percent
of
establishments
and
7
percent
of
starts)
were
already
assumed
to
build
predominantly
on
sites
under
1
acre
in
size
and
thus
will
not
be
impacted
by
the
proposed
rule
requirements.
See
Sections
2.34
and
2.35.

4
The
next
largest
starts
class
is
between
25
and
99
units.
This
translates
to
between
7.5
and
33
acres
disturbed.
EPA
judged
that
at
this
size
class
and
above
it
was
unlikely
that
firms
would
operate
solely
or
predominantly
on
sites
between
1
and
5
acres
in
size.

5C­
9
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
The
closure
analysis
is
thus
based
on
the
following:

 
The
combined
Phase
II
and
effluent
guidelines
costs
are
applied
to
establishments
in
the
5­
9
and
10­
24
starts
class
located
in
states
without
equivalent
Phase
II
programs
at
the
time
of
promulgation
of
the
Phase
II
rules.

 
The
analysis
assumes
all
activities
of
firms
in
these
starts
classes
in
affected
states
are
subject
to
the
combined
compliance
costs
of
Phase
II
and
the
effluent
guideline.

 
The
costs
per
acre
for
the
effluent
guidelines
only
are
applied
to
remaining
establishments
(
i.
e.
,
those
in
the
25+
starts
size
classes)
in
these
states
and
to
all
establishments
in
all
other
states.

 
Closures
and
employment
losses
are
calculated
under
the
zero
cost
pass
through
assumption.

Tables
5C­
6
and
5C­
7
present
the
results
of
the
closure
analysis.
Table
5C­
6
shows
the
estimated
closures
for
the
single­
family
and
multifamily
sectors
under
the
alternate
baseline.
Table
5C­
7
shows
the
estimated
employment
losses
for
the
single­
family
and
multifamily
sectors
under
the
alternate
baseline.

As
shown
in
the
tables
below,
EPA
has
estimated
that
approximately
16
single­
family
businesses
(
0.02
percent
of
all
potentially
affected
single­
family
businesses)
,
and
4
multifamily
businesses
(
0.09
percent
of
potentially
affected
multifamily
businesses)
,
will
be
subject
to
possible
closure
due
to
the
proposed
rule.
Under
the
initial
baseline,
EPA
estimated
that
13
single­
family
businesses
and
3
multifamily
businesses
would
be
subject
to
closure.

EPA
has
estimated
employment
losses
with
the
alternative
baseline
to
be
approximately
230
for
the
single­
family
and
multifamily
sectors
(
less
than
one­
half
of
one
percent
of
potentially
affected
employees
in
these
two
sectors)
.
Under
the
initial
baseline,
EPA
estimated
employment
losses
of
approximately
206
for
both
sectors.

5C­
10
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
Table
5C­
6.
Estimated
Facility
Closures
Alternate
Baseline
Zero
Cost
Pass
Through
Option
Single­
Family
Multifamily
TOTAL
Number
Pct.
of
Total
Number
Pct.
of
Total
Number
Pct.
of
Total
1
12
0.014%
2
0.043%
14
0.057%

2
16
0.019%
4
0.087%
20
0.106%

3
0
0.000%
0
0.000%
0
0.000%

Source:
EPA
estimates
based
on
the
methodologies
presented
in
Chapter
Four.

Table
5C­
7.
Estimated
Employment
Losses
Alternate
Baseline
Financial
Ratio
Method
Zero
Cost
Pass
Through
Option
Single­
Family
Multifamily
TOTAL
Number
Pct.
of
Total
Number
Pct.
of
Total
Number
Pct.
of
Total
1
64
0.019%
18
0.051%
82
0.070%

2
162
0.048%
65
0.185%
227
0.233%

3
0
0.000%
0
0.000%
0
0.000%

Source:
EPA
estimates
based
on
the
methodologies
presented
in
Chapter
Four.

5C.
2.2.4
Analysis
of
Impacts
on
the
National
Construction
Market
The
Phase
II
baseline
scenario
adds
the
same
costs
per
acre
to
each
type
of
construction.
The
impact
on
each
type
of
construction
is
a
weighted
average
of
the
number
of
acres
subject
to
the
Phase
II
regulation.
The
incremental
costs
to
bridge
the
gap
between
the
Phase
II
baseline
and
the
initial
baseline
are
also
the
same
across
policy
options.
Thus,
assessing
this
baseline
scenario
is
unlikely
to
change
the
rank
order
of
costs
among
policy
options
but
merely
demonstrate
larger
impacts
by
including
all
recent
EPA
C&
D
regulation
rather
than
showing
only
the
effects
of
the
proposed
effluent
guidelines.

