"TRIM
\
EPA
United S
Environr
Agency
United States
Environmental Protection
Economic Analysis of Proposed
Effluent Guidelines and Standards
for the Construction and Development
—44-
Category
Mav 2002
UJLtfc
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Economic Analysis of Proposed
Effluent Guidelines and Standards
for the Construction and Development Category
May 2002
United States Environmental Protection Agency
Office of Water (4303T)
1200 Pennsylvania Avenue, NW
Washington, DC 20460
www. epa.gov/waterscience/guide/
EPA-821-R-02-008
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ACKNOWLEDGMENTS AND DISCLAIMER
The Construction and Development Effluent Guidelines proposed rule and support documents
were prepared by the C&D Project Team: Eric Strassler, Project Manager; Jesse Pritts, P.E.,
Engineer; George Denning, Economist; Karen Maher, Environmental Assessor; and Michael G. Lee,
Attorney. Technical support for this Economic Analysis was provided by Eastern Research Group,
Inc. (ERG), of Lexington, MA.
Neither the United States government nor any of its employees, contractors, subcontractors or
other employees makes any warranty, expressed or implied, or assumes any legal liability or
responsibility for any third party's use of, or the results of such use of, any information, apparatus,
product or process discussed in this report, or represents that its use by such a third party would not
infringe on privately owned rights. Mention of trade names or commercial products does not constitute
endorsement by EPA or recommendation for use.
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CONTENTS
EXECUTIVE SUMMARY
ES.l INTRODUCTION ES-1
ES.2 INDUSTRY PROFILE ES-2
ES.2.1 Data Sources ES-2
ES.2.2 Industry Description ES-3
ES.2.2.1 Number of Establishments ES-6
ES.2.2.2 Employment ES-7
ES.2.2.3 Revenues ES-8
ES.2.2.4 Number of Potentially Regulated Businesses ES-8
ES.2.2.5 Small Entities ES-11
ES.2.3 Industry Dynamics ES-12
ES.3 REGULATORY OPTIONS ES-14
ES.3.1 Current Regulatory Status of the C&D Industry ES-14
ES.3.2 Summary of Proposed Regulatory Options ES-15
ES.4 ECONOMIC IMPACT ANALYSIS ES-16
ES.4.1 Impacts on Model Construction Projects ES-17
ES.4.2 Impacts on Model Construction Firms ES-18
ES.4.2.1 Impacts on Model Firm Financial Ratios ES-18
ES.4.2.2 Closures and Employment Losses ES-20
ES.4.2.3 Barriers to Entry ES-22
ES.4.3 Impacts on National Construction Markets and the National Economy ES-24
ES.5 SMALL ENTITY IMPACT ANALYSIS ES-26
ES.5.1 Definition of Affected Small Entities ES-26
ES.5.2 Small Entity Impacts ES-27
ES.6 BENEFITS ANALYSIS ES-29
ES.6.1 Benefits Methodology ES-29
ES.6.2 Environmental Assessment and Benefits Analysis ES-30
ES.6.2.1 Overview of Environmental Assessment and Benefits Analysis ES-30
ES.6.2.2 Avoided Water Treatment Costs ES-30
ES.6.2.3 Avoided Loss of Water Storage Capacity ES-31
ES.6.2.4 Avoided Navigational Dredging ES-31
ES.6.2.5 Non-quantified Benefits ES-32
ES.7 SOCIAL COSTS AND BENEFITS ES-32
ES.8 ANALYSIS OF OTHER IMPACTS ES-33
ES.8.1 Unfunded Mandates ES-33
ES.8.2 Environmental Justice ES-33
ES.8.3 Children's Health ES-34
ES.9 REFERENCES ES-35
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CONTENTS (cont.)
Page
CHAPTER ONE
INTRODUCTION
1.1 EXISTING REGULATORY FRAMEWORK 1-2
1.1.1 NPDES Permit Regulation of the C&D Industry 1-2
1.2 PURPOSE OF THE PROPOSED RULE 1-4
1.3 INDUSTRIES AFFECTED BY THE PROPOSED C&D EFFLUENT GUIDELINES 1-5
1.4 OVERVIEW OF KEY DATA SOURCES 1-6
1.5 REPORT ORGANIZATION 1-7
CHAPTER TWO
ECONOMIC PROFILE OF THE CONSTRUCTION AND DEVELOPMENT INDUSTRY
2.1 INTRODUCTION 2-1
2.1.1 Recent Trends in the C&D Industry 2-2
2.1.2 Data Sources Used 2-3
2.1.3 Organization of this Chapter 2-4
2.2 INDUSTRY DEFINITION 2-5
2.2.1 Basis for Regulation 2-5
2.2.2 Industry Definition 2-6
2.3 INDUSTRY CHARACTERISTICS 2-8
2.3.1 Establishment-Level Data 2-9
2.3.1.1 Number and Size of Establishments 2-9
2.3.1.2 Legal Form of Organization 2-13
2.3.1.3 Geographic Distribution 2-15
2.3.1.4 Employment 2-15
2.3.1.5 Payrolls and Benefits 2-17
2.3.1.6 Specialization 2-18
2.3.2 Firm-Level Data 2-21
2.3.2.1 Number and Size of Firms 2-21
2.3.2.2 Firm-Level Revenues 2-22
2.3.3 Number of Small Entities 2-25
2.3.4 Entities Not Covered by the Proposed Rule 2-26
2.3.4.1 Establishments Engaged in Remodeling 2-26
2.3.4.2 Establishments That Are Not NPDES Permttees 2-27
2.3.5 Number of Potentially Affected Entities 2-28
2.4 MARKET SUPPLY AND DEMAND 2-30
2.4.1 Characteristics of Construction Supply 2-31
2.4.1.1 Residential Building 2-31
2.4.1.2 Nonresidential Building 2-37
11
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CONTENTS (cont.)
Page
2.4.1.3 Heavy Construction 2-40
2.4.1.4 Characterization of Supply 2-45
2.4.1.5 Supply Trends 2-47
2.4.2 Characteristics of Construction Demand 2-51
2.4.2.1 Demand Factors Affecting Construction and Development Activities 2-51
2.4.2.2 Housing Demand and Elasticity 2-52
2.4.2.3 Impact of Regulation on Housing Demand 2-53
2.4.2.4 Trends in New Homes Sold 2-54
2.4.2.5 Nonresidential Demand Characteristics 2-55
2.4.2.6 Heavy Construction Demand Characteristics 2-56
2.5 ECONOMIC AND FINANCIAL CHARACTERISTICS 2-59
2.5.1 Value of Work Done 2-59
2.5.2 Selected Costs 2-64
2.5.2.1 All Costs 2-64
2.5.2.2 Machinery and Equipment Costs 2-64
2.5.3 Capital Expenditures and Depreciation 2-68
2.5.4 Value of Inventories 2-69
2.6 KEY BUSINESS INDICATORS AND RATIOS 2-71
2.7 INDUSTRY GROWTH 2-77
2.8 INTERNATIONAL COMPETITIVENESS 2-79
2.9 REFERENCES 2-80
Appendix 2A Additional Detailed 5-Digit NAICS Tables
Appendix 2B Specialization Within the C&D Industries, Categorized by Value of Construction Work
Appendix 2C Definitions of Key Business Ratios from Dun & Bradstreet
Appendix 2D Summary Statistics for the C&D Industries, by NAICS Code
CHAPTER THREE
DESCRIPTION OF PROPOSED RULE AND REGULATORY OPTIONS
3.1 EFFLUENT LIMITATIONS GUIDELINES AND STANDARDS 3-1
3.2 REQUIREMENTS UNDER THE EXISTING CONSTRUCTION GENERAL PERMIT .... 3-2
3.3 SUMMARY OF REGULATORY OPTIONS/TECHNOLOGY ALTERNATIVES 3-3
3.3.1 Option 1 3-4
3.3.2 Option 2 3-5
3.3.3 Option3 3-11
in
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CONTENTS (cont.)
Page
CHAPTER FOUR
ECONOMIC IMPACT METHODOLOGY
4.1 OVERVIEW OF ECONOMIC IMPACT ANALYSIS METHODOLOGY 4-1
4.1.1 Compliance and Baseline Assumptions 4-2
4.1.2 Cost Pass Through Assumptions 4-3
4.1.3 Operation and Maintenance Costs 4-6
4.1.4 Impacts Associated With NSPS 4-6
4.2 IMPACTS ON MODEL PROJECTS 4-7
4.2.1 Description of Model Project Approach 4-8
4.2.2 Treatment of Nonbuilding Construction Projects 4-9
4.2.3 Description of Model Projects 4-9
4.2.3.1 Residential Single-family Development 4-10
4.2.3.2 Residential Multifamily Development 4-13
4.2.3.3 Commercial Development 4-13
4.23.4 Industrial Development 4-14
4.2.4 Cost Pass Through Assumptions 4-14
4.2.5 Inputs to the Model Project Analysis 4-14
4.2.6 Model Project Analysis Approach 4-17
4.2.6.1 Baseline Model Project Performance 4-17
4.2.6.2 Results of Model Project Analysis 4-18
4.2.7 Model Nonbuilding Project Analysis 4-22
4.3 IMPACTS ON MODEL ESTABLISHMENTS 4-25
4.3.1 Model Establishment Analysis 4-25
4.3.1.1 Inputs to the Model Establishment Analysis 4-25
4.3.1.2 Balance Sheet and Income Statement for Model Establishment 4-26
4.3.1.3 Methodology for Analysis of Regulatory Impacts on
Model Establishment 4-28
4.3.1.4 Analysis of Financial Ratios for Model Establishment 4-30
4.3.1.5 Compliance Cost Inputs into Financial Ratio Analysis 4-33
4.3.2 Extension of Model Facility Analysis to Project Industry Closures 4-35
4.3.2.1 Estimation of Affected Establishments and Employment 4-35
4.3.2.2 Closure and Employment Impacts Based on Financial Ratio Analysis 4-38
4.3.2.3 Closure and Employment Impacts Based on Cashflow Analysis 4-41
4.3.3 Analysis of Barriers to Entry 4-44
4.4 NATIONAL COMPLIANCE COSTS 4-45
4.4.1 National Estimates of Disturbed Acreage 4-45
4.4.2 Distribution of Acreage by Project Type 4-46
4.4.3 Distribution of Acreage by Project Size 4-54
4.4.4 Estimates of Acreage Covered by Option 2 4-55
4.4.5 Operation and Maintenance Costs 4-58
IV
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CONTENTS (cont.)
Page
4.5 IMPACTS ON THE NATIONAL HOUSING MARKET 4-58
4.5.1 Description of National Housing Market Model 4-58
4.5.1.1 Complete Cost Pass Through and Housing Affordability 4-58
4.5.1.2 National Partial Equilibrium Modeling 4-63
4.5.1.3 Regional Partial Equilibrium Modeling and the Housing
Opportunity Index 4-66
4.5.2 Inputs to the National Housing Market Model 4-69
4.5.3 Multifamily and Non-Residential Construction Market Models 4-69
4.6 NET ECONOMIC IMPACTS 4-72
4.6.1 Welfare Effects 4-72
4.6.2 Regional Impacts 4-73
4.6.3 International Trade 4-74
4.7 GOVERNMENT IMPACTS 4-75
4.7.1 Administrative Costs 4-75
4.7.2 Compliance Costs 4-75
4.8 REFERENCES 4-76
Appendix 4A Data and Modeling Assumptions for Model Project Analysis
Appendix 4B Detailed Description of Model Parameters and Assumptions
Appendix 4C Characteristics of Model Establishments
CHAPTER FIVE
ECONOMIC IMPACT ANALYSIS RESULTS
5.1 OVERVIEW OF ECONOMIC IMPACT ANALYSIS METHODOLOGY 5-1
5.2 ANALYSIS OF IMPACTS ON MODEL PROJECTS 5-2
5.2.1 Cost Pass Through Considerations 5-3
5.2.2 Model Project Baseline Performance 5-3
5.2.3 Results of Model Project Analyses 5-5
5.2.4 Nonbuilding Project Analysis Results 5-6
5.3 ANALYSIS OF NATIONAL COMPLIANCE COSTS 5-7
5.4 ANALYSIS OF IMPACTS ON MODEL ESTABLISHMENTS 5-10
5.4.1 Building Construction 5-10
5.4.2 Nonbuilding Construction 5-14
5.5 ANALYSIS OF IMPACTS ON CLOSURES AND EMPLOYMENT LOSSES 5-16
5.5.1 Facility Closures 5-17
5.5.2 Employment Losses 5-18
5.6 ANALYSIS OF BARRIER TO ENTRY 5-20
5.6.1 Building Construction 5-20
5.6.2 Nonbuilding Construction 5-22
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CONTENTS (cont.)
Page
5.7 ANALYSIS OF IMPACTS ON NATIONAL CONSTRUCTION MARKETS 5-23
5.7.1 Residential Construction Markets 5-24
5.7.1.1 Housing Affordability 5-24
5.7.1.2 Housing Opportunity Index 5-24
5.7.1.3 Single-Family Housing Prices and Quantities 5-26
5.7.1.4 Multifamily Housing Prices and Quantities 5-26
5.7.2 Non-Residential Construction Markets 5-27
5.7.2.1 Commercial Space 5-27
5.7.2.2 Industrial Space 5-28
5.7.3 Output and Employment 5-29
5.7.4 Changes in Welfare Measures 5-30
5.7.5 Regional Effects 5-31
5.8 IMPACTS ON GOVERNMENTAL UNITS 5-35
5.8.1 Construction Program Administration 5-35
5.8.2 Government Construction Costs 5-36
5.9 OTHER IMPACTS 5-37
5.9.1 Requirements of Executive Order 12866 5-37
5.9.2 Environmental Justice 5-39
5.9.3 Children's Health 5-39
5.10 REFERENCES 5-41
Appendix 5A Closure and Employment Loss Analysis Results - Cash Flow Analysis
Appendix 5B Sensitivity Analysis for the National Partial Equilibrium Model
Appendix 5C Baseline Analysis
CHAPTER SIX
INITIAL REGULATORY FLEXIBILITY ANALYSIS
6.1 INTRODUCTION TO THE INITIAL REGULATORY FLEXIBILITY ANALYSIS 6-1
6.2 INITIAL ASSESSMENT 6-2
6.2.1 Definition of Affected Small Entities 6-2
6.2.2 Number of Small Businesses Affected 6-4
6.2.2.1 Number of Establishments Affected 6-5
6.2.2.2 Number of Businesses Affected 6-6
6.2.2.3 Number of Small Businesses Affected 6-9
6.3 EPA COMPLIANCE WITH RFA REQUIREMENTS 6-10
6.3.1 Outreach and Small Business Advocacy Review 6-10
6.3.2 EPA's Initial Regulatory Flexibility Analysis 6-11
6.3.2.1 Reasons EPA is Considering the Proposed Rule 6-12
6.3.2.2 Objectives and Legal Basis for the Proposed Rule 6-12
6.3.2.3 Description and Estimate of Number of Small Entities Affected 6-14
VI
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CONTENTS (cont.)
Page
6.3.2.4 Description of Proposed Recordkeeping, Reporting, and
Other Requirements 6-15
6.3.2.5 Identification of Relevant Federal Rules That May Duplicate, Overlap, or
Conflict with the Proposed Regulations 6-16
6.3.2.6 Significant Regulatory Alternatives 6-17
6.4 EPA'S ANALYSIS OF SMALL BUSINESS IMPACTS 6-18
6.4.1 Classification of Model Facilities for Impact Analysis 6-18
6.4.2 Revenue Test Methodology 6-21
6.4.2.1 Development of Revenue Distributions 6-22
6.4.2.2 Application of Revenue Distributions to Estimating Small
Business Impacts 6-24
6.4.3 Small Business Impact Analysis Results 6-26
6.5 REFERENCES 6-31
CHAPTER SEVEN
BENEFITS METHODOLOGY
7.1 PREVIOUS APPROACHES TO BENEFITS ASSESSMENT 7-1
7.2 BENEFITS CATEGORIES CONSIDERED 7-2
7.2.1 Decreased Erosion and Sediment Generation 7-4
7.2.1.1 Water Storage Capacity 7-4
7.2.1.2 Navigational Dredging 7-6
7.2.2 Reduced In-Stream TSS and Sediment Concentration 7-7
7.2.3 Non-Quantified Benefits 7-9
7.2.3.1 Water Contact Recreation 7-9
7.2.3.2 Biodiversity Effects 7-10
7.2.3.3 Other Sources of Benefits 7-10
7.3 CONCLUSION 7-11
7.4 REFERENCES 7-12
CHAPTER EIGHT
BENEFITS ASSESSMENT RESULTS
8.1 ENVIRONMENTAL ASSESSMENT RESULTS 8-1
8.2 BENEFITS ASSESSMENT RESULTS 8-1
8.3 REFERENCES 8-3
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CONTENTS (cont.)
CHAPTER NINE
COSTS AND BENEFITS OF THE PROPOSED RULE
9.1 INTRODUCTION 9-1
9.2 SOCIAL COSTS OF THE RULE 9-1
9.2.1 Direct Social Costs 9-1
9.2.1.1 Compliance Costs 9-2
9.2.1.2 Government Regulatory Costs 9-2
9.2.2 Social Welfare Losses 9-3
9.2.3 Transitional Effects 9-4
9.3 INDIRECT EFFECTS 9-4
9.4 COMPARISON OF ESTIMATED COSTS AND BENEFITS 9-5
CHAPTER TEN
UNFUNDED MANDATES REFORM ACT
10.1 INTRODUCTION 10-1
10.2 ANALYSIS AND RESULTS 10-2
10.3 REFERENCES 10-5
DOCUMENT INDEX 11-1
Vlll
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LIST OF TABLES
Table Page
ES-1 Industry Definition for Construction and Development Industry Profile ES-5
ES-2 Number of Establishments in Construction and Development Industries, 1997 vs. 1992 . . . ES-6
ES-3 Number of Employees in the Construction and Development Industries,
Establishments with Payroll ES-7
ES-4 Value of Construction Work ES-8
ES-5 Number of Establishments Potentially Affected by the Proposed Rule ES-10
ES-6 Estimated Number of Small Businesses Potentially Affected by the Proposed Rule ES-12
ES-7 Housing Supply and Demand - Historical Data and Projections for 2001-2010 ES-14
ES-8 Summary of Regulatory Options Proposed by EPA ES-15
ES-9a Weighted Average Change in Sales Price to Buyer ES-18
ES-9b Weighted Average Change in Builder-Developer Profit ES-18
ES-10 Impact of Compliance Costs on Model Firm Financials - Zero Percent Cost
Pass Through ES-20
ES-11 Estimated Facility Closures - Zero Percent Cost Pass Through ES-21
ES-12 Estimated Facility Closures -Estimated Cost Pass Through ES-22
ES-13 Barrier to Entry Analysis - Zero Percent Cost Pass Through ES-23
ES-14 Estimated National Costs of ESC Controls ES-24
ES-15a Estimated Number of Small Business-Owned Establishments with Compliance Costs
Exceeding 1 Percent of Revenues ES-28
ES-15b Estimated Number of Small Business-Owned Establishments with Compliance Costs
Exceeding 3 Percent of Revenues ES-29
ES-16 Environmental Measures ES-30
ES-17 Point Estimates of Benefits by Category ES-31
ES-18 Social Costs and Benefits of Options ES-33
1-1 Industries Potentially Affected by Proposed Rulemaking 1-5
2-1 Number of Establishments in Construction and Development Industries, 1997 vs. 1992 2-3
2-2 Comparison of Major Data Sources 2-4
2-3 Industry Definitions for Construction and Development Industry Profile 2-7
2-4 Number of Establishments in the Construction and Development Industry,
Based on the 1997 Census of Construction 2-10
2-5 Number of Small Entities with Payrolls in the Construction and Development Industry,
Based on Employment 2-12
2-6 Number of Small Establishments in the Construction and Development Industry,
Based on Value of Business Done 2-12
2-7 Number of Establishments in the Construction and Development Industry with Payroll,
by Legal Form of Organization 2-14
2-8 Number of Employees in the Construction and Development Industries,
Establishments with Payrolls 1997 2-16
2-9 Payroll and Benefits for Employees in the Construction Industry 2-19
2-10 Specialization within NAICS 23321, Categorized by Value of Construction Work 2-20
2-11 Employer Firms and Establishments by Employment Size of Firm by NAICS Codes 2-22
2-12 Employer Firms and Establishments by Revenue Size Class (1997) 2-24
IX
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LIST OF TABLES (cont.)