5C­
11
­
­
­
­
­
­
­
­
­
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
Table
5C­
8
repeats
the
affordability
assessment
from
the
initial
baseline
analysis.
It
shows
the
worst
case
scenario
in
which
the
Phase
II
alternative
baseline
applies
to
all
regulated
construction
sites.

The
impacts
are
considerably
larger
than
under
the
standard
baseline.
The
most
costly
option
decreases
the
number
of
families
that
could
have
afforded
the
model
home
by
0.21
percent.
This
is
slightly
more
than
the
0.15
percent
cut
estimated
under
the
standard
baseline.

Table
5C­
8.
Impact
of
Erosion
and
Sediment
Control
Costs
on
Housing
Affordability
Alternative
Baseline
Scenario
(
No
Phase
II
Compliance)
(
$
1997
millions,
pre­
tax)
.

Option
Storm
Water
Control
Costs
Per
Lot
Change
in
Costs
per
Unit
Income
Needed
to
Qualify
Change
in
Income
Needed
Number
of
Households
Shifted
(
thousands)
Percent
of
Households
Shifted
That
Could
Afford
Baseline
1
$
62
$
112
$
82,503
$
32
­
16
­
0.08%

2
$
153
$
277
$
82,551
$
79
­
40
­
0.21%

3
$
0
$
0
$
82,472
Source:
EPA
estimates
based
on
the
methodologies
presented
in
Chapter
Four.

The
changes
in
output
and
employment
are
considerably
greater
under
the
alternative
baseline.

Table
5C­
9
shows
that
under
the
more
costly
Option
2,
construction­
related
impacts
decrease
employment
by
7,800
jobs.
The
stimulus
effect
of
the
regulation
increases
employment
by
a
more
than
offsetting
19,410
jobs.
The
change
in
consumer
spending,
however,
causes
a
job
loss
of
12,900
jobs
in
all
industries
nationwide.
This
is
half
again
as
large
as
the
job
losses
from
consumer
spending
estimated
under
the
original
baseline
for
Option
2
(
8,640
jobs)
.
Table
5C­
9
shows
a
net
employment
loss
of
1,300
under
Option
2.
This
is
about
the
same
as
the
net
employment
effect
under
the
initial
baseline
(
1,440
jobs)

Clearly,
the
estimated
impact
of
the
proposed
rule
depends
on
which
baseline
is
considered
more
appropriate.

5C­
12
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
Table
5C­
9
Changes
in
Output
and
Total
Employment
from
the
Alternate
Baseline
(
$
1997)

Option
Comb.
Loss
of
Output
(
$
Million)
Stimulus
from
Added
Work
(
$
Million)
Change
in
Employment
from
Lost
Output
(
Jobs)
Change
in
Employment
from
Stimulus
(
Jobs)
Net
Change
in
Employment
from
Construction
Impacts
(
Jobs)
Change
in
Employment
from
Consumer
Spending
(
Jobs)
Net
Change
in
Total
Employment
(
Jobs)
Single­
family
1
(
30)
67
(
1,101)
2,477
1,376
(
1,616)
(
241)

2
(
74)
165
(
2,732)
6,147
3,414
(
4,012)
(
598)

3
0
0
0
0
0
0
0
Multifamily
1
(
4)
10
(
136)
354
218
(
260)
(
41)

2
(
8)
21
(
293)
772
479
(
567)
(
88)

3
0
0
0
0
0
0
0
Commercial
1
(
50)
143
(
1,840)
5,319
3,478
(
3,569)
(
90)
2
(
102)
295
(
3,789)
10,965
7,176
(
7,361)
(
185)

3
0
0
0
0
0
0
0
Industrial
1
(
14)
21
(
520)
779
259
(
478)
(
219)

2
(
27)
(
41)
(
1,019)
1,527
508
(
940)
(
432)

3
0
0
0
0
0
0
0
Total
1
(
97)
240
(
3,597)
8,928
5,332
(
5,923)
(
591)

2
(
211)
522
(
7,833)
19,410
11,577
(
12,880)
(
1,303)

3
0
0
0
0
0
0
0
Source:
EPA
estimates
based
on
the
methodologies
presented
in
Chapter
Four.

5C­
13
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
5C.
3
REFERENCES
Dun
&
Bradstreet.
2000.
1999­
2000
Industry
Norms
and
Key
Business
Ratios.

ENR.
2001.
ENR
Construction
Cost
Index.
Engineering
News
Record.
Available
at:
http:
/
/
www.
enr.
com/
cost/
costcci.
asp.
Accessed
on
December
17,
2001.

U.
S.
EPA.
1999.
Economic
Analysis
of
the
Final
Phase
II
Storm
Water
Rule.
U.
S.
Environmental
Protection
Agency.

5C­
14