Table Page
2-13 Number of Firms and Establishments Above and Below SB A Thresholds for
Small Business Definition Based on Data from SBA 2-25
2-14 Number of Affected Establishments in the Construction and Development Industry 2-30
2-15 New Privately Owned Housing Units Authorized by Building Permits in
Permit-Issuing Places 2-35
2-16 New Privately Owned Housing Units Authorized - Valuation for Regions 2-37
2-17 Estimated Number of Nonresidential Building Permits for 1997, by Region 2-39
2-18 Highway Statistics 2-41
2-19 Highway Capital Outlay by Improvement Type 2-44
2-20 Selected Statistics for Establishments by Single-Family Housing Starts Size Class 2-46
2-21 Construction Cost Comparison for Low Impact Development 2-50
2-22 Impact of Regulatory-Driven Delays on Housing Affordability 2-53
2-23 New One-Family Houses Sold and For Sale 2-54
2-24 Value of Construction Work by Project Ownership 2-58
2-25 Value and Net Value of Construction Work 2-62
2-26 Value of Construction Work by Type of Construction 2-63
2-27 Selected Costs in the Construction Industry 2-66
2-28 Additional Selected Costs in the Construction Industry 2-67
2-29 Capital Expenditures in the Construction Industry 2-69
2-30 Total Value of Inventories for Construction Industry Establishments 2-70
2-31 Key Business Statistics and Ratios of the Construction Industry 2-73
2-32 New Privately Owned Housing Units Authorized by Building Permit, 1981-1999 2-78
2-33 Value of New Privately Owned Housing Units Authorized by Building
Permits, 1991-1999 2-79
2A-1 Detailed Number of Establishments in the C&D Industry with Payroll 2A-1
2A-2 Detailed Number of Small Establishments in the C&D Industry with Payroll,
by Employment Size Class 2A-3
2A-3 Value of Construction Work by Type of Construction 2A-4
2B-1 Specialization within NAICS 23311 (Land subdivision and land development),
Categorized by Value of Construction Work 2B-1
2B-2 Specialization within NACIS 23321 (Single-family housing construction),
Categorized by Value of Construction Work 2B-3
2B-3 Specialization within NAICS 23322 (Multifamily housing construction),
Categorized by Value of Construction Work 2B-5
2B-4 Specialization within NAICS 23331 (Manufacturing and industrial building construction),
Categorized by Value of Construction Work 2B-7
2B-5 Specialization within NAICS 23332 (Commercial and institutional building construction),
Categorized by Value of Construction Work 2B-9
2B-6 Specialization within NAICS 23411 (Highway and street construction),
Categorized by Value of Construction Work 2B-11
2B-7 Specialization within NAICS 23412 (Bridge and tunnel construction),
Categorized by Value of Construction Work 2B-13
2B-8 Specialization within NAICS 23491 (Water, sewer, and pipeline construction),
Categorized by Value of Construction Work 2B-15
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LIST OF TABLES (cont.)
Table Page
2B-9 Specialization within NAICS 23492 (Power and communication transmission lines
construction), Categorized by Value of Construction Work 2B-17
2B-10 Specialization within NAICS 23493 (Industrial non-building structure construction),
Categorized by Value of Construction Work 2B-19
2B-11 Specialization within NAICS 23499 (All other heavy construction), Categorized by
Value of Construction Work 2B-21
2B-12 Specialization within NAICS 23593 (Excavation contractors), Categorized by
Value of Construction Work 2B-23
2B-13 Specialization within NAICS 23494 (Wrecking and demolition contractors),
Categorized by Value of Construction Work 2B-25
2D-1 Summary Statistics for the C&D Industry 2D-1
3-1 Summary of Regulatory Options Being Co-Proposed by EPA 3-3
4-1 Costs Incurred at Various Stages of a Residential Construction Project 4-15
4-2 Model Parameters and Data Sources 4-16
4-3 Baseline Economic Model of a Hypothetical 7.5-Acre Residential Development 4-20
4-4 Illustrated Impact of Incremental Storm Water Control Requirements on Model Project
Under Proposed Rule Option 1 4-21
4-5 Obligation of Federal-Aid Highway Funds for Selected Highway Improvements and
Functional Classifications - 1995 to 2000 4-24
4-6 Model Single-Family Residential Construction Firm Financial Data 4-28
4-7 Impact of Compliance Costs on Developer-Builder's Balance Sheet 4-30
4-8 Number of Establishments in the Construction and Development Industry Adjusted for
Regulatory Option Coverage 4-37
4-9 Employment in the Construction and Development Industry Adjusted for
Regulatory Option Coverage 4-37
4-10 Acres Converted from Undeveloped to Developed State, 1992-1997 4-47
4-11 New Single-Family and Multifamily Housing Units Authorized, 1995-1997 4-48
4-12 Average and Median Lot Size for New Single-Family Housing Units Sold, 1995-1997 4-49
4-13 Average Building Square Footage 4-51
4-14 Typical Building Sizes and Size Ranges by Type of Building 4-52
4-15 National Estimates of Land Area Developed Per Year Based on Building Permit Data 4-53
4-16 National Estimates of Land Area Disturbed Based on National Resources
Inventory Totals 4-54
4-17 Distribution of Permits by Site Size 4-56
4-18 Estimates of Acreage Affected Under Proposed Rule Option 2 4-57
4-19 Change in Housing Affordability—Sample Calculation 4-61
4-20 Household Information for Imputing Changes in Ownership Possibilities 4-62
4A-1 Model Project Parameters and Data Sources 4A-1
4C-1 Model Establishment Characteristics Based on Census Data 4C-1
4C-2 Model Establishment Characteristics Based on Dun and Bradstreet Data 4C-2
4C-3 Financial Ratio Data by Quartile 4C-3
XI
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LIST OF TABLES (cont.)
Table Page
5-1 Baseline Sales Price and Profit Conditions for the Model Projects 5-4
5-2a Impact of Regulatory Options on Model Project Financials—100 Percent
Cost Pass Through, All Project Sizes 5-6
5-2b Impact of Regulatory Options on Model Project Financials—Zero Percent
Cost Pass Through, All Project Sizes 5-6
5-3a Estimated National Costs of Storm Water Control Options 5-8
5-3b Calculation of Total Cost per Unit 5-9
5-4 Impact of Regulatory Options on Financial Performance for Model Firm Single-Family
Residential Construction, 10-24 Housing Units Starts Class 5-12
5-5a Impact of Regulatory Options on Model Firm Financial Performance
- Zero Cost Pass Through 5-13
5-5b Impact of Regulatory Options on Model Firm Financial Performance
- Estimated Actual Cost Pass Through 5-14
5-6 Impact of Proposed Rule on Model Firm Financials - Highway Construction 5-16
5-7a Estimated Facility Closures - Zero Percent Cost Pass Through 5-17
5-7b Estimated Facility Closures - Estimated Cost Pass Through 5-18
5-8a Estimated Employment Losses - Zero Percent Cost Pass Through 5-19
5-8b Estimated Employment Losses - Estimated Cost Pass Through 5-19
5-9a Barrier to Entry Analysis - Zero Percent Cost Pass Through 5-21
5-9b Barrier to Entry Analysis - Estimated Cost Pass Through 5-22
5-10 Barrier to Entry Analysis - Highway Construction 5-23
5-11 Impact of Erosion and Sediment Control Costs on Housing Affordability 5-24
5-12 Single-Family Residential Average HOI by Census Division 5-25
5-13 Single-Family Residential Percentage Change in HOI by Census Division 5-25
5-14 Single-Family Residential Changes in Price and Quantity from Baseline 5-26
5-15 Multifamily Residential Changes in Price and Quantity from Baseline 5-27
5-16 Commercial Changes in Price and Quantity from Baseline 5-28
5-17 Industrial Changes in Price and Quantity from Baseline 5-28
5-18 Changes in Output and Total Employment from Baseline 5-30
5-19 Changes in Social Welfare Measures - All Sectors Combined 5-31
5-20 Loss of Output to the Construction Industry by State and Use Category for Option 2 5-32
5-21 Net Change in Total Employment by State and Use Category Under
Proposed Rule Option 2 5-34
5-22 Costs to Establish Construction Programs 5-36
5A-1 Estimated Closures as a Percent of Total Establishments, Cash Flow Method
(Zero Cost Pass Through) 5A-1
5A-2 Estimated Closures as a Percent of Total Establishments, Cash Flow Method
(with Cost Pass Through) 5A-1
5A-3 Estimated Employment Losses as a Percent of Total Employment, Cash Flow Method
(Zero Cost Pass Through) 5A-2
5A-4 Estimated Employment Losses as a Percent of Total Employment
(with Cost Pass Through) 5A-2
5B-1 Sensitivity Tests with Alternative Elasticities 5B-2
5C-1 Costs of Phase II Erosion and Sediment Control, by Site Size ($1997) 5C-3
xii
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LIST OF TABLES (cont.)
Table Page
5C-2 Estimated National Costs of Erosion and Sediment Controls - Alternative Baseline 5C-4
5C-3 Social Costs and Benefits of Erosion and Sediment Controls - Alternative Baseline 5C-4
5C-4a Impact of Combined Phase II and Proposed Effluent Guidelines Costs on Model Project
Financials - 100 Percent Cost Pass Through 5C-5
5C-4b Impact of Combined Phase II and Proposed Effluent Guidelines Costs on Model Project
Financials - Zero Percent Cost Pass Through 5C-5
5C-5 Impact of Combined Phase II and Effluent Guidelines Costs on Model Firm Financials
- Zero Percent Cost Pass Through 5C-7
5C-6 Estimated Facility Closures - Zero Cost Pass Through 5C-10
5C-7 Estimated Employment Losses - Zero Cost Pass Through 5C-11
5C-8 Impact of Erosion and Sediment Control Costs on Housing Affordability
—Alternative Baseline (No Phase II Compliance) 5C-12
5C-9 Changes in Output and Total Employment from the Alternate Baseline 5C-13
6-1 SBA Small Business Definitions for the Construction and Development Industry 6-4
6-2 Number of Affected Establishments in the Construction and Development Industry 6-6
6-3 Ratio of Businesses to Establishments by Employment Class 6-7
6-4 Estimated Number of Firms by Employment Class, and Revenues per Establishment 6-8
6-5 Estimated Number of Small Businesses Potentially Affected by the Proposed Rule 6-10
6-6 Key Model Facility Data by Housing Starts Classification Category 6-19
6-7a Estimated Number of Small Business Owned Establishments with Compliance Costs
Exceeding 1 Percent of Revenues - Zero Cost Pass Through 6-27
6-7b Estimated Number of Small Business Owned Establishments with Compliance Costs
Exceeding 3 Percent of Revenues - Zero Cost Pass Through 6-28
6-7c Estimated Number of Small Business Owned Establishments with Compliance Costs
Exceeding 1 Percent of Revenues - Estimated Cost Pass Through 6-29
6-7d Estimated Number of Small Business Owned Establishments with Compliance Costs
Exceeding 3 Percent of Revenues - Estimated Cost Pass Through 6-30
7-1 Environmental Measures from the Baseline Environmental Assessment 7-3
7-2 Sample Calculation of Avoided Loss of Water Storage Capacity 7-5
7-3 Sample Calculation of Avoided Navigational Dredging 7-7
7-4 Sample Calculation of Avoided Water Treatment Costs 7-9
8-1 Total Suspended Sediment (TSS) - Differences from Baseline 8-2
8-2 Benefits Estimates 8-2
9-1 Social Costs and Benefits 9-5
10-1 Impacts of Proposed Rule Compliance Costs on Government Units 10-4
Xlll
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LIST OF FIGURES
Pas
ES-1 Historical Data on Housing Construction ES-13
2-1 Number of Establishments in the C&D Industries, by State 2-15
2-2 Seasonal Trends for Employment in the C&D Industries 2-17
2-3 New Privately Owned Housing Units Authorized, Seasonally Adjusted Annual Rate 2-34
4-1 Pre- and Post-Regulatory Cumulative Distribution Function for Current Ratio 4-39
4-2 Baseline Distribution Function with Bounds for Facility Cashflow 4-43
6-1 Baseline Distribution Functions for Facility Revenues 6-23
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
EXECUTIVE SUMMARY
ES.l INTRODUCTION
The deposition of sediment from construction site runoff has contributed to the loss of capacity in
small streams, lakes, and reservoirs, leading to the necessity for mitigation efforts such as dredging or
replacement. In response, the U.S. Environmental Protection Agency (EPA) is proposing several options
to address storm water discharges from construction sites. As one option, EPA would establish
inspection and certification requirements that would be incorporated into the storm water permits issued
by EPA and States, with other permit requirements based on the best professional judgement of the
permit authority. As another option, EPA would establish technology-based effluent limitation guidelines
and standards (ELGs) for storm water discharges from construction sites required to obtain National
Pollutant Discharge Elimination System (NPDES) permits. The final option would involve no incremental
regulation. EPA would allow technology-based permit requirements to continue to be established based
upon the best professional judgment of the permit authority.
This Economic Analysis (EA) summarizes EPA's analysis of the estimated compliance costs and
the economic impacts that may be incurred by regulated entities within the construction and development
(C&D) industry as a result of the proposed regulations. The EA describes the proposed regulatory
options considered by EPA. Financial impacts to establishments in the C&D industry, potential impacts
on consumers of C&D industry output, and market and other secondary impacts such as industry
employment are also covered here. This EA also responds to requirements for small business analyses
under the Regulatory Flexibility Act (RFA) as amended by the Small Business Regulatory Enforcement
Fairness Act (SBREFA) and for cost-benefit analyses under Executive Order 12866 and the Unfunded
Mandates Reform Act (UMRA).
ES-1
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
ES.2 INDUSTRY PROFILE
ES.2.1 Data Sources
EPA relied on existing data sources, including academic literature, industry trade associations, and
government data such as that provided by the U.S. Census Bureau. Major data sources are discussed in
more detail where they are used to support sections of this analysis.
Of primary importance in the early development of this EA was the 1997 Census of Construction,
conducted by the U.S. Census Bureau. The Census provided information on the industry sectors
potentially affected by the proposed rule, as well as characteristics of each sector such as employment
and revenue levels. EPA used other reports from the Census Bureau, including:
• Report C25 - Characteristics of New Housing
• Report C40 - Building Permits
Report C20 - Housing Starts
Report C30 - Value Put in Place
These reports were used to develop and support the various economic models used in this
analysis.
Other data sources used to create a profile of the C&D industry included focus group sessions
with the National Association of Home Builders (NAHB) and various NAHB publications, the Economic
Analysis for the Final Phase IINPDES Storm Water Regulations, and a report on the remodeling
industry by the Joint Center for Housing Studies at Harvard University, in addition to a variety of
academic literature.
ES-2
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in
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
ES.2.2 Industry Description
The construction industry plays an integral role in the nation's economy, contributing
approximately five percent of the Gross Domestic Product. Establishments in this industry are involved
a wide variety of activities, from land development and subdivision to homebuilding, construction of
nonresidential buildings and other structures, heavy construction work (including roadways and bridges),
and a myriad of special trades such as plumbing, roofing, electrical, excavation, and demolition work.
C&D activity affecting water quality typically involves site selection and planning, and land-disturbing
tasks during construction such as clearing, excavating and grading. Disturbed soil, if not managed
properly, can be easily washed off-site during storm events. Storm water discharges generated during
construction activities can cause an array of physical, chemical and biological impacts.
Several characteristics of the construction industry affect the structure of this economic analysis:
• Individuals (e.g., homebuyers) are often the direct customers of the construction industry.
With individuals as the direct consumer it is necessary to address issues such as cost pass
through and the impacts of regulations on housing affordability.
• The construction industry is dominated by small businesses. As a result, EPA carefully
considered the impacts on small businesses in accordance with the Regulatory Flexibility
Act (RFA), as amended by the Small Business Regulatory Enforcement Fairness Act
(SBREFA).
• There are complex and varying relationships between developers and builders, resulting in
a variety of different business models. Developers may undertake all improvement and
sell completed lots directly to builders, act as builders themselves and remain onsite to
build out the development, or sell some lots and retain others to build on.
• Construction activities are highly localized. This suggests that a regional approach to
analysis may be helpful in accounting for varying market conditions.
• The standard industry definitions include a large number of establishments primarily
engaged in remodeling activities. Such establishments are less likely to be involved in
land disturbing activities.
For the purposes of this economic analysis, the "C&D industries" are broadly defined to include
those establishments within the construction sector (NAICS 23) that may be involved in activities that
ES-
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
disturb the ground at construction sites. This includes site clearing or site preparation activities such as
tree removal, excavation, blasting, scraping, grading, etc. EPA believes that many establishments in
NAICS 233 (Building, developing, and general contracting) and NAICS 234 (Heavy construction) are
likely to engage in such activities on a regular basis. Establishments within selected 5-digit industries that
are part of NAICS 235 (Special trade contractors) may also engage in land-disturbing activities. These
may include NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors).
However, as discussed in Section VIA in the preamble of the proposed rule, Special trade contractors
are typically subcontractors and not identified as NPDES permittees. Table ES-1 identifies the industry
sectors that may be covered by the proposed regulations.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table ES-1.
Industry Definitions for Construction and Development Industry Profile
NAICS Code
233
2331
23311
2332
23321
23322
2333
23331
23332
234
2341
23411
23412
2349
23491
23492
23493
23499
235
23593
23594
Industry
Relevant SIC Codes
Building, developing, and general contracting
Land subdivision and
development
Land subdivision and
development
Residential building
construction
Single-family housing
construction
Multifamily housing
construction
Nonresidential building
construction
Manufacturing and
industrial building
construction
Commercial and
institutional building
construction
6552 Land subdividers and developers, except cemeteries
1521 General contractors-single-family houses
1531 Operative builders (partial)
8741 Management services (partial)
1522 General contractors-residential buildings other than single-family (partial)
1531 Operative builders (partial)
8741 Management services (partial)
1531 Operative builders (partial)
1541 General contractors-industrial buildings and warehouses (partial)
8741 Management services (partial)
1522 General contractors-residential buildings, other than single-family (partial)
1531 Operative builders (partial)
1541 General contractors-industrial buildings and warehouses (partial)
1542 General contractors-nonresidential buildings except industrial buildings
and warehouses
8741 Management services (partial)
Heavy Construction
Highway, street, bridge,
and tunnel construction
Highway and street
construction
Bridge and tunnel
construction
Other heavy construction
Water, sewer, and
pipeline construction
Power and
communication
transmission line
construction
Industrial nonbuilding
structure construction
All other heavy
construction
1611 Highway and street construction contractors, except elevated highways
8741 Management services (partial)
1622 Bridge, tunnel, and elevated highway construction
1623 Water, sewer, pipeline, and communications and power line construction
(partial)
8741 Management services (partial)
1623 Water, sewer, pipeline, and communications and power line construction
(partial)
8741 Management services (partial)
1629 Heavy construction, n.e.c. (partial)
8741 Management services (partial)
1629 Heavy construction, n.e.c. (partial)
7353 Heavy construction equipment rental and leasing (partial)
8741 Management services (partial)
Special trade contractors
Excavation contractors
Wrecking and demolition
contractors
1794 Excavation work special trade contractors
1795 Wrecking and demolition work special trade contractors
Source: U.S. Census Bureau (2000).
ES-5
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
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ES.2.2.1
Number of Establishments
In 1997, there were a total of 261,617 establishments with payroll in the C&D industries. This
represented 39.8 percent of all establishments in the construction sector (NAICS 23) and 4.1 percent of
all U.S. business establishments. Between 1992 and 1997, the number of establishments with payroll in
the C&D industries increased from 235,789 to 261,617, an increase of 11.0 percent (see Table ES-2).
This overall modest increase masks some significant offsetting changes in establishment counts within
individual industries, as defined under NAICS, i.e.,:
The number of establishments in the land development sector (NAICS 2331) decreased
by 46.6 percent;
There was a 13.5 percent increase in the number of establishments in residential and
nonresidential building construction (NAICS 233, except 2331);
The number of establishments in heavy construction increased by 14.5 percent;
There was a 33.0 percent increase in the number of special trades contractor
establishments (NAICS 235), including a 31.2 percent increase among excavation
contractors and a 59.6 percent increase among demolition contractors.
Table ES-2.
Number of Establishments in Construction and Development Industries, 1997 vs 1992
NAICS
233, exc. 2331
2331
234
235'
Industry
Building, developing, and general
contracting, except land development and
subdevelopment
Land development and subdevelopment
Heavy construction
Special trade contracting
Subtotal
Number of Establishments
1992
168,407
15,338
37,180
14,864
235,789
1997
191,101
8,185
42,557
19,771
261,617
Pet. Change
1992-1997
13.5%
-46.6%
14.5%
33.0%
11.0%
1 Includes NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only.
Figures may not add to totals due to rounding.
Source: U.S. Census Bureau (2000).
ES-6
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
ES.2.2.2
Employment
In 1997, employment in the C&D industries totaled nearly 2.4 million workers. This represented
41.6 percent of all construction sector employment (NAICS 23) and 2.3 percent of all employment in U.S.
business establishments. Table ES-3 shows a distribution of employment by NAICS industry. NAICS
2331 (Land subdivision and land development) accounts for 41,827 employees (1.8 percent of the total),
the rest of NAICS 233 (Building, developing, and general contracting) accounts for 1.3 million employees,
or 55.2 percent of the total. A total of 880,400 or 37.3 percent of the total are employed in NAICS 234
(Heavy construction), and NAICS 23593 and 23594 (Excavation contractors and Wrecking and
demolition contractors) employ 135,057 (5.7 percent of the total).1
Table ES-3. Number of Employees in the Construction and Development Industries, Establishments With
Payroll, 1997
NAICS
233, except
23311
23311
234
235s
Industry
Building, developing, and general contracting, except land
subdivision and land development
Land subdivision and land development
Heavy construction
Special trade contractors
TOTALS
Number of
Employees
1,301,126
41,827
880,400
135,057
2,358,410
Percent
of Total
55.2%
1.8%
37.3%
5.7%
100.0%
* Includes NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only.
Source: U.S. Census Bureau (2000).
Construction is a seasonal activity in many parts of the country, and employment data from the
industry bear this out. In 1997 employment of construction workers was lowest in March at 1.59 million
and highest in August at 1.83 million.
1 A comparison to 1992 employment levels (comparable to that shown in Table ES-2) is not easily made
because of the change from SIC to NAICS basis between the 1992 and 1997 Census periods.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
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ES.2.2.3
Revenues
Overall, the value of construction work completed in the C&D industries was $525.3 billion in
1997. This represents an increase of 58.8 percent over the $330.6 billion in (nominal) value recorded in
1992. NAICS 233 (Building and developing) accounted for $368.0 billion or 70.0 percent of the total
overall value in 1997. Value of work for heavy construction contractors (NAICS 234) was $127.8 billion
or 24.4 percent of the total, while special trade contractors (NAICS 23593 and 23594) completed work
valued at $15.9 billion, representing 3.0 percent of total revenues. The average value of construction
work done per establishment ranges from $0.8 million per year for special trades to $3.0 million per year
for heavy construction.
Table ES-4.
Value of Construction Work (Thousands of 1997 Dollars)
NAICS
233, except
2331
2331
234
235"
Description
Building, developing, and general
contracting, except land development
and subdivision
Land subdivision and land development
Heavy construction
Special trade contractors
TOTAL
Value of Construction Work" ($1,000)
Total
$368,006,098
$13,635,521
$127,841,600
$15,910,770
$525,393,989
Per Establishment
$1,926
$1,666
$3,004
$805
$2,008
1 Value of construction work includes all value of construction work done during 1997 for construction work
performed by general contractors and special trade contractors. Included is new construction, additions and
alterations or reconstruction, and maintenance and repair construction work. Also included is the value of any
construction work done by reporting establishments for themselves.
b Covers establishments in NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition
contractors) only.
Source: U.S. Census Bureau (2000).
ES.2.2.4
Number of Potentially Regulated Businesses
EPA took several steps to define the number of C&D establishments that may be affected by the
proposed regulations. The analysis began with all C&D establishments as defined in Table ES-1, using
ES-8
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
data from the 1997 Census of Construction. EPA next estimated the number of C&D establishments
primarily engaged in remodeling work, using data from the National Association of Home Builders
(NAHB) and the Joint Center for Housing Studies at Harvard University (Joint Center). These were
excluded because they were judged unlikely to engage in land disturbing activities. The final step was to
estimate the number of C&D establishments who are unlikely to disturb more than one acre of land. This
was done to exclude establishments that fall below the regulatory coverage of the proposed rule.2
A number of establishments classified in the C&D industries are primarily engaged in remodeling
activities. These establishments are not expected to be affected under the proposed rule because they
are unlikely to engage in any land-disturbing activities. The Joint Center (2001) recently published a
report focused solely on the remodeling industry. This report classified establishments that derive at least
half of their revenues from remodeling activities as remodelers. When defined in this manner, the study
found that 62,400 establishments classified as general contractors/builders in 1997 were actually
remodelers. The study goes further to identify establishments classified in various special trades (e.g.,
carpentry, plumbing) that are primarily engaged in remodeling, but provides no estimates for the special
trades industries that form part of the C&D industries as defined for this proposed rule (i.e.,in NAICS
23593 Excavation contractors and 23594 Wrecking and demolition contractors).3 The report does not
address remodeling activities conducted by establishments in NAICS 234 (Heavy construction), however,
EPA does not believe that many establishments in this sector are principally engaged in remodeling
activities.
EPA believes that builders who construct only a few houses per year are also unlikely to be
affected by the proposed rule, because such builders are unlikely to build on sites over one acre in size. A
special report on the homebuilding industry, published by the Census Bureau (Rappaport and Cole, 2000),
estimates the number of establishments according to the number of housing units started each year. In
2 An additional step used in the analysis of Option 2 was to estimate the number of C&D establishments
that disturb only 5 acres of land or more. Option 2 would not apply to sites below 5 acres in size.
3 The Joint Center study does provide an estimate for the number of remodelers classified in "miscellaneous
special trades" (NAICS 2359), which includes NAICS 23593 and 23594, but several other industries as well. The
number of remodelers classified primarily in NAICS 23593 and 23594 may not be large, however, since the total
number in NAICS 2359 is only 6,600.
ES-9
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
1997, the number of establishments that built between one and four houses (the smallest builder size
category) was 50,661.
From Table ES-2, EPA estimates that the total number of establishments in the C&D industry is
261,617. Subtracting the 62,400 remodeling establishments and the 50,661 establishments that start
between one and four houses per year leaves 148,556 establishments potentially affected by the proposed
rule. Table ES-5, below, shows the number of establishments in the C&D industry, adjusted for the
number of remodelers and small-scale builders.4
Table ES-5.
Number of Establishments Potentially Affected by the Proposed Rule
NAICS
2331
23321
23322
2333
234
235a
Industry
Land development and subdivision
Single -family residential building construction
Multi-family residential building construction
Nonresidential construction
Heavy construction
Special trade contracting
SUBTOTAL
Minus Remodeling Establishments
Minus Establishments Starting 1 - 4 Houses per Year
Number of Potentially Affected Establishments
Establishments With Payroll
Number
8,185
138,849
7,543
44,710
42,557
19,771
261,617
62,400
50,661
148,556
Percent of Total
3.1%
53.1%
2.9%
17.1%
16.3%
7.6%
100.0%
—
—
-
a Includes NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only.
Figures may not add to totals due to rounding. See also the footnote below.
Source: U.S. Census Bureau (2000); Rappaport and Cole (2000); Joint Center (2001).
4 EPA believes, in addition, that a majority of establishments in NAICS 23593 (Excavation contractors) and
23594 (Wrecking and demolition contractors) will not be affected by the proposed rule because they act as
subcontractors to the actual NPDES storm water permittee, who will most often be a developer or general contractor.
EPA has included these establishments in the universe of potentially affected establishments shown in Table ES-5,
but has excluded them from the economic impact analysis summarized below. For further details, see Section 2.3.4.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
ES. 2.2.5 Small Entities
Small entities are defined by the Small Business Administration (SBA) according to size standards
based on either number of employees or annual revenue (13 CFR 121). For all of the C&D industries, the
size standards are based on annual revenues. The SBA revenue thresholds for the C&D industry range
from $5.0 million for NAICS 233110 (Land subdivision and land development) to $27.5 million for the
majority of NAICS 233 (Building, developing, and general contracting) and NAICS 234 (Heavy
construction).5 As shown in Table ES-6, 95,753 potentially affected C&D businesses, representing 98.6
percent of all potentially affected businesses in the C&D industry, fall below the SBA-defmed revenue
thresholds for this industry and therefore may be qualified as small businesses.
Note that for this analysis, due to data limitations for the land development industry (NAICS
23311) EPA accounted for these establishments by assigning them to the four building construction
industries (single-family residential, multifamily residential, commercial5, and industrial) based on the share
of affected establishments represented by each sector.7 EPA likewise lacked financial data for
establishments in the special trades industries (NAICS 235) but decided to exclude these establishments
from the small entity analysis rather than have them represented by model firms that are dissimilar in their
characteristics. In general, EPA believes establishments in NAICS 235 will not be affected by the
proposed rule. Chapter Six of this report provide further detail on EPA's approach to the small entity
analysis.
5 For those industries with a $27.5 million SBA cutoff, the table shows the number of firms and
establishments with revenues below $25.0 million (the next closest SBA data break point). For industries with a $11.5
million SBA cutoff, figures shown are for firms and establishments with revenues below $7.5 million.
6 See section ES.4.1 for a description of the commercial construction industry.
7 Implicitly, this means that establishments in the land development industry are represented by model
facilities in each of the four building construction industries. Prior to doing this, EPA compared industry
characteristics such as average employment, revenues, and assets across industries and found them to be similar.
ES-11
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
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Table ES-6. Estimated Number of Small Businesses Potentially Affected by the Proposed Rule.
NAICS
233210: Single-family
housing construction
233220: Multifamily
housing construction
233310: Manufacturing
and industrial building
construction
233320: Commercial and
institutional building
construction
234 11 Heavy
Construction
Total
Potentially
Affected
Establishment
s
34,070
4,603
7,742
39,810
11,270
97,495
Potentially
Affected
Businesses
34,041
4,597
7,719
39,587
11,141
97,085
Potentially Affected Small
Businesses
Number
34,004
4,571
7,498
39,013
10,667
95,753
Percent of
total
35.5%
4.8%
7.8%
40.7%
11.1%
100.0%
Small
Businesses as
a Percent of
Total for
Individual
Industry
99.9%
99.4%
97.1%
98.6%
95.7%
98.6%
Source: EPA estimates (see Chapter Six).
ES.2.3 Industry Dynamics
For purposes of the economic analysis, EPA has selected 1997 as the baseline year. In part this
reflects the availability of data from the 1997 Census of Construction, but in addition EPA believes 1997
to be reasonably representative year for the affected industries. Before reaching this conclusion, EPA
examined historical activity data for the construction industry, reviewed analyses of recent trends, and
looked at projections for the future. As a result of this review, EPA concluded the following:
Historically, construction activity has been highly cyclical. Data from 1959 through 2001
for new housing units authorized by building permit show an overall growth trend that is
punctuated by cyclical swings (see Figure ES-1). These reach highs in 1972, 1978, and
1986 and lows in 1974, 1982, and 1991.
Since 1991, the industry has been on a fairly continuous growth trend. Single-family
housing, for example, grew from an annual level of 0.7 million new units in 1991 to 1.2
million new units in 1999, which represents an average annual growth rate of 8.2 percent.
ES-12
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
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During this same period, real GDP grew by an average of 4.1 percent per year (BEA,
2002).
Structural changes in the market have made construction less cyclical than before. In a
recent analysis, the NAHB identifies several factors that have contributed to reducing the
cyclically of housing market activity. These include the easing of rules on credit
availability, the subsequent development of adjustable-rate mortgage instruments, and the
maturation of the secondary market for mortgage-backed securities (NAHB, no date).
An NAHB report called The Next Decade for Housing predicts that over the 2001-2010
period the nation will build an average of 1.82 million new homes per year, up from an
average of 1.66 million per year over the 1991-2000 (see Table ES-7).
A surprising feature of the most recent economic slowdown is that it has had almost a
negligible effect on construction activity, and new home construction in particular. As
NAHB's chief economist wrote in early 2002, "Believe it or not, 2001 turned out to be a
record year for sales of both new and existing homes, despite three quarters of economic
recession and the shock of the terrorist attacks." (Seiders, 2002).
New Privately Owned Housing Units Authorized by Building Permits in Permit-Issuing Places
Annual Data
1,500
1,000
co
T3
03
co
500
0 I—I T I I I I it I I I I I I IT I I I I I I I I I I I I I M I ? i M M M ! T !
1959 1964 1969 1974 1979 1984 1989 1994 1999
Year
1 unit
2-4 units
5 units or more
Figure ES-1. Historical data on housing construction.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table ES-7. Housing Supply and Demand - Historical Data and Projections for 2001-2010
(all data are in thousands and represent annual changes)
Change in households
Change in vacancies
Net removals
Total Demand
1971-1980
1,578
151
333
2,062
1981-1990
1,281
219
214
1,714
1991-2000
1,137
184
343
1,664
2001-2010/vo/.
1,255
223
344
1,822
New single-family housing units
New multifamily housing units
Mobile homes
Total Supply
1,110
602
349
2,062
979
491
244
1,714
1,108
257
298
1,664
1,203
343
276
1,822
Source: NAHB (no date); based on Bureau of the Census data and NAHB forecasts.
Based on this review, EPA concluded that data from the year 1997 provide a reasonable basis for
characterizing the industries likely to be affected by the proposed ELG. In particular, EPA concluded that
there is nothing to suggest that 1997 represents a particularly robust year, or that during the coming years
in which the industry will have to adapt to the requirements of the ELG it will be in a relatively weak
position, compared to the profile presented here.
ES.3 REGULATORY OPTIONS
ES.3.1 Current Regulatory Status of the C&D Industry
The Construction General Permit (CGP), published in 1992 and revised in 1998, directs those
seeking an NPDES permit from EPA to prepare a storm water pollution prevention plan (SWPPP) for
certain construction activities. The CGP also calls for installation of temporary sediment basins for
construction sites with disturbed area of 10 acres or more. The permit lists a variety of options and goals
for other erosion and sediment controls (ESCs), but none are required. A description of ESCs is to be
contained in the SWPPP. Options and goals for post-construction storm water best management
practices (BMPs) are also contained in the CGP, but none are required. As with ESCs, selected BMPs
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
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are to be described in the SWPPP. Further discussion of current storm water regulations affecting
construction activities can be found in Chapter One.
The C&D industry ELG would complement the existing NPDES permitting program by setting
minimum technology-based national standards for active construction ESCs and requiring inspection and
certification of ESC practices. The proposed regulatory options considered by EPA are described below.
ES.3.2 Summary of Proposed Regulatory Options
EPA is proposing BAT/BPT/BCT/NSPS guidelines and standards for active construction phase
erosion and sediment control under the proposed ELG. The specific options under consideration are
summarized in Table ES-8 and described in detail in Chapter Three of this EA. All three options are co-
proposed, none is identified as "preferred."
Table ES-8. Summary of Regulatory Options Proposed by EPA
Option
Option 1
Option 2
Option 3
Description
Inspection and Certification
of Construction Site Erosion
and Sediment Controls
"Codification" of the
Construction General Permit
(CGP)
plus Inspection and
Certification Requirements
No Additional Regulation
(Baseline)
Regulatory Mechanism
Amendment to NPDES storm
water permitting regulations
Effluent limitation guidelines
N/A
Applicability
Construction sites disturbing 1
acre or more
Construction sites disturbing 5
acres or more
All sites
EPA has defined the baseline for the proposed rule as full compliance with the construction
requirements of the final Phase I and Phase II NPDES storm water regulations. EPA also conducted a
supplemental analysis that takes into account the fact that some states have not fully implemented the
construction permitting requirements of the final Phase II NPDES storm water rule. The deadline for
compliance with these requirements is March 10, 2003. The alternative baseline scenario considers the
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
combined impact of the Phase IINPDES storm water rule and ELG regulations. Since EPA does not
have current information on the extent of implementation of the construction permitting requirements of
the Phase II NPDES storm water rule, the supplemental analysis assumes that all affected activities
incur the combined cost of the Phase II NPDES storm water rule and ELG requirements.
ES.4 ECONOMIC IMPACT ANALYSIS
The economic impact analysis models the economic impacts of the proposed rule from several
different perspectives. EPA has developed a series of model projects to analyze the economic
achievability of regulatory alternatives at the project level. These models are based on representative
project characteristics for single-family residential, multifamily residential, commercial, and industrial
projects of various sizes. For example, the single-family residential model project reflects national
averages for typical lot size, number of housing units built, size of housing units, etc. as well as project
financial characteristics such as lot prices, development costs, permitting costs, construction costs, and
project financing alternatives. A second type of modeling simulates the impacts of the regulatory options
at the establishment and/or firm level (most construction firms operate only a single establishment).
These models build on the project-level models to account for the level of activity (number and mix of
projects) a typical firm is involved with in a typical year. EPA assesses the potential for business closure
and employment losses using the firm-level model analysis. The third level of analysis focuses on the
impacts of the regulatory options on the national markets affected by regulations on construction and
development activities. The primary focus of this analysis is on the residential sector in terms of changes
in house sales prices due to the proposed regulations, but EPA has also analyzed the effects of the
regulations on the commercial and industrial sectors. These models are described in detail in Chapter
Four of this report. In that chapter EPA provides a detailed discussion of the data sources and
methodologies used for each type of model (project-, firm-, and market-level). Chapter Five contains the
results of these analyses.8
8 The model projects were developed with input from industry representatives and from literature sources to
ensure they are representative of projects undertaken by firms likely to be affected by the proposed ELG. The model
firms are developed using mean or median values for firm characteristics as reported in the 1997 Census of
Construction. See Chapter Four for more extensive discussion of the modeling methodologies.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
ES.4.1 Impacts on Model Construction Projects
Section ES.3 described the approach used by EPA to develop model projects that assess the
impact of the various regulatory options on the financial performance of the project and to determine the
incremental project-level costs that would result. EPA developed models for the following four project
types:
• Single-family residential
• Multifamily residential
• Commercial9
• Industrial
EPA prepared multiple versions of each project type to reflect a range of project sizes-1, 3, 7.5,
25, 70, and 200 acres. EPA also analyzed each model project under two cost pass through (CPT)
scenarios. In the 100 percent CPT scenario the developer/builder passes on 100 percent of the regulatory
cost to the buyer or consumer. The impacts are felt by consumers in the form of changes in the sales
prices of the building or housing unit. In the zero CPT scenario the developer/builder absorbs all of the
regulatory costs and the impact is reflected in a change in pre-tax profits. The baseline project sales price
is calculated in the models and varies according to project type and size. The baseline pre-tax profit is set
at 10 percent of building sales price based on input from industry. Tables ES-9a and ES-9b present the
weighted average changes in price to consumers and in pre-tax developer/builder profit for all regulatory
options. Values in Table ES-9 are weighted based on the distribution of acreage by project type and size.
Changes in project cost to buyers under 100 percent cost pass through range from 0.04 percent to
0.07 percent (single family) for Option 2 (Table ES-9), and are below 0.1 percent for Option 1. Changes
in builder profit under zero cost pass through range from -0.35 percent (commercial) to -0.65 percent
(single family) for Option 2. Builder impacts are no worse than -0.13 percent for Option 1. More
complete comparisons appear in Chapter Five, Table 5-2.
9 For the purposes of this analysis, the commercial construction industry included hotels/motels,
amusement, religious, parking garages, service stations, hospitals, offices, public works (including roads and
highways), educational, stores, and other nonresidential buildings.
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Table ES-9a. Weighted Average Change in Sales Price to Buyer (All Site Sizes)
100 Percent Cost Pass Through
Option
1
2
3
Percent Change in Project Price to Buyer
Single-family
0.01%
0.07%
0.00%
Multifamily
0.01%
0.04%
0.00%
Commercial
0.01%
0.04%
0.00%
Industrial
0.01%
0.06%
0.00%
Source: EPA estimates (see Chapter Five).
Table ES-9b. Weighted Average Change in Builder-Developer Profit (All Site Sizes)
Zero Cost Pass Through
Option
1
2
o
J
Percent Change in Developer/Builder Profit
Single
-0.12%
-0.65%
0.00%
Multi
-0.07%
-0.38%
0.00%
Commercial
-0.07%
-0.35%
0.00%
Industrial
-0.13%
-0.54%
0.00%
Source: EPA estimates (see Chapter Five).
ES.4.2 Impacts on Model Construction Firms
ES.4.2.1
Impacts on Model Firm Financial Ratios
To analyze impacts of the proposed rule at the level of the facility, EPA developed model facilities
based on 1997 Census of Construction data. Census special studies on the housing industry, and Dun &
Bradstreet financial data. EPA constructed income statements and balance sheets for each model facility
by scaling D&B data to represent different sized facilities based on Census revenue figures. EPA
calculated incremental compliance costs per establishment, then used these model establishment income
statements and balance sheets to estimate the post regulatory value of the following financial ratios
considered especially significant to the construction industry:
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
• Gross Profit Ratio
• Return on Net Worth
• Current Ratio
• Debt to Equity Ratio
EPA expressed impacts to the model establishments engaged in the model construction projects in terms
of the percent change from baseline value to post-regulatory value for each financial ratio.
Table ES-10 shows changes in the financial ratios under each regulatory option, with the range in
outcomes reflecting simulations run using varying assumptions of model firm size and average project size
(see Chapter Four for further details).10 Return on net worth is the most sensitive ratio and shows the
largest change in value, followed in descending order by the gross profit, debt to equity, and current ratios.
Also, with the exception of the return on net worth ratio, the multifamily model establishment tends to
incur larger impacts to its financial ratios than do the other industry sectors.
Under the more costly Option 2, return on net worth is projected to decrease as much as 5.85
percent in the single-family sector and 3.0 percent in the multifamily sector, but less than 1.5 percent in
the commercial and industrial sectors. The gross profit ratio is projected to decrease by as much as 1
percent in the multifamily sector, and from about 0.3 to 0.5 percent in the remaining sectors. The debt to
equity ratio is projected to worsen by as much as 0.6 percent for multifamily sector establishments;
changes in this ratio range from 0.21 percent (single-family) to 0.31 percent (commercial) for the
remaining sectors. The largest impact on the current ratio again occurs in the multifamily sector (a
decrease of 0.16 percent), with changes of 0.05 in the other three sectors. Note that the figures
presented in this table assume zero CPT.
10 The table shows results for the four building construction industries (single-family residential, multifamily
residential, commercial, and industrial). EPA conducted a separate analysis for the heavy construction industry,
which found similar (i.e., very small) impacts. See Table 5-6.
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Table ES-10. Impact of Compliance Costs on Model Firm Financials ~ Zero Cost Pass
Through
Construction Industry
and Regulatory Option
Percent Change in Financial Ratios, From Baseline"
Gross Profit
Min.
Max.
Return on Net
Worth
Min.
Max.
Current Ratio
Min.
Max.
Debt to Equity
Min.
Max.
Single-family residential
Option 1
Option 2
Option 3
0.000%
0.000%
0.000%
-0.230%
-0.520%
0.000%
0.000%
0.000%
0.000%
-2.540%
-5.850%
0.000%
0.000%
0.000%
0.000%
-0.020%
-0.050%
0.000%
0.000%
0.000%
0.000%
0.900%
0.210%
0.000%
Multifamily residential
Option 1
Option 2
Option 3
0.000%
0.000%
0.000%
-0.310%
-0.950%
0.000%
0.000%
0.000%
0.000%
-0.990%
-3.070%
0.000%
0.000%
0.000%
0.000%
-0.050%
-0.160%
0.000%
0.000%
0.000%
0.000%
0.200%
0.640%
0.000%
Commercial
Option 1
Option 2
Option 3
0.000%
0.000%
0.000%
-0.170%
-0.400%
0.000%
0.000%
0.000%
0.000%
-0.530%
-1.250%
0.000%
0.000%
0.000%
0.000%
-0.020%
-0.050%
0.000%
0.000%
0.000%
0.000%
0.130%
0.310%
0.000%
Industrial
Option 1
Option 2
Option 3
0.000%
0.000%
0.000%
-0.140%
-0.320%
0.000%
0.000%
0.000%
0.000%
-0.430%
-1.020%
0.000%
0.000%
0.000%
0.000%
-0.020%
-0.050%
0.000%
0.000%
0.000%
0.000%
0.120%
0.280%
0.000%
a Ranges (minimum and maximum) reflect results across model firms of varying sizes.
Source: EPA estimates (see Chapter Five).
ES.4.2.2
Closures and Employment Losses
To estimate facility closures, EPA generalized its model facility analysis above by constructing a
cumulative distribution function for the return on net worth, current, and debt to equity ratios using the
quartile values found in D&B. EPA assumed financial distress occurs if the post regulatory value of an
individual ratio falls below the lowest quartile benchmark. EPA used a weighted average of financial
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
distress indicators under the three financial ratios as its estimate of the incremental probability of closure
due to the proposed rule. Multiplying this probability by the number of establishments represented by the
model results in the projected number of closures. Multiplying the projected number of closures by
average facility employment results in estimated direct employment impacts.
Under Option 2, the largest number of establishment closures is projected to occur in the
commercial sector (43 closures), followed by the single-family residential sector (13 closures). Closures
as a percent of total establishments in the sector are largest in the commercial sector where about 0.1
percent of the total are estimated to close. Employment impacts as a percent of each sector's total
employment are roughly proportional to closure impacts. Adjusting for CPT, as in Table ES-12,
decreases the projected closure impacts significantly.
Table ES-11. Estimated Facility Closures
Zero Cost Pass Through
Option
1
2
3
Single-Family
Number
4
13
0
Pet. of Total
0.005%
0.015%
0.000%
Multifamily
Number
1
3
0
Pet. of Total
0.022%
0.065%
0.000%
Commercial
Number
11
43
0
Pet. of Total
0.028%
0.108%
0.000%
Option
1
2
3
Industrial
Number
2
7
0
Pet. of Total
0.026%
0.090%
0.000%
Heavy
Number
0
26
0
Pet. of Total
0.000%
0.230%
0.000%
TOTAL
Number
18
92
0
Pet. of Total
0.012%
0.063%
0.000%
Source: EPA estimates (see Chapter Five).
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
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Table ES-12. Estimated Facility Closures
Estimated Cost Pass Through
Option
1
2
3
Single-Family
Number
1
2
0
Pet. of Total
0.001%
0.002%
0.000%
Multifamily
Number
0
0
0
Pet. of Total
0.000%
0.000%
0.000%
Commercial
Number
1
4
0
Pet. of Total
0.003%
0.010%
0.000%
Option
1
2
3
Industrial
Number
0
1
0
Pet. of Total
0.000%
0.013%
0.000%
Heavy
Number
0
3
0
Pet. of Total
0.000%
0.027%
0.000%
TOTAL
Number
2
10
0
Pet. of Total
0.001%
0.007%
0.000%
Source: EPA estimates (see Chapter Five).
ES.4.2.3
Barriers to Entry
The proposed rule should not present a barrier to new establishments entering the construction
industry. This proposal does not generate additional costs to start a new construction company, nor does
it create a difference in project costs between existing firms and new entrants (such as development fees
or input prices). Such cost differentials, if they existed, would represent a barrier to new industry
entrants.
The impact of the proposed rule will essentially be felt through increased borrowing requirements
to finance construction projects. On the surface this should affect both existing and new firms equally.
New entrants may be affected indirectly, however, in that the requirements may marginally increase their
start up capital needs, in order to qualify for the somewhat larger short term construction loans required to
undertake a project. EPA examined the ratio of compliance costs to current and total assets to determine
if new market entrants would need a significant amount of additional capital to obtain construction loans to
start a project. Note that existing firms would face the same burden — this does not represent a cost
differential between new and existing firms.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
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EPA's analysis indicates that compliance costs would represent a maximum of 0.82 percent of
model establishments' current assets (0.6 percent of total assets) under Option 2. As above, the
maximum projected impact occurs in the multifamily sector. For the other sectors, compliance costs
represent less than 0.3 percent of current assets. This methodology is conservative because it does not
account for the fact that a firm would typically be expected to finance 20 percent of the incremental
compliance costs from their own financial resource to obtain the loan — not the full amount as assumed
here.11
Table ES-13. Barrier to Entry Analysis - Zero Cost Pass Through
Option Comb.
Compliance Costs Divided by:
Current Assets
Min
Max
Total Assets
Min
Max
Single-family Residential
1
2
3
0.000%
0.000%
0.000%
0.100%
0.230%
0.000%
0.000%
0.000%
0.000%
0.070%
0.170%
0.000%
Multifamily Residential
1
2
3
0.000%
0.000%
0.000%
0.260%
0.820%
0.000%
0.000%
0.000%
0.000%
0.190%
0.600%
0.000%
Commercial
1
2
3
0.000%
0.000%
0.000%
0.120%
0.270%
0.000%
0.000%
0.000%
0.000%
0.090%
0.220%
0.000%
Industrial
1
2
3
0.000%
0.000%
0.000%
0.110%
0.250%
0.000%
0.000%
0.000%
0.000%
0.080%
0.190%
0.000%
Source: EPA estimates (see Chapter Five).
11 The table shows results for the four building construction industries (single-family residential,
multifamily residential, commercial, and industrial). EPA conducted a separate analysis for the heavy construction
industry, which found similar (i.e., very small) impacts. See Table 5-10.
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ES.4.3 Impacts on National Construction Markets and the National Economy
EPA developed a series of regional market models to estimate the impact of compliance costs of
the proposed regulation on markets for new construction. In addition, a national partial equilibrium model
estimated changes in the national market for new single-family homes. The results of these models were
aggregated to estimate the national impacts of the regulation.
Table ES-14 summarizes the annual national costs to builders of each option in terms of the
incremental cost ESC management over the cost under the baseline conditions.
Table ES-14. Estimated National Costs of ESC Controls
All dollar values in constant, pre-tax, 1997 dollars
Option
1
2
3
1
2
o
J
National Costs by Type of Construction
(Smillions)
Single-family
$24.1
$121.5
$0.0
Multifamily
$11.9
$59.4
$0.0
Commercial
$78.4
$277.3
$0.0
Industrial
$3.7
$11.0
$0.0
National Costs per Unit by Type of Construction
$/house
$16.91
$90.79
$0.00
$/sqft
$0.003
$0.019
$0.000
$/sqft
$0.007
$0.031
$0.000
$/sqft
$0.008
$0.030
$0.000
Total
(Smillions)
$118.1
$469.2
$0.0
Source: EPA estimates (see Chapter Five).
EPA's literature review (Chapter Four) suggests the long-run supply of housing is considered
highly elastic while demand for new housing construction is relatively inelastic. Under these conditions,
changes in costs are passed through to home buyers without a large loss in sales. Non-residential
consumers are more price sensitive and passed through costs contribute to a larger reduction in
construction in many markets. The decrease in number of units sold varied by option combination from:
• 0.0 to 0.02 percent for single-family housing
• 0.0 to 0.01 percent for multifamily housing
• 0.0 to 0.07 percent for commercial construction and
• 0.0 to 0.32 percent for industrial construction
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
Additional analyses of the single-family housing market assessed the impact of the regulation on
the affordability of newly constructed homes. One measure was the number of households that would no
longer qualify for a mortgage to buy the model median priced new home. In the most costly option
combination, 29,100 households that would have qualified for a mortgage in the baseline would no longer
qualify when all of the compliance costs were included in the home price. As a percent of households
that qualified in the baseline the percentage no longer qualifying ranged from 0 to 0.15%.
Another measure of affordability is the Housing Opportunity Index (HOI) which measures the
proportion of households in a housing market that can afford the median priced home. Across more than
200 metropolitan areas modeled, HOI changed by a maximum of 0.02 percent for Option 1 and 0.11
percent for Option 2.
The model firm analysis showed the number of jobs that may be lost in the construction industry.
These losses have effects throughout the economy as laid off workers consume less and fewer projects
are undertaken. The market model generated estimates of these indirect employment losses. The
reduction in construction activity generates national employment losses in all industries of 6,000 jobs under
Option 2. These losses are offset, however, by spending to implement the program which creates new
jobs. EPA's analysis indicates that this stimulus effect is larger than the loss of activity and produces a
net increase of 7,200 new jobs under Option 2. Compliance costs passed on to consumers reduce the
resources consumers have for other goods and services as they spend more on storm water management.
This again creates a drag on employment. The net loss in jobs in the national economy is 280 for Option 1
and 1,400 for Option 2.
Finally, the market models also estimate the social cost of the regulation. Given the relatively
small shifts in supply and inelastic demand the social cost, or deadweight loss, of the regulation is only
$200,000 for the most costly option.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
ES.5 SMALL ENTITY IMPACT ANALYSIS
In accordance with the Regulatory Flexibility Act (RFA, 5 U.S.C. et seq., Public Law 96-354) as
amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA) of 1996, EPA has
considered the effects that the proposed C&D regulations may have on small entities. The RFA
generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and
comment rulemaking requirements under the Administrative Procedure Act or any other statute unless the
agency certifies that the rule will not have a "significant impact on a substantial number of small
entities."12
For this proposed rulemaking, EPA could not conclude that costs are sufficiently low to justify
such "certification." Instead, EPA conducted outreach to small businesses, convened a Small Business
Advocacy Review (SBAR) panel, and prepared an Initial Regulatory Flexibility Analysis (IRFA).
Chapter Six details the IRFA and presents EPA's assessment of the impacts of the proposed regulations
on small businesses in the C&D industry.
ES.5.1 Definition of Affected Small Entities
The RFA defines a "small entity" as a small not-for-profit organization, small governmental
jurisdiction, or small business. EPA expects that the principal impact of the proposed C&D regulations on
small entities will fall on (1) small businesses that undertake C&D activities and (2) small governmental
units involved in permitting C&D activities.
Small businesses are defined (with some exception) according to the size standards established by
the Small Business Administration (SBA). SBA establishes criteria for identifying small businesses based
on either the number of employees or annual revenues (13 CFR 121).13 Qualifying revenue levels vary
12 The preparation of an IRFA for a proposed rule does not foreclose certifying no significant impact for the
final rule (USEPA, 1999).
13 Employees counted in determining size includes all individuals employed on a full-time, part-time,
temporary or other basis. Employment is measured as the average number of employees for each pay period over the
previous 12 months. For standards based on revenues, SBA uses the average revenues over the last three
completed fiscal years.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
by NAICS code and differ among NAICS industries. Within the C&D industry there is a range of
qualifying revenue levels, from $5.0 million for NAICS 23311 (Land subdivision and development), to
$27.5 million for the majority of industries within NAICS 233 and 234. For businesses in the special
trades sector (as defined for this proposed rule), the small business revenue threshold is $11.5 million.
See Table ES-6 above for the number of establishments in the C&D industry that fall below these
revenue thresholds.
ES.5.2 Small Entity Impacts
EPA has conducted an IRFA for the proposed rule. The IRFA includes a description and
estimates of the following:
• Number of small businesses that will be affected;
• The reporting, recordkeeping, and other compliance requirements of the proposed rule;
• Any Federal rules that may duplicate, overlap, or conflict with the proposed rule;
• Any significant regulatory alternatives to the proposed rule that would accomplish the
stated objectives of the applicable statutes and which minimize impacts to small
businesses.
As presented in Table ES-6, approximately 97,085 businesses are potentially affected by the
proposed rule; over 98 percent of these businesses (95,753) may be classified as small businesses. EPA
assessed the impacts to small businesses by examining the ratio of estimated compliance costs to firm
revenues. Impacts are determined by the number and percentage of firms incurring costs that exceed
one percent and three percent of revenues. EPA relied on the model facility approach to assess the
impacts of the proposed rule on small businesses. Each model facility actually represents a set of
approximately similar firms (e.g., similar levels of employment within some bounded range) with revenues
that form a statistical distribution around the model facility's revenue figure. These distributions were
used to estimate the number and percentage of small business-owned establishments in each industry
sector that incur compliance costs exceeding one and three percent of revenues. The results are
presented as ranges that represent the lower and upper bounds of the impacts calculated by EPA.
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Additional detail on EPA's methods may be found in Chapter Six, Section 6.4. Table ES-15a presents the
results of the one percent revenue test and Table ES-15b presents the results for the three percent test.
Table ES-15a. Estimated Number of Small Business-Owned Establishments
With Compliance Costs Exceeding 1 Percent of Revenues
Zero Percent Cost Pass Through
Option
1
2
3
Single-family
Number
Low
0
40
0
High
47
140
0
Pet. of Small
Businesses
Low
0.000%
0.118%
0.000%
High
0.138%
0.412%
0.000%
Multifamily
Number
Low
0
8
0
High
5
18
0
Pet. of Small
Businesses
Low
0.000%
0.175%
0.000%
High
0.110%
0.395%
0.000%
Commercial
Number
Low
0
18
0
High
62
234
0
Pet. of Small
Businesses
Low
0.000%
0.046%
0.000%
High
0.159%
0.599%
0.000%
Option
1
2
3
Industrial
Number
Low
0
2
0
High
12
36
0
Pet. of Small
Businesses
Low
0.000%
0.270%
0.000%
High
0.160%
0.480%
0.000%
Heavy
Number
Low
0
36
0
High
0
199
0
Pet. of Small
Businesses
Low
0.000%
1.863%
0.000%
High
0.000%
0.337%
0.000%
TOTAL
Number
Low
0
104
0
High
126
627
0
Pet. of Small
Businesses
Low
0.000%
0.109%
0.000%
High
0.000%
0.109%
0.000%
Source: EPA estimates (see Chapter Six).
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
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Table ES-15b. Estimated Number of Small Business-Owned Establishments
With Compliance Costs Exceeding 3 Percent of Revenues
Zero Percent Cost Pass Through
Option
1
2
3
Single-family
Number
Low
0
0
0
High
15
45
0
Pet. of Small
Businesses
Low
0.000%
0.000%
0.000%
High
0.044%
0.133%
0.000%
Multifamily
Number
Low
0
0
0
High
2
6
0
Pet. of Small
Businesses
Low
0.000%
0.000%
0.000%
High
0.044%
0.132%
0.000%
Commercial
Number
Low
0
0
0
High
21
77
0
Pet. of Small
Businesses
Low
0.000%
0.000%
0.000%
High
0.054%
0.197%
0.000%
Option
1
2
3
Industrial
Number
Low
0
0
0
High
4
12
0
Pet. of Small
Businesses
Low
0.000%
0.000%
0.000%
High
0.053%
0.160%
0.000%
Heavy
Number
Low
0
0
0
High
0
65
0
Pet. of Small
Businesses
Low
0.000%
0.000%
0.000%
High
0.000%
0.607%
0.000%
TOTAL
Number
Low
0
0
0
High
42
205
0
Pet. of Small
Businesses
Low
0.000%
0.000%
0.000%
High
0.044%
0.214%
0.000%
Source: EPA estimates (see Chapter Six).
ES.6 BENEFITS ANALYSIS
The key categories of benefits examined for the proposed rule include decreased stream channel
sedimentation and reduced in-stream total suspended solids (TSS) and sediment concentration.
ES.6.1 Benefits Methodology
EPA's Environmental Assessment estimates the impact of the proposed regulation on several
measures of environmental quality with implications for social well-being. Sediment in waterways, for
example, imposes costs on society through the degradation of water quality, and filling in of water storage
impoundments and navigational channels. EPA estimated the monetary benefits of the regulation by
connecting these environmental measures to the related costs they would continue to impose on society in
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the absence of the proposed regulations. Such avoided cost benefit valuation methods yield lower bound
estimates of value. Since the methodology for assessing and quantifying each benefit category differs the
sections below present only a summary of the benefits methodology. More complete details can be found
in Chapter Seven.
ES.6.2 Environmental Assessment and Benefits Analysis
ES.6.2.1
Overview of Environmental Assessment and Benefits Analysis
The environmental effects of the options were measured in terms of reductions in discharge of
sediment. Option 1 is expected to result in discharge of 2.6 to 7.9 million fewer tons of total solids
annually. Option 2 is expected to result in discharge of 11.1 million fewer tons annually. These
reductions contribute to savings in dredging costs for water storage impoundments and navigational
channels. Table ES-16 summarizes the results of the environmental assessment. More complete results
are shown in Table 8-2. These estimates are the starting point for benefit valuation.
Table ES-16. Environmental Measures (thousand tons per year)
Decrease from baseline in:
Settleable solids
Turbidity producing solids
Total solids
Option 1
Low
2,110
527
2,638
High
6,330
1,583
7,913
Option 2
8,901
2,225
11,127
Source: EPA estimates (See Chapter Eight).
ES.6.2.2
Avoided Water Treatment Costs
Turbid water requires pretreatment before it can be used in industrial or municipal water systems.
By removing turbidity-producing solids from streams, the proposed regulation reduces the need for
pretreatment, saving water users money. The total benefit shown in Table ES-17 is quite small, as storm
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water runoff is only one source of turbidity so its removal does not obviate the need for pretreatment
entirely. The marginal costs of pretreatment are also quite low.
ES.6.2.3
Avoided Loss of Water Storage Capacity
Reservoirs and impoundments serve many purposes but generally cannot function if they fill with
silt. This estimate of value for this benefit category is based on the costs of dredging sediment that settles
in reservoirs. Only a small portion of sediment reaches water bodies that would be dredged if filled, so
benefits for this category are relatively small.
ES.6.2.4
Avoided Navigational Dredging
Like water storage capacity, navigational channels must be dredged when they fill with sediment.
Keeping sediment out of streams reduces the need for dredging. Only a small share of streams flow to
commercial waterways and harbors so this benefit is also relatively small.
Table ES-17. Point Estimates of Benefits by Category ($1997 million per year)
Option
1
2
3
Benefit Category
Water Treatment
$0.1
$0.2
—
Water Storage
$7.1
$15.0
—
Navig. Dredging
$2.6
$5.4
—
Total
$9.7
$20.6
$0.0
Source: EPA estimates (see Chapter Eight).
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ES.6.2.5 Non-quantified Benefits
Several categories of benefits discussed in other studies were considered for this benefit
assessment. For the most part, the benefits expected to be derived from these categories are relatively
small and difficult to quantify. Therefore, EPA discusses the following categories qualitatively, rather
than attempting to quantify them:
• Water contact recreation
• Biodiversity effects
• Wetland preservation
• Other sources of benefits (decrease in clogged roadside and irrigation ditches)
Chapter Seven provides more detailed explanation and discussion of these qualitative benefits categories.
ES.7 SOCIAL COSTS AND BENEFITS
The social costs of the proposed regulation represent the real commitment of resources by society
to administering, implementing, and enforcing the rule. Direct social costs include the compliance costs of
construction firms, administration costs of governments, and operation and maintenance costs of home
owners, municipalities, industrial and commercial property owners. This regulation is not expected to
have substantial indirect social costs because it does not propose any radical changes in the production
process or technology. The anatomy of the market for new construction also limits the loss of social
welfare.
Table ES-18 compares the sum of these social costs with the benefits estimated in Chapter Eight
and discussed above. The social costs are greater than the monetized benefits.
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Table ES-18. Social Costs and Benefits of Options
(1997 SMifflon per year)
Option
1
2
3
Installation,
Design and
Permitting
$118.1
$421.2
$0.0
Operation and
Maintenance
$0.0
$48.0
$0.0
Government
Costs
$0.0
$0.3
$0.0
Deadweight
Loss
$0.0
$0.2
$0.0
Total Social
Costs
$118.2
$469.6
$0.0
Total Benefits
$9.7
$20.6
$0.0
Source: EPA estimates (see Chapter Nine).
ES.8 ANALYSIS OF OTHER IMPACTS
ES.8.1 Unfunded Mandates
EPA has determined that the proposed C&D regulations may contain a federal mandate that may
result in expenditures of $100 million or more for the private sector in any one year. Accordingly, EPA
has prepared a written statement in accordance with section 202 of the UMRA. In addition, EPA has
determined that the proposed C&D regulations do not include a federal mandate that may result in
estimated costs of $100 million or more to either state, local, or tribal governments in the aggregate. Nor
do the proposed regulations contain regulatory requirements that might significantly or uniquely affect
small governments. Therefore, this proposal is not subject to the requirement of section 203 of the
UMRA.
ES.8.2 Environmental Justice
EPA has determined that the proposed C&D regulations will not disproportionately affect
minority or low-income populations, nor will they have disproportionately high health or environmental
effects.
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ES.8.3 Children's Health
EPA has determined that the proposed C&D regulations do not have any significant implications
in regard to children's health or safety.
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ES.9 REFERENCES
BEA, 2002. Bureau of Economic Analysis. National income and product accounts tables. Available at
http ://www. bea. doc. gov/bea/dn/nipaweb/index. asp
Joint Center 2001. Remodeling homes for changing households. (Joint Center for Housing Studies of
Harvard University).
NAHB no date. The Next Decade for Housing. National Association of Home Builders. Available at
http: //www. nahb. com/facts/nextdecadeforecast. pdf.
Rappaport B.A., T.A. Cole. (U.S. Census Bureau, Manufacturing and Construction Division). 2000.
Construction sector special study: Housing starts statistics-A profile of the homebuilding industry.
Seiders 2001. David Seiders. Housing and the Economy in the Aftermath of the September 11 Attacks
on America. National Association of Home Builders, January 31, 2002. Available at
http://www.nahb. com/news/Jan31 -02seiderscommentary.htm.
U.S. Census Bureau. 2000. 1997 Economic census: Construction, United States. Various Reports.
Available at http://www.census.gov/epcd/ec97/us/USOOO_23.HTM.
U.S. EPA. 1999. Revised Interim Guidance for EPA Rulewriters: Regulatory Flexibility Act as amended
by the Small Business Regulatory Enforcement Fairness Act. March 29. Available at
http: //www. epa. gov/sbrefa/documents/igui99. pdf.
U.S. Small Business Administration. 1998. Statistics of U.S. Businesses: Firm Size Data [HTML Files]
http://www.sba.gov/advo/stats/data.html.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
CHAPTER ONE
INTRODUCTION
The U.S. Environmental Protection Agency (EPA) is proposing some options to address storm
water discharges from construction sites. As one option, EPA is proposing technology-based effluent
limitation guidelines and standards (ELGs) for storm water discharges from construction sites required to
obtain National Pollutant Discharge Elimination System (NPDES) permits. As another option, EPA is
proposing not to establish ELGs for storm water discharges from those sites, but to allow technology-
based permit requirements to continue to be established based upon the best professional judgment of the
permit authority A third option would establish inspection and certification requirements that would be
incorporated into the discharge permits issued by EPA and States, with other permit requirements based
on the best professional judgement of the permit authority. The regulatory proposals, if implemented, are
expected to significantly reduce the amount of sediment discharged from construction sites. The
deposition of sediment originating from construction sites has contributed to the loss of capacity in small
streams, lakes, and reservoirs, leading to the necessity for mitigation efforts such as dredging or
replacement.
This Economic Analysis (EA) summarizes EPA's analysis of the incremental compliance costs
and the economic impacts that may be incurred by regulated entities within the C&D industry. The EA
details EPA's proposed regulation and the alternative regulatory options considered by EPA. The report
covers financial impacts to establishments in the C&D industry, potential impacts on consumers of C&D
industry output, and market and other secondary impacts on the national economy, such as employment
and output. The EA also undertakes small business analyses under the Regulatory Flexibility Act (RFA)
as amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA), cost-benefit
analyses under Executive Order 12866 and the Unfunded Mandates Reform Act (UMRA). EPA also
addresses the issues of environmental justice and children's health.
This chapter begins with a discussion of the current regulatory environment in the C&D industry.
Section 1.2 presents EPA's reasons for proposing this rule while Section 1.3 identifies the potentially
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
affected sectors of the C&D industry. Section 1.4 provides an overview of key data sources used in the
development of this EA, and Section 1.5 provides an outline for the remainder of this report.
1.1 EXISTING REGULATORY FRAMEWORK
The Federal Water Pollution Control Act, also known as the Clean Water Act (CWA), was
passed by Congress in 1972 to "restore and maintain the chemical, physical, and biological integrity of the
nation's waters" (33 U.S.C. § 1251 (a)), sometimes referred to as "fishable, swimmable" criteria. The
CWA establishes a comprehensive program for protecting our nation's waters. Among its core
provisions, the CWA prohibits the discharge of pollutants from a point source to waters of the U.S.,
except those authorized by a NPDES permit. Under Title III, the CWA also provides for the
development of technology-based effluent limitations that are imposed through the NPDES permit
framework to control direct discharges of pollutants.
The CWA was amended in 1987 to require implementation of a comprehensive national program
for addressing municipal and industrial storm water discharges (Water Quality Act of 1987, Pub. L. 100-4,
February 4, 1987). CWA Section 402(p) requires that industrial, municipal and other storm water
dischargers designated by EPA obtain NPDES permits. In response to these amendments EPA has
promulgated two rules that contain provisions affecting the C&D industry. These regulations, commonly
referred to as the Phase I and Phase II storm water rules, require NPDES permits for construction
activities disturbing more than one acre and discharging storm water. Phase I was promulgated on
November 16, 1990 (55 FR 47990), with permit requirements taking effect in 1992. Phase II was
promulgated on December 22, 1999 (64 FR 68722).
1.1.1 NPDES Permit Regulation of the C&D Industry
The C&D industry is currently regulated under NPDES permit requirements for construction
activities disturbing more than one acre. Construction activities disturbing five acres or more are covered
under the Phase I requirements while construction activities disturbing between one acre and five acres
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
are covered under the Phase II requirements. (Applications for permits for storm water discharges
associated with small construction activity under the Phase II rule, however, are not due until March 10,
2003.) The NPDES regulations affecting the construction and development industry are implemented
through EPA's Construction General Permit (CGP) in states without their own authorized NPDES
program.
The CGP requires permittees to prepare a storm water pollution prevention plan (SWPPP) for
C&D activities. The permit lists options and goals for other erosion and sediment controls (ESCs), and
the SWPP must contain a description of any ESCs used, but there are no required elements.1 Options
and goals for post-construction best management practices (BMPs) are also contained in the CGP, but
none are specifically required. As with ESCs, those BMPs selected for use must be described in the
SWPPP.
The Phase II regulations also provide waivers for construction activities disturbing between one
and five acres of land in instances where:
• Activity occurs during a negligible rainfall period (rainfall erosivity factor of less
than five), or
• A Total Maximum Daily Load (TMDL) or equivalent analysis addresses the
pollutants of concern leading to a determination that storm water controls are not
necessary for construction activity. (64 FR 68735).
These waivers acknowledge that variance in regional factors such as climate, annual rainfall
patterns, and existing hydrology affect the incidence and magnitude of storm water runoff.
The CGP is the vehicle through which the NPDES storm water regulations are implemented for
construction activities. There is a national CGP issued by EPA which applies in those areas where EPA
Regions 1, 2, 3, 5, 7, 8, 9 and 10 are the NPDES permitting authorities. In addition, EPA Regions 4 and 6
have their own version of the CGP which applies only in those areas where the respective Region is the
1 For sites with 10 acres or more of disturbed area, the CGP does require installation of temporary sediment
basins.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
NPDES permitting authority. Other NPDES programs also require permits, and as with most of these
other programs, the NPDES storm water permits may be issued through one of EPA's ten regions (as
described above) or through an authorized state/territory NPDES permitting authority. At this time 44
states have NPDES permitting authority.2 EPA itself issues storm water permits in nondelegated states,
on tribal lands, and in most territories.
EPA's CGP currently covers large (5 acres or larger) construction activities; NPDES permitting
authorities are expected to develop and issue storm water permits for small (between 1 and 5 acres)
construction activities by December 8, 2002. EPA expects that the national CGP and the general permits
currently in use by NPDES permitting authorities will be used as templates for the small construction
permits. EPA's CGP is valid for a five year period, after which time the permit will be reviewed and
renewed for another 5-year period. The CGP was originally issued in 1992 and revised in 1998 and thus
is due for renewal in 2003. EPA plans to incorporate the small construction activity permitting
requirements into its national CGP at the time of the permit's renewal.
1.2 PURPOSE OF THE PROPOSED RULE
The existing NPDES storm water regulations require construction site operators to manage
construction site runoff, but do not require any specific level of control. One of the proposed regulatory
options (Option 2) would establish effluent limitation guidelines in the form of minimum standards for
design and implementation of erosion and sediment controls used during the active phase of construction.
Existing compliance determination practices for construction site storm water controls rely
principally on site inspections by local governments, however enforcement efforts are reported to be
uneven nationwide, largely due to limited enforcement resources a the Federal, State and local levels.
Option 2 would also establish minimum requirements for conducting site inspections and providing
2 All states with the exception of Alaska, Arizona, District of Columbia, Idaho, Massachusetts, New
Hampshire and New Mexico have some level of NPDES permitting authority. Even in those states with NPDES
permitting authority, EPA may be responsible for issuing permits for activities conducted at federal facilities and/or
on tribal lands.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
certification as to the design and completion of various aspects of those controls. These requirements
could strengthen the current permit program. Another regulatory option (Option 1) would establish the
same site inspection and certification requirements, but without the ESC standards.
1.3 INDUSTRIES AFFECTED BY THE PROPOSED C&D EFFLUENT GUIDELINES
This report focuses on the major C&D industries potentially affected by the proposed ELG
requirements. Table 1-1 identifies these industries according to both their North American Industry
Classification System (NAICS) and Standard Industrial Classification (SIC) codes.3 A detailed
description of these C&D industries may be found in Chapter Two of this report.
3 The NAICS system recently replaced the SIC system.
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Table 1-1.
Industries Potentially Affected by Proposed Rulemaking
Regulated Entities
Land subdivision and development
Single-family housing construction
Multifamily housing construction
Manufacturing and industrial building
construction
Commercial and institutional building
construction
Highway and street construction
Bridge and tunnel construction
Water, sewer, and pipeline
construction
Power and communication
transmission line construction
Industrial nonbuilding structure
construction
All other heavy construction
Excavation contractors
Wrecking and demolition contractors
North American Industry
Classification System Code
(NAICS)
23311
23321
23322
23331
23332
23411
23412
23491
23492
23493
23499
23593
23594
Standard Industrial Classification
Codes
(SIC)a
6552
1521,1531,8741
1522,1531,8741
1531,1541,8741
1522,1531,1541,1542,8741
1611,8741
1622, 8741
1623, 8741
1623, 8741
1629, 8741
1629, 7353, 8741
1794
1795
Source: U.S. Census Bureau 1997 Census of Construction
a Some parts of the Standard Industrial Classification Codes are included in other North American Industry
Classification Codes.
1.4 OVERVIEW OF KEY DATA SOURCES
A common data source used to support the development of many past ELGs is the CWA Section
308 industry survey. For this proposed rule, however, EPA determined that such a survey should not be
undertaken. This determination necessitated the use of existing data sources, including academic
literature, industry trade associations, and government data such as that provided by the U.S. Census
Bureau. Major data sources are discussed in more detail where they are used to support sections of this
analysis. This section provides an overview of several key sources and their importance to the economic
analysis of the proposed C&D ELG.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
Of primary importance in the development of this EA were the 1992 and 1997 Censuses of
Construction, conducted by the U.S. Census Bureau. The Census provided information on the industry
sectors potentially affected by the proposed rule, as well as characteristics of each sector such as
employment and revenue levels. Also used were several other reports from the Census Bureau,
including:4
Report C20 - Housing Starts
• Report C25 - Characteristics of New Housing,
Report C30 - Value Put in Place,
• Report C40 - Building Permits
All of these reports contributed to the various economic models developed for this EA.
The U.S. Department of Agriculture's (USDA's) Natural Resources Inventory (NRI) was used
to determine the amount of disturbed acreage caused by urbanization and new development. This
information was important to the environmental assessment, the benefits assessment, and as a way to
determine the rate of new development.
EPA also used data collected from permits issued by existing NPDES permitting authorities.
Currently, regulation of C&D activity is triggered when a builder/developer files a notice of intent (NOI)
with the permitting authority. Permitting authorities record these NOIs in order to track development
within their jurisdiction. EPA obtained copies of NOI databases for NPDES-approved states and for
those non-authorized states where EPA acts as the NPDES permitting authority.5 The databases
contained a wide variety of information, such as total site size, disturbed acreage, project type (e.g.,
residential, nonresidential), and project ownership status (public or private). EPA planned to use this
information to estimate the number of storm water starts. The databases, however, lacked the level of
detail EPA needed to use the data to its full advantage. In addition, inconsistencies in the type of data
4 These reports are available at the following web address: http://www.census.gov/const/www/.
5 NPDES permits are fully administered by EPA in six States plus Washington, DC. In other States EPA acts
as the permitting authority for activities on Indian and/or Federal lands only.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
collected and coverage made it difficult to compare the databases with one another. Although EPA could
not use these databases in the manner hoped, they were useful for generating rough estimates of the
number of permits issued nationwide, as a check on the permit estimates reported by the Census Bureau.
EPA did not conduct further analysis on these databases prior to the proposal of this rule.
An additional source of information for the development of the economic analysis (described in
Section 4.2) was a series of focus groups held with representatives of the National Association of Home
Builders (NAHB). These focus groups helped EPA understand the process of construction project
development and provided estimates of data elements most helpful in building economic models. These
estimates were particularly useful when national-level data from other sources (such as the Census
Bureau) were not available.
Some of the data and methodologies used in the Phase II EA were also used in this rulemaking
effort. These sources and methods were described in detail in Chapters Four, Five, and Six.
1.5 REPORT ORGANIZATION
This EA report is organized as follows:
• Chapter 2 contains the Industry Profile, which provides background information on the
establishments and industry sectors potentially affected by the proposed rule.
• Chapter 3 summarizes the Proposed Effluent Guidelines Regulations and discusses the
regulatory options considered by EPA.
• Chapter 4, Economic Impact Analysis Methodology, explores the data, methodology, and
analyses used in the determination of project, establishment, and market level impacts due
to incremental storm water control costs incurred under the proposed regulation.
• Chapter 5 presents the impacts of the proposed rule for the model project, model
establishment, and national market. This chapter also includes a discussion of other
potential impacts of the proposed rule according to Executive Order 12866 including
regional and social impacts.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
Chapter 6 contains information on the Initial Regulatory Flexibility Analysis (IRFA) and
the small business analysis under the Regulatory Flexibility Act (RFA) as amended by the
Small Business Regulatory Enforcement Fairness Act (SBREFA).
Chapter 7 presents the Benefits Methodology by which EPA identifies, qualifies,
quantifies, and where possible monetizes the benefits associated with reduced storm
water runoff.
Chapter 8 presents the Environmental Assessment and Benefits Analysis, which
assesses the nationwide benefits of the proposed regulation following the methodology
outlined in the previous chapter.
Chapter 9 looks at the Costs and Benefits of the Proposed C&D ELG using the benefits
assessment described in Chapter 8. Here, EPA presents an assessment of the
nationwide costs and benefits of the proposed regulation pursuant to Executive Order
12866 and the Unfunded Mandates Reform Act (UMRA).
Chapter 10 presents a discussion of UMRA.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
CHAPTER TWO
PROFILE OF THE CONSTRUCTION AND DEVELOPMENT INDUSTRIES
2.1 INTRODUCTION
The construction and development (C&D) industry plays an integral role in the nation's
economy, contributing approximately five percent of the Gross Domestic Product. Establishments in this
industry are involved in a wide variety of activities, from land development and subdivision to
homebuilding, construction of nonresidential buildings and other structures, heavy construction work
(including roadways and bridges), and a myriad of special trades such as plumbing, roofing, electrical,
excavation, and demolition work. C&D activity affecting water quality typically involves site selection
and planning, and land-disturbing tasks during construction such as clearing, excavating and grading.
Disturbed soil, if not managed properly, can be easily washed off-site during storm events. Storm water
discharges generated during construction activities can cause an array of physical, chemical and
biological impacts. EPA's proposed effluent guidelines for the C&D industry seek to reduce the
environmental and economic effects of storm water runoff from construction sites.
Several characteristics of the C&D industry affect the structure of this economic analysis:
Individuals (e.g., homebuyers) are often the direct customers of the C&D industry. With
individuals as the direct consumer it is necessary to address issues such as cost
passthrough and the impacts of regulations on housing affordability.
There are complex and varying relationships between developers and builders, resulting
in a variety of different business models. Developers may undertake all site
improvements and sell completed lots directly to builders, act as builders themselves and
remain onsite to build out the development, or some combination of the two.
The C&D industry is dominated by small businesses. As a result, EPA will carefully
consider the impacts on small businesses in accordance with the Regulatory Flexibility
Act, as amended by the Small Business Regulatory Enforcement Fairness Act
(SBREFA).
C&D activities are highly localized. This suggests that a regional approach to analysis is
appropriate to account for varying market conditions.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
• The standard industry definitions include a large number of establishments primarily
engaged in remodeling activities, who are less likely to be involved in land disturbing
activities.
The C&D industry as defined for this proposed rule is comprised of four main industry groups
that will further affect the structure of this analysis:
• Land development and subdivision
• Residential construction
• Nonresidential construction
• Heavy construction
These four industry groups encompass those parts of the industry most likely to engage in land
disturbing activities. Land disturbing activities are further described in the Development Document
(EPA, 2002a) and the impacts of these activities are described in the Environmental Assessment (EPA,
2002b).
2.1.1 Recent Trends in the C&D Industry
Between 1992 and 1997, the number of establishments with payroll in the C&D industries
overall increased from 235,789 to 261,617, an increase of 11.0 percent (see Table 2-1). This overall
modest increase masks some significant offsetting changes in establishment counts within individual
industries, as defined under the North American Industrial Classification System (NAICS), i.e.:
The number of establishments in the land development industry group (NAICS 2331)
decreased by 46.6 percent;1
1 The decrease in the number of developers may have been a response to changes in tax laws and the
Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989 (Pub.L. 101-73, August 9, 1989)
and the 1993 implementing regulations. The objective of FIRREA and the implementing regulations was to correct
events and policies that led to a high rate of bankruptcies in the thrift industry in the late 1980s. The regulations
changed lending practices by financial institutions, requiring a higher equity position for most projects, with lower
loan-to-value ratios, and more documentation from developers and builders. (Kone, 2000).
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There was a 13.5 percent increase in the number of establishments in residential and
nonresidential construction (NAICS 233, except 2331);
The number of establishments in heavy construction increasedby 14.5 percent;
There was a 33.0 percent increase in the number of special trades contractor
establishments, (NAICS 235), including a 31.2 percent increase among excavation
contractors and a 59.6 percent increase among demolition contractors.
Table 2-1
Number of Establishments in Construction and Development Industries, 1997 vs 1992
NAICS
233, exc.
2331
2331
234
235"
Industry
Building, developing, and general contracting, except
land development and subdevelopment
Land development and subdevelopment
Heavy construction
Special trade contracting
Subtotal
1992
168,407
15,338
37,180
14,864
235,789
1997
191,101
8,185
42,557
19,771
261,617
Pet. Change
13.5%
-46.6%
14.5%
33.0%
11.0%
1 Includes NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors).
Figures may not add to totals due to rounding.
Source: U.S. Census Bureau (2000a).
2.1.2 Data Sources Used
Several data sources are used in this profile chapter to characterize the C&D industry. The
primary data source is the 1997 Census of Construction (herein referred to as Census), conducted every
five years by the U.S. Census Bureau. A second data source comes from the U.S. Small Business
Administration (SBA). The SBA data is used because it provides firm-level data that is necessary for
economic modeling purposes and for the small entity analysis (the Census data is reported at the level of
the construction establishment, not the firm). Table 2-2 compares the Census data with that from SBA in
order to further clarify the differences and identify how each are used in this Economic Analysis. The
majority of this chapter uses data from the 1997 Census to profile the C&D industry, since that source
provides a greater level of detail on industry characteristics.
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Table 2-2
Comparison of Major Data Sources
Characteristic
Level of Detail
Source of Data
How the Data are Applied
in this Analysis
Data Source
Census of Construction
Establishment3
Survey (sent to approx. 130,000
establishments from a universe of
650,000)
Industry-level analysis to determine the
number of potentially affected
establishments
SBA
Firmb (company) and establishment
County Business Patterns SUSB
report, which ultimately relies on
administrative records data
Firm-level analysis, for purposes of
determining the number of
potentially affected firms
considered "small" by SBA size
standards
a The Census Bureau defines an establishment as "a relatively permanent office or other place of business where
the usual business activities related to construction are conducted" (U.S. Census Bureau, 2000a).
b A firm is considered to be an aggregation of the establishments owned by a single company; therefore, one firm
may be comprised of several establishments.
2.1.3 Organization of this Chapter
The purpose of this industry profile is to provide an overview of the C&D industries, describe
their key characteristics and structure, and analyze current and historical trends. Section 2.2 describes
the process that EPA used to identify and define the industry for the purposes of the proposed rule.
Section 2.3 presents characteristics of the C&D industry, including both industry and firm-level data.
Section 2.4 discusses supply and demand factors in the C&D industry while Section 2.5 describes
various economic and financial characteristics of the industry. Section 2.6 looks at key business
indicators and ratios. Section 2.7 covers industry growth and trends, and Section 2.8 takes a brief look at
international competition in the C&D industry.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
2.2 INDUSTRY DEFINITION
2.2.1 Basis for Regulation
The proposed rule will cover establishments within the construction sector (NAICS 23) that
disturb the land at construction sites of one acre or more.2 These land-disturbing activities may include
site preparation and site clearing tasks such as tree removal, excavation, blasting, scraping, and grading,
and are generally accomplished with the aid of heavy equipment such as skidders, bulldozers, backhoes,
excavators, and graders. These activities may destabilize soils and create conditions that allow storm
water to accumulate and flow across the site. This increase in storm water flow can cause erosion and
lead to the transport of soil particles and attached pollutants, which eventually may be conveyed offsite
and discharged into receiving waters. Both the increased flow and associated pollutant and sediment
loads that result from land-disturbing activities can negatively impact the biological, physical, and
chemical characteristics of the receiving waters.
The proposed effluent guidelines will build upon the Phase I and Phase II storm water
regulations promulgated under the National Pollutant Discharge Elimination System (NPDES), as well as
upon EPA's storm water construction general permit (CGP). The CGP is the vehicle through which
Phase I regulations are being implemented, and upon revision in 2003 it will also reflect the Phase II
regulations. The CGP also will be the vehicle through which the proposed rule is implemented. The
proposed rule will also build upon current state and local storm water control requirements by adding
increased specificity and consistency to these requirements. See Chapter Three for more information on
the proposed rule. The methodology chapter provides further detail on the planned implementation of
the proposed rule.
2 The Bureau of the Census classifies industries according to the North American Industrial Classification
System, or NAICS. Under the NAICS, economic activity is first divided into twenty broad 2-digit industry codes.
One of these is Construction (NAICS 23). Each 2-digit industry is further subdivided into 3-, 4-, and 5-digit level
industries.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
2.2.2 Industry Definition
For the purposes of this economic analysis, the "C&D industries" are assumed to include those
establishments within the construction sector (NAICS 23) that may be involved in activities that disturb
the ground at construction sites. This includes site clearing or site preparation activities such as tree
removal, excavation, blasting, scraping, grading, etc. EPA believes that many establishments in NAICS
233 (Building, developing, and general contracting) and NAICS 234 (Heavy construction) are likely to
engage in such activities on a regular basis. Establishments within selected 5-digit industries that are part
of NAICS 235 (Special trade contractors) may also engage in land-disturbing activities. The latter may
include NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors).
However, as discussed in Section VI. A in the preamble of the proposed rule, Special trade contractors are
typically subcontractors and not identified as NPDES permittees. Table 2-3 identifies the industries that
may be covered by the proposed regulations.
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Table 2-3
Industry Definitions for Construction and Development Industry Profile
NAICS Code
233
2331
23311
2332
23321
23322
2333
23331
23332
234
2341
23411
23412
2349
23491
23492
23493
23499
235
23593
23594
Industry
Relevant SIC Codes"
Building, developing, and general contracting
Land subdivision and development
Land subdivision and development
Residential building construction
Single-family housing construction
Multifamily housing construction
Nonresidential building construction
Manufacturing and industrial
building construction
Commercial and institutional
building construction
6552 Land subdividers and developers, except cemeteries
1521 General contractors-single-family houses
1531 Operative builders (partial)
8741 Management services (partial)
1 522 General contractors— residential buildings other than
single-family (partial)
1531 Operative builders (partial)
8741 Management services (partial)
1531 Operative builders (partial)
1541 General contractors— industrial buildings and warehouses
(partial)
8741 Management services (partial)
1522 General contractors— residential buildings, other than
single-family (partial)
1531 Operative builders (partial)
1541 General contractors— industrial buildings and warehouses
(partial)
1542 General contractors— nonresidential buildings except
industrial buildings and warehouses
8741 Management services (partial)
Heavy Construction
Highway, street, bridge, and tunnel
construction
Highway and street construction
Bridge and tunnel construction
Other heavy construction
Water, sewer, and pipeline
construction
Power and communication
transmission line construction
Industrial nonbuilding structure
construction
All other heavy construction
1611 Highway and street construction contractors, except
elevated highways
8741 Management services (partial)
1622 Bridge, tunnel, and elevated highway construction
1623 Water, sewer, pipeline, and communications and power
line construction (partial)
8741 Management services (partial)
1623 Water, sewer, pipeline, and communications and power
line construction (partial)
8741 Management services (partial)
1629 Heavy construction, n.e.c. (partial)
8741 Management services (partial)
1629 Heavy construction, n.e.c. (partial)
7353 Heavy construction equipment rental and leasing (partial)
8741 Management services (partial)
Special trade contractors
Excavation contractors
Wrecking and demolition contractors
1794 Excavation work special trade contractors
1795 Wrecking and demolition work special trade contractors
a NAICS recently replaced the SIC (Standard Industrial Classification) System.
Source: U.S. Census Bureau (2000a).
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
As seen in Table 2-3, each NAICS industry is comprised of one or more industries defined under
the former Standard Industrial Classification (SIC) system. With the 1997 Census, the Census Bureau
switched from reporting data on an SIC basis to an NAICS basis, thereby making it difficult to compare
data from 1997 with that from the 1992 and earlier Census reporting periods. Within this economic
profile the objective is to provide data at the most detailed level as possible, while still maintaining the
ability to provide meaningful comparisons between 1997 and earlier Census periods. With this in mind,
most of the statistical tables contained in this profile reflect the following industry breakdown:3
NAICS 233, except 2331 Building, developing, and general contracting, except land subdivision and land development
NAICS 2331 Land subdivision and land development
NAICS 234 Heavy construction
NAICS 235 Special trades contractors"
1 Covered industries to include NAICS 23593 (Excavation contractors) and NAICS 23594 (Wrecking and demolition
contractors) only, when possible.
2.3 INDUSTRY CHARACTERISTICS
Several steps are used to define the number of C&D establishments that may be affected by the
proposed regulations. First, EPA identifies all C&D establishments as defined above using data from the
1997 Census of Construction. Second, EPA estimates the number of establishments classified as C&D
establishments that are primarily engaged in remodeling work, using data from the National Association
of Home Builders (NAHB) and the Joint Center for Housing Studies at Harvard University (Joint
Center). Third, EPA estimates the number of establishments classified as C&D establishments that are
engaged in C&D activities but are unlikely to disturb more than one acre of land, using data from Census
and various secondary sources. Section 2.3.1 looks at the industry-wide characteristics of C&D
establishments, including number and size of establishments, employment, and geographic distribution of
3 Some detailed breakdowns may be available only at the 3-digit NAICS level, in which case separate data
for NAICS 2331 cannot be provided and will be included with data for all of NAICS 233. NAICS 233, except
2331, includes data for both residential and nonresidential construction activities. Where more detailed data are
available they are included in this profile. In some cases data at a more detailed NAICS level is available (e.g., 5-
digit NAICS) but was considered too detailed to present in the body of this profile. The availability of such data is
noted throughout the profile, and reference is made to Appendix 2A where such tables are presented.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
establishments. Section 2.3.2 describes firm-level data for the C&D industry. Section 2.3.3 describes the
number of small entities, and section 2.3.4 looks at the number of entities in the C&D industry that
disturb less than one acre during the normal course of business. The estimated number of potentially
affected establishments is presented in Section 2.3.5.
2.3.1 Establishment-Level Data
This section presents data for all establishments within the C&D industry as defined in Section
2.2, based primarily on 1997 Census of Construction sources. Included is information on the number and
size of establishments, geographic distribution, employment, payroll and benefits, and level of
specialization.
2.3.1.1 Number and Size of Establishments
Data from the Census of Construction indicate there were a total of 261,617 establishments with
payrolls in the C&D industries in 1997 (i.e., NAICS 233, 234, 23593, and 23594; see Table 2-4). Of
these, the largest number of establishments are in NAICS 233 (Building, developing, and general
contracting). This subsector includes 199,289 establishments, representing 76.2 percent of all C&D
establishments. Within NAICS 233, single-family home construction (NAICS 23321) accounted for the
majority of establishments (138,849 out of 199,289 or 69.7 percent).
Land development and subdevelopment (NAICS 2331) accounted for 8,185 establishments or
3.1 percent of all establishments in the C&D industries. NAICS 234 (Heavy construction) includes
42,557 establishments or 16.3 percent of the total. Of these, 27 percent are primarily highway and street
construction contractors, another 27 percent are contractors that work on water, sewer, pipeline,
communications and power line projects, and 43 percent are engaged in other types of heavy construction
(All other heavy construction). Within the special trades contractors subsector (NAICS 235), NAICS
23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) together account for
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
19,771 establishments, or 7.6 percent of the C&D industries total. Excavation contractors account for
over 90 percent of these establishments.
Table 2-4
Number of Establishments in the Construction and Development Industry, Based on the 1997 Census of Construction
NAICS
233
2331
23321
23322
2333
234
235"
Industry
Building, developing, and general contracting
Land development and subdivision
Single-family residential building construction
Multi-family residential building construction
Nonresidential construction
Heavy construction
Special trade contracting
SUBTOTAL
Establishments With Payrolls
Number
199,289
8,185
138,849
7,543
44,710
42,557
19,771
261,617
Percent of Total
76.2%
3.1%
53.1%
2.9%
17.1%
16.3%
7.6%
100.0%
"Covered industries include NAICS 23593 (excavation contractors) and NAICS 23594 (wrecking and demolition contractors) only.
Across the board, the C&D industries are dominated by small establishments.4 As shown in
Table 2-5, Census reports that some 60.6 percent of establishments with payrolls have fewer than 5
employees, 77.8 percent have fewer than 10 employees, and 87.1 percent have fewer than 20 employees.5
Overall, only 1.1 percent of C&D establishments with payrolls have 100 or more employees. On
average, establishments in NAICS 234 (Heavy construction) are somewhat larger than those in the other
NAICS, with a lower percentage of establishments appearing in each of the smaller establishment size
classes.
4 Establishments are officially defined as "small" by the SBA according to size standards based on either
number of employees or annual revenue (13 CFR 121). Qualifying revenue levels differ among NAICS industries,
and within the C&D industries there is a range of qualifying revenue levels, from $5.0 million for NAICS 23311
(Land subdivision and development) to $27.5 million for the majority of industries within NAICS 233 and 234. A
more detailed review of industry size distribution based on the SBA definitions will be presented as part of the
Small Entity Impact Analysis.
5 And, as noted above, some 450,338 establishments in the C&D industries have no employees.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
The preponderance of small establishments is equally apparent when analyzed on the basis of
revenue size class. Overall in 1997, 37.1 percent of establishments with payrolls had annual revenues
below $250,000; 54.7 percent had annual revenues below $500,000; and 69.6 percent had annual
revenues below $1.0 million. These data are shown in Table 2-6. Only 9,118 establishments,
representing 3.5 percent of the total, had annual revenues in excess of $10.0 million. Section 2.3.1.7
contains more information on small entities in the C&D industry and the small business analysis is
presented in Chapter Six of this EA.
In addition to the small establishments with payrolls, a large number of establishments—some
450,338 in 19976—operate with no paid employees and are not included in the totals in Tables 2-4
through 2-6. Available data suggests these establishments are very small relative to establishments with
payrolls. While employer establishments in NAICS 233 and 234 had $517.7 billion in receipts for 1997,
nonemployer establishments had only $36.5 billion in receipts, which represents only 7 percent of the
receipts of employer establishments.
6 Includes establishments in NAICS 233 and 234 only. Data on nonemployer establishments was not
available at the 5-digit NAICS level for NAICS 235, thus information for NAICS 23593 and 23594 could not be
separated from the rest of NAICS 2359 (Other special trade contractors). Including all nonemployer establishments
in NAICS 2359 (339,521), the total number of such establishments in the C&D industries is 789,859.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
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Table 2-5
Number of Small Establishments with Payrolls in the Construction and Development Industry, Based on Employment
NAICS
233"
234
235"
Industry
Building, developing, and
general contracting
Heavy construction
Special trade contractors
TOTAL
Total
199,289
42,557
19,771
261,617
Establishments
with less than
5 employees
No.
138,926
18,956
700C
158,582
Percent
of Total
69.7%
44.5%
3.5%
60.6%
Establishments
with less than
10 employees
No.
172,079
26,802
4,690
203,571
Percent
of Total
86.3%
63.0%
23.7%
77.8%
Establishments
with less than
20 employees
No.
187,672
33,337
6,833
227,842
Percent
of Total
94.2%
78.3%
34.6%
87.1%
1 Data below the 3-digit NAICS (i.e., for NAICS 2331 Land development and subdevelopment) not publishable.
b Covers establishments in NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only.
c Data for NAICS 23593 (Excavation contractors) not included in this calculation because data did not meet publication
standards.
Figures may not add to totals due to rounding.
Source: U.S. Census Bureau (2000a).
Table 2-6
Number of Small Establishments in the Construction and Development Industry, Based on Value of Business Done
NAICS
233"
234
235b-=
Industry
Building, developing,
and general contracting
Heavy construction
Special trade
contractors
TOTAL
Total
199,289
42,557
19,771
261,617
Establishments with
less than $250,000
in business
No.
83,536
13,364
269
97,169
Percent
of Total
41.9%
31.4%
1.4%
37.1%
Establishments with
less than $500,000 in
business
No.
118,493
20,238
4,344
143,075
Percent
of Total
59.5%
47.6%
22.0%
54.7%
Establishments with
less than $1 million
in business
No.
147,917
26,726
7,385
182,028
Percent
of Total
74.2%
62.8%
37.4%
69.6%
1 Data below the 3-digit NAICS (i.e., for NAICS 2331 Land development and subdevelopment) not publishable.
b Covers establishments in NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only.
'Figures may be low due to lack of sufficient data for NAICS 23593 (Excavation contractors) and 23594 (Wrecking and
demolition contractors) for values under $250,000.
Figures may not add to totals due to rounding.
Source: U.S. Census Bureau (2000a).
The overall average level of receipts among nonemployer establishments is $81,000 versus $1.98
million for establishments with payrolls. A recent study by the Joint Center for Housing Studies of
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
Harvard University indicates that a substantial number of the nonemployer establishments—at least
141,000 of those classified as general building contractors (NAICS 233)—are actually remodelers (Joint
Center 2001).7 The Joint Center estimates do not account for nonemployer establishments outside
NAICS 233 (i.e., NAICS 234 (Heavy construction) or 235 (Special trades). As discussed further in
Section 2.3.2, EPA has reviewed available data on such nonemployer establishments and concluded that
most are unlikely to be affected by the proposed rules.
2.3.1.2 Legal Form of Organization
The Census Bureau defines construction establishments according to how they are organized
legally, using the following classification scheme: (a) corporations, (b) proprietorships, (c) partnerships,
and (d) other. In 1997, a total of 173,602 C&D establishments with payrolls (66.4 percent of the total)
were organized as corporations (see Table 2-7). A further 64,733 (24.7 percent) were organized as
proprietorships while 14,313 (5.5 percent) operated as partnerships and 8,969 (3.5 percent) operated
under some other legal form of organization. Organization as a corporation is most prevalent in NAICS
2331 (Land subdivision and development), at 76.6 percent, and least prevalent in NAICS 235 (Special
trade contractors), at 61.6 percent. See Appendix 2A for more detailed industry-level data.
7 The estimate of 141,000 establishments is probably an underestimate. The Joint Center applied the
percentage of establishments with payrolls known to be remodelers to the nonemployer establishments. In practice,
remodelers probably account for a larger percentage of nonemployer establishments than employer establishments.
As the report states, "(o)ur procedures thus generate a conservative estimate of the number of businesses
concentrating their activities in residential remodeling" (Joint Center, 2001, p. 35).
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2-7
Number of Establishments in the Construction and Development Industry with Payrolls, by Legal Form of Organization
NAICS
233
2331
234
23 5a
Description
Building, developing,
and general
contracting, except
land subdivision and
development (2331)
Land subdivision and
development
Heavy construction
Special trade
contractors
TOTAL
Corporations
Number
124,475
6,268
30,682
12,177
173,602
Percent
of Total
65.1%
76.6%
72.1%
61.6%
66.4%
Proprietorships
Number
50,235
327
8,401
5,770
64,733
Percent
of Total
26.3%
4.0%
19.7%
29.2%
24.7%
Partnerships
Number
9,827
1,323
2,115
1,048
14,313
Percent
of Total
5.1%
16.2%
5.0%
5.3%
5.5%
Other
Number
6,567
267
1,359
776
8,969
Percent
of Total
3.4%
3.3%
3.2%
3.9%
3.5%
Total
Number
191,104
8,185
42,557
19,771
261,617
Percent
of Total
100.0%
100.0%
100.0%
100.0%
100.0%
aCovers establishments in NAICS 23593 (Excavation Contractors) and 23594 (Wrecking and Demolition Contractors) only.
Source: U.S. Census Bureau (2000a).
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
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2.3.1.3 Geographic Distribution
Figure 2-1 shows a geographic distribution of establishments by state. The largest concentrations
of establishments are in California, New York, Texas, Florida, and Pennsylvania. Combined, these states
account for approximately 25 percent of all C&D establishments nationwide.
Total Numberol C&D Establishments
Bomce: BuraEiu of tho Co- .c-us. ilr.1/ ueiTS-js ci Cc"ish
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
NAICS 233 (Building, developing, and general contracting) accounts for 1.3 million employees, or 55.2
percent of the total. A total of 880,400 or 37.3 percent of the total are employed in NAICS 234 (Heavy
construction), and NAICS 23593 and 23594 (Excavation contractors and Wrecking/demolition
contractors) employ 135,057 (5.7 percent of the total).
Table 2-8
Number of Employees in the Construction and Development Industries Establishments With Payrolls, 1997
NAICS
233, except
2331
2331
234
235"
Industry
Building, developing, and general contracting, except land subdivision
and land development
Land subdivision and land development
Heavy construction
Special trade contractors
TOTALS
Number of
Employees
1,301,126
41,827
880,400
135,057
2,358,410
Percent
of Total
55.2%
1.8%
37.3%
5.7%
100.0%
1 Includes NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only.
Source: U.S. Census Bureau (2000a).
Construction is a seasonal activity in many parts of the country, and employment data from the
industry bear this out. Figure 2-2 shows quarterly employment data for all NAICS in the C&D industries,
as well as the annual average. Overall, employment of construction workers was lowest in March at 1.59
million and highest in August at 1.83 million.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
1000
12
11
10
Seasonal Trends for Employment in C&D Industries (1997)
11.911
10,219
March
May
August
November
233 Building construction excluding
land development
234 Heavy construction
235 Special trades
2331 Land development
Source: Bureau of the Census, 1997 Census of Construction.
Figure 2-2. Seasonal trends for employment in the C&D industries, 1997.
2.3.1.5 Payrolls and Benefits
In 1997, the payrolls of all C&D industries totaled $76.8 million (see Table 2-9). Of this number
$48.3 million (62.9 percent) went to construction workers and $28.5 million (37.1 percent) went to other
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
employees.8 In addition, the C&D industries incurred $11.2 million in legally required fringe benefit
expenditures and $6.5 million in voluntary fringe benefits, for a total of $17.6 million in fringe benefits.9
Table 2-9 shows detailed data on payrolls and benefits for each of the C&D industries.
2.3.1.6 Specialization
Specialization in the C&D industries refers to the percent of establishment revenues earned from
different types of construction activity. Specialization data provide some insight into the homogeneity of
businesses classified within the same NAICS industry. When reporting to Census, an establishment self-
reports its own degree of specialization by type of construction, based on the percentage of revenue
earned from each type of construction work. Table 2-10 shows, as an example, the specialization of
establishments in NAICS 23321 (Single-family home construction) across the "type of construction"
categories defined by the Census Bureau, and the revenues earned by establishments in each
specialization category.10'11
8 Construction workers include all workers up through the working supervisor level directly engaged in
construction operations, such as painters, carpenters, plumbers, and electricians. Included are journeymen,
mechanics, apprentices, laborers, truck drivers and helpers, equipment operators, and on-site recordkeepers and
security guards. Other employees include employees in executive, purchasing, accounting, personnel, professional,
technical activities, and routine office functions.
9 Legally required contributions include Social Security contributions, unemployment compensation,
workman's compensation, and State temporary disability payments. Voluntary expenditures include life insurance
premiums, pension plans, insurance premiums on hospital and medical plans, welfare plans, and union negotiated
benefits.
10 Due to high degrees of variation of specialization and types of construction among NAICS sectors,
detailed tables for each NAICS in the C&D industries are presented separately in Appendix 2B.
11 Because the Census Bureau only considers construction establishments to be specialized if they earn
more than half of their revenues from one particular type of construction, the total value of construction work shown
in these tables will not match industry totals, which cover all establishments, including those that are not specialized.
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Table 2-9
Payrolls and Benefits for Employees in the Construction Industry (Thousands of 1997 Dollars)
NAICS
255
23311
23321
23322
23331
23332
234
23411
23412
23491
23492
23493
23499
255*
23593
23594
Industry
Building, developing, and general
contracting
Land subdivision and land development
Single-family housing construction
Multifamily housing construction
Manufacturing and industrial building
construction
Commercial and Institutional building
construction
Heavy construction
Highway and street construction
Bridge and tunnel construction
Water, sewer,, and pipeline construction
Power and communication transmission
line construction
Industrial nonbuilding structure
construction
All other heavy construction
Special trade contractors
Excavation contractors
Wrecking and demolition contractors
TOTAL
Payrolls"
Construction
workers'"
$23,135,832
$254,247
$7,739,858
$1,022,265
$3,322,347
$10,797,116
$22,218,582
$7,095,139
$1,378,759
$4,087,007
$1,748,715
$2,734,020
$5,174,943
$2,940,440
$2,525,857
$414,583
$48,294,854
Other
employees0
$19,410,280
$1,255,526
$7,224,726
$744,361
$1,806,620
$8,379,046
$8,073,267
$2,432,488
$468,401
$1,435,273
$638,717
$988,343
$2,110,046
$1,005,609
$828,017
$177,592
$28,489,156
All
employees'1
$42,546,112
$1,509,773
$14,964,583
$1,766,627
$5,128,967
$19,176,160
$30,291,850
$9,527,626
$1,847,160
$5,522,281
$2,387,432
$3,722,363
$7,284,989
$3,946,050
$3,353,874
$592,176
$76,784,012
Fringe Benefits (All Employees)
Legally
required
expenditures6
$5,929,710
$164,669
$2,000,118
$255,879
$777,829
$2,731,214
54665,757
$1,507,465
$344,821
$844,394
$374,145
$486,625
$1,108,307
$582,157
$483,764
$98,393
$11,177,624
Voluntary
expenditures'
$3,011,115
$71,648
$623,079
$76,644
$446,522
$1,793,222
$3,120,979
$1,109,177
$263,297
$493,761
$231,538
$302,813
$720,394
5529,925
$283,952
$45,973
$6,462,019
Total
fringe
benefits5
$8,940,824
$236,317
$2,623,197
$332,523
$1,224,351
$4,524,436
57,756,756
$2,616,641
$608,117
$1,338,155
$605,683
$789,439
$1,828,701
$912,082
$767,716
$144,366
$17,639,642
1 Payrolls includes the gross earnings paid in the calendar year 1997 to all employees on the payrolls of construction establishments. It includes all forms of compensation such as salaries, wages,
commissions, bonuses, vacation allowances, sick leave pay, prior to such deductions as employees' Social Security contribution, withholding taxes, group insurance, union dues, and savings bonds.
b Construction workers include all workers up through the working supervisor level directly engaged in construction operations, such as painters, carpenters, plumbers, and electricians. Included
are journeymen, mechanics, apprentices, laborers, truck drivers and helpers, equipment operators, and on-site recordkeepers and security guards.
c Other employees include employees in executive, purchasing, accounting, personnel, professional, technical activities, and routine office functions.
d Sum of construction workers and other employees.
e Legally required contributions include Social Security contributions, unemployment compensation, workman's compensation, and State temporary disability payments.
f Voluntary expenditures include life insurance premiums, pension plans, insurance premiums on hospital and medical plans, welfare plans, and union negotiated benefits.
8 Total fringe benefits represent the expenditures made by the employer during 1997 for both legally required and voluntary fringe benefit programs for employees.
h Covers establishments in NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only.
Source: U.S. Census Bureau (2000a).
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Specialized establishments in NAICS 23321 (i.e., those that earn 51 percent or more of revenues
from one type of construction) may be specialized in either detached single-family housing construction
or attached single-family housing construction.12 The number of construction type specializations may
depend on the NAICS, as some industry definitions encompass a broader set of construction activities
(see Appendix 2B). Within NAICS 23321, establishments specialized 51 percent or more in detached,
single-family housing construction performed construction work valued at $127.9 billion.
Establishments 100 percent specialized in detached, single-family housing construction performed
construction work worth $90.4 billion, or 64.4 percent of all work done by establishments with
specialization in construction work. Similarly, for establishments specializing in construction of attached
single-family houses by 51 percent or more, the value of work was $12.5 billion, and 52.8 percent of the
work ($6.6 billion) was done by establishments with complete specialization in attached single-family
houses. Further analysis of the value of construction work performed by the C&D industries can be
found in Section 2.7.1.
Table 2-10
Specialization within NAICS 23321 (Single-Family Home Construction), Categorized by Value of Construction Work
(Millions of 1997 Dollars)
Type of
Construction with
Specialization
Single-family houses,
detached
Single-family houses,
attached, including
townhouses and
townhouse-type
condominiums
Estabs.
spec. 51 %
or more
$127,870
$12,534
Estabs.
with 100
% spec.
$90,434
$6,623
Estabs.
with 90 to
99 % spec.
$14,615
$1,292
Estabs.
with 80 to
89 % spec.
$7,040
$877
Estabs.
with 70 to
79 % spec.
$6,600
$1,074
Estabs.
with 60 to
69 % spec.
$6,603
$1,693
Estabs.
with 51 to
59 % spec.
$2,574
$971
Source: U.S. Census Bureau (2000a).
12 Although they may earn revenues from other types of construction (e.g., highway construction) they
would no longer be classified in NAICS 23321 if they earned 51 percent or more of their revenue from such
sources.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
2.3.2 Firm-Level Data
The SBA Office of Advocacy contracts with the U.S. Census Bureau to produce firm-level data
for U.S. industries. Currently, distributions by employment size are available on an NAICS basis for
1998, and distributions by receipt size are available on an SIC basis for 1997.
The SBA data is based primarily on administrative records and is not generated in conjunction
with, nor is it linked to, data collected through the Census of Construction. As a result, there may be
minor inconsistences between data reported by SBA and that reported by the Census of Construction.13
The SBA/Census data, however, is the only firm-level data available for C&D industries, so EPA is
including it in this analysis because it is valuable to the economic modeling and the small entity analysis,
which applies at the firm, not the establishment, level.14
2.3.2.1 Number and Size of Firms
Table 2-11 presents the number of firms with payrolls (firms with paid employment) and number
of establishments in the C&D industries in 1998.15 These data indicate that a majority of firms operate a
single establishment, and have fewer than 20 employees. Of the 215,301 C&D firms in 1998;
approximately 99 percent of these operate only one establishment, and 94 percent have fewer than 20
employees; less than 1 percent of firms have more than 500 employees. In 1998, there were 39,062 firms
in heavy construction and these operated 40,091 establishments. More than 97 percent of the heavy
13 For example, the SBA data provide estimates of the number of establishments operated by C&D firms.
These establishment counts, however, do not match those reported in the Census of Construction. This is partially
due to differences in coverage (the SBA data include administrative establishments while the Census of
Construction does not) as well as differences in data collection methods.
14 For clarification, an establishment is defined as "a relatively permanent office or other place of business
where the usual business activities related to construction are conducted" (Census, 2000a). Afirm refers to the
aggregation of all establishments owned by one company; therefore one firm may consist of several establishments.
15 "The data excludes non-employer businesses, thus excluding many self-employed individuals
(employment is measured in March so firms starting after March, firms closing before March and seasonal firms can
have zero employment)." SBA Office of Advocacy website, http://www.sba.gov/advo/stats/data.html.
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construction firms operate a single establishment and approximately 79 percent of heavy construction
firms have fewer than 20 employees.
Table 2-11
Employer Firms and Establishments by Employment Size of Firm by NAICS Codes, 1998 — SBA Data
Industry
Building, developing, &
general contracting
Land subdivision & land
development
Single-family housing const.
Multifamily housing const.
Mfg & industrial building
construction
Commercial & institutional
building construction
Heavy construction
Highway & street const.
Bridge & tunnel construction
Water, sewer, & pipeline
construction
Power & communication
transmission line
construction
Industrial nonbuilding
structure construction
All other heavy construction
Excavation contractors
Wrecking & demolition
contractors
NAICS
233
23310
23321
23322
23331
23332
234
23411
23412
23491
23492
23493
23499
23593
23594
Firms
Total
275,307
11,192
153,029
8,054
6,842
36,355
39,062
10,884
886
7,749
3,170
641
15,860
23,209
7,336
0
38,904
2,829
29,168
1,405
720
4,782
4,589
1,493
70
676
404
52
1,894
4,310
247
<20
202,969
10,618
149,240
7,413
5,470
30,240
30,987
8,265
520
5,786
2,464
411
13,541
22,145
1,094
<500
214,921
11,101
152,937
8,027
6,775
36,158
38, 788
10,806
865
7,704
3,133
575
15,758
23,207
7,329
500+
380
91
92
27
67
197
274
79
21
45
37
66
102
8
7
Establishments
Total
276,593
11,369
153,561
8,091
6,904
36,968
40,097
11,268
925
7,823
3,305
709
16,061
23,240
1,344
0
38,907
2,832
29,168
1,405
720
4,782
4,589
1,493
70
676
404
52
1,894
4,310
247
<20
203,020
10,628
149,253
7,414
5,471
30,254
37,070
8,273
521
5,787
2,465
411
13,553
22,145
1,094
<500
215,478
11,179
153,108
8,041
6,784
36,366
39,098
10,901
880
7,726
3,157
583
15,851
23,223
7,332
500+
1,415
190
453
50
120
602
993
367
45
97
148
126
210
77
72
Source: U.S. Small Business Administration (1998), based on data provided by the U.S. Census Bureau.
2.3.2.2 Firm-Level Revenues
Table 2-12 shows the number of employer firms and establishments, in 1997, based on NAICS
industry and revenue size class. These data also show that a large number of firms in the C&D industries
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
are small. Approximately three-quarters (75.2 percent) of the firms in the target industry sectors reported
under $1.0 million in revenues for 1997 and nearly 94 percent of firms reported revenues under $5.0
million.
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Table 2-12
Firms and Establishments with Payrolls by Revenue Size Class (1997)" (SBA Data)
Description
Land Subdivision and
Development
Single-Family Housing
Construction
Vlultifamily Housing
Construction
Manufacturing and Industrial
Building Construction
Commercial and Institutional
Building Construction
highway and Street
Construction
Bridge and Tunnel
Construction
Water, Sewer, and Pipeline
Construction
Dower and Communication
Transmission Line
Construction
Industrial Nonbuilding
Structure Construction
All Other Heavy Construction
ixcavation Contractors
Wrecking and Demolition
Contractors
TOTAL
FIRMS
Total
Number of
Firms
11,036
149,130
6,911
7,950
38,195
10,778
875
7,916
2,781
3,941
12,973
22,046
1,270
275,802
<$1
Million
7,744
123,414
5,128
4,674
22,518
5,683
287
4,475
1,572
2,786
9,110
19,093
840
207,324
<$5
Million
10,207
145,305
6,347
6,841
32,523
8,681
583
6,861
2,411
3,612
11,873
21,659
1,165
258,068
<$7.5
Million
10,501
146,917
6,518
7,156
34,085
9,291
638
7,245
2,546
3,713
12,213
21,820
1,204
263,847
<$25
Million
10,851
148,634
6,791
7,692
36,964
10,320
788
7,768
2,729
3,860
12,697
22,002
1,249
272,345
<$100
Million
10,948
148,975
6,877
7,879
37,882
10,679
847
7,883
2,770
3,909
12,863
22,038
1,261
274,811
Over $100
Million
88
155
34
71
313
99
28
33
11
32
111
8
9
992
ESTABLISHMENTS"
Total
Establish-
ments
11,205
149,823
7,009
8,075
39,044
11,117
915
8,075
2,837
4,023
13,594
22,072
1,285
279,074
<$1
Million
7,746
123,420
5,129
4,675
22,526
5,683
288
4,476
1,572
2,787
9,118
19,093
840
207,353
<$5
Million
10,218
145,339
6,354
6,847
32,560
8,689
584
6,864
2,412
3,617
11,920
21,661
1,166
258,231
<$7.5
Million
10,514
146,962
6,527
7,166
34,133
9,302
640
7,251
2,548
3,720
12,279
21,823
1,205
264,070
<$25
Million
10,896
148,736
6,810
7,713
37,075
10,349
795
7,791
2,738
3,874
12,814
22,005
1,252
272,848
<$100
Million
11,018
149,161
6,910
7,914
38,124
10,758
859
7,938
2,789
3,936
13,087
22,055
1,271
275,820
Over $100
Million
186
661
99
160
920
359
56
137
48
86
507
17
14
3,250
a Data are for 1997. SBA does not report revenue size class data in NAICS format and will not do so until the 2002 Economic Census is published. These figures were calculated using percentages
provided in the Census Bureau's NAICS to SIC bridge, which is available at www.census.gov/epcd/ec97brdg.HTM.
b The number of establishments reported here may differ from the number reported in previous tables due to the different sources used (see Table 2-2 and accompanying text for further discussion).
Earlier tables are based on data from the 1997 Economic Census; Table 2-12 is based on 1997 data from SBA/Census and was converted from SIC to NAICS for the purposes of this analysis.
Source: SBA 1998
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2.3.3 Number of Small Entities
Small entities are defined by the SBA according to size standards based on either number of
employees or annual revenue (13 CFR 121). For all of the C&D industries, the size standards are based
on annual revenues. Table 2-13 presents the SBA revenue thresholds for the C&D industry, which range
from $5.0 million for NAICS 233110 (Land subdivision and land development) to $27.5 million for the
majority of NAICS 233 (Building, developing, and general contracting) and NAICS 234 (Heavy
construction). An estimated 189,805 C&D businesses, representing 99.5 percent of all businesses in the
C&D industry, fall below the SBA-defmed revenue thresholds for this industry and therefore may be
qualified as small businesses. Table 2-13 shows the total estimated number of businesses and total small
businesses in the C&D industry; the number of potentially affected small businesses is developed in
Chapter Six.
Table 2-13
Number of Firms and Establishments Above and Below SBA Thresholds for Small Business Definition:
Based on Data from SBA
NAICS
233210: Single-family
Housing Construction
233220: Multifamily
Housing Construction
233310: Manufacturing
and Industrial Building
Construction
233320: Commercial and
Institutional Building
Construction
TOTAL
SBA Revenue
Threshold
(million $)
$27.5
$27.5
$27.5
$27.5
-
Total Estimated
Number of
Businesses
138,732
7,534
7,257
37,220
190,743
Estimated
Number of
Small
Businesses
138,583
7,491
7,050
36,681
189,805
Small Businesses
as a Percent of
Total
99.9%
99.4%
97.1%
98.6%
99.5%
a For those industries with a $27.5 million SBA cutoff, the table shows the number of firms and establishments
with revenues below $25.0 million (the next closest SBA data break point). For industries with a $11.5 million
SBA cutoff, figures shown are for firms and establishments with revenues below $7.5 million.
Source: SBA 1998; also see Chapter Six, Tables 6-2 and 6-3
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2.3.4 Entities Not Covered by the Proposed Rule
Not all establishments and firms that fall within the industry definitions outlined in the previous
sections will be affected by the proposed rule. The proposed rule will apply only to those NPDES-
permitted establishments engaged in activities that disturb land. EPA believes that some entities will be
excluded from regulatory coverage because they are primarily engaged in remodeling activities that will
not result in land disturbance. Others will be excluded because they are generally not the primary
NPDES permit holder. As discussed in Section VIA in the preamble of the proposed rule, Special trade
contractors are typically not identified as NPDES permit holders and thus will not likely be covered by
the proposed rule. In this section EPA estimates the number of establishments that fall into these
categories. The resulting estimates are brought together in Section 2.3.5 to derive the number of
establishments covered under each option of the proposed rule.
2.3.4.1 Establishments Engaged in Remodeling
Two sources provide information on the potential number of C&D establishments that are
actually remodelers. In an article published in Housing Economics, NAHB economists estimated that in
1997 approximately 45,952 establishments in the residential building industry were involved in
remodeling activities only (Ahluwalia and Chapman, 2000). This count is based on analysis of Census
microdata on establishments, receipts, and source of receipts. Establishments were classified as
remodelers in this study if they earned 100 percent of revenues from remodeling activities.
The Joint Center for Housing Studies at Harvard University recently published a report focused
solely on the remodeling industry (Joint Center, 2001) . This report classified establishments that derive
at least half of their revenues from remodeling activities as remodelers. When defined in this manner,
the study found that 62,400 establishments classified as general contractors/builders in 1997 were
actually remodelers.
Both of these estimates are based on establishments classified by Census as general
contractors/builders. The Joint Center study goes further to identify establishments classified in various
special trades (e.g., Carpentry, Plumbing) that are primarily engaged in remodeling, but these estimates
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
do not include those considered part of the C&D industries (i.e., NAICS 23593 Excavation contractors
and 23594 Wrecking and demolition contractors).16 NAHB does not address the issue of special trades
contractors in their report. Neither report estimates the number of establishments in NAICS 234 (Heavy
construction) that may be engaged primarily in remodeling activities; however, EPA does not expect that
establishments in the heavy construction sector would be engaged in remodeling activities.
Following review of these studies, EPA used the estimate from the Joint Center study as the best
estimate of the number of remodelers included in statistics of the C&D industries. This study defines
remodelers as establishments that earn at least 50 percent of revenues from remodeling activity (and thus
earn less than 50 percent from building activity). EPA concludes that these establishments, when
engaged in building activity, are unlikely to disturb more than one acre of land and would therefore not
be covered by the proposed rule.
2.3.4.2 Establishments That Are Not NPDES Permttees
EPA has included in the universe of potentially affected establishments all establishments in
NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) because such
establishments engage in land disturbing activities. In reality, however, establishments in these industries
generally act as subcontractors on C&D projects and are hired by developers or general contractors to
perform specific tasks. EPA does not believe that such establishments generally appear as NPDES
permittees or copermittees. Therefore, while these establishments are included among the universe of
potentially affected establishments (and appear below in Table 2-14), EPA has not included them in the
subsequent economic impact analysis chapters (i.e., Chapters Four, Five, and Six).
16 The Joint Center study does provide an estimate for the number of remodelers classified in
"miscellaneous special trades" (NAICS 2359), which includes NAICS 23593 and 23594, but several other industries
as well. The number of remodelers classified primarily in NAICS 23593 and 23594 may not be large, however,
since the total number in NAICS 2359 is only 6,600.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
2.3.5 Number of Potentially Affected Entities
EPA took several steps to adjust the number of affected entities to account for regulatory
coverage and data availability. Previous sections estimated that the total number of
establishments in the C&D industry is 261,617 (see Table 2-4). Subtracting the 62,400 remodeling
establishments estimated in Section 2.3.4 from this figure yields a potentially affected universe of
199,214 establishments. EPA subtracted the 62,400 residential remodeling establishments from the
single-family and multifamily building construction industries (NAICS 23321 andNAICS 23322), based
on their respective shares of residential building establishments.
In preparing its economic impact analysis, EPA concluded that data limitations on land
developers (NAICS 2331) would preclude retaining this as a separate industry for purposes of regulatory
analysis.17 Rather than excluding establishments in this industry category (which would potentially
underestimate the number of affected entities and associated impacts) EPA distributed them among the
four building construction industries (single-family, multifamily, commercial, and industrial
construction), based on each industry's share of total establishments.18 Table 2-14 reflects this
allocation, which was done after removing those establishments engaged primarily in remodeling.
EPA has further adjusted the population of affected establishments to account for differences in
regulatory coverage. As described in Chapter Three, the proposed rule considers three erosion and
sediment control (ESC) options. Option 1 would apply to sites that disturb one acre or more of land,
while Option 2 would apply to sites that disturb five acres or more of land. Option 3 is a no regulation
option, meaning that no sites or establishments would be affected.
EPA used data from the Census Bureau and other sources to define an average housing density
for the nation as a whole (average number of housing units per acre), then used this analysis to identify
classes of establishments that would be excluded based on their likelihood of disturbing less than one
acre (Option 1) or five acres (Option 2) on a project basis. EPA believes these estimates to be
17 Specifically, EPA could not obtain equivalent financial data with which to build financial models of the
land development industry.
18 EPA provides further justification for and details about this step in the analysis in Chapter Four.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
conservative in terms of identifying establishments unaffected by the proposed rule. First, while the
regulatory threshold applies to each site, EPA excluded establishments if the estimated number of acres
disturbed in a year is below the regulatory threshold. In addition, the analysis was not adjusted for the
percent of sites normally left undisturbed.19
Based on this analysis, EPA assumed that establishments in the single-family building
construction industry (NAICS 2331) that complete between 1 and 4 housing units each year would be
excluded under Option 1. Under Option 2, EPA also assumed that establishments in the single-family
building construction industry (NAICS 2331) that complete between 5 and 9 housing units, as well as
establishments in the multifamily building construction industry (NAICS 2332) that complete between 2
and 9 housing units each year, would be excluded. Chapter Four contains further detail on the data
sources and method used to make this adjustment.
Table 2-14 shows the distribution of establishments potentially affected under Option 1 and 2,
following the redistribution of land developers (NAICS 2331) and adjustment for small builders exempt
from the site size limitations of each option. Due to limited data, the number of establishments in NAICS
234 (Heavy construction) and NAICS 235 (Special trades) affected under each option could not be
refined further, so no adjustments are made to these establishment counts. Moreover, as discussed in
Section XII of the preamble of the proposed rule, special trade contractors are not included in Chapter 5,
Economic Impact Analysis Results of this report. Special trade contractors are typically subcontractors
and are not NPDES permittees. Therefore, these contractors would not be directly affected by the
proposed rule.
19 For example, an establishment that completes 15 houses per year is estimated to account for 5.6 acres of
converted land, based on the average housing density of 2.67 new single-family housing units per acre. EPA would
include this establishment among those covered under Option 2, even though the actual area disturbed may well fall
below 5 acres once open space, buffers, and other "undisturbed" areas are factored in. Furthermore, as noted, EPA
assumes that all of the housing units are covered by a single NPDES permit while in reality the establishment might
operate on more than one site, none of which exceeds the 5-acre threshold.
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Table 2-14. Number of Affected Establishments in the Construction and Development Industry
NAICS
23321
23322
23331
23332
234
23 5a
Industry
Single-family residential building
construction
Multi-family residential building
construction
Manufacturing and industrial building
construction
Commercial and institutional building
construction
Heavy construction
Special trade contracting
Potentially affected establishments
Option 1
Number
34,070
4,603
7,742
39,810
42,557
19,771
148,553
Percent of
Total
22.9%
3.1%
5.2%
26.8%
28.6%
13.3%
100.0%
Option 2
Number
21,362
2,699
7,742
39,810
42,557
19,771
133,941
Percent of
Total
15.9%
2.0%
5.8%
29.7%
31.8%
14.8%
100.0%
a Includes NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only.
Figures may not add to totals due to rounding.
Source: U.S. Census Bureau (2000a) and EPA estimates.
2.4
MARKET SUPPLY AND DEMAND
The sections below discuss the supply and demand factors that affect the residential,
nonresidential, and heavy construction industries. This discussion provides insight into the dynamics of
the construction market and provides a basis for many of the key assumptions used in the economic
impact models.
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2.4.1 Characteristics of Construction Supply
This section discusses the factors that influence supply in the C&D industry. Topics include
number and value of residential, nonresidential, and heavy construction projects; barriers to entry in the
industry; and supply trends (the latter primarily for the residential construction market).
2.4.1.1 Residential Building
Number of Projects
The Census Bureau operates three data collection programs that track and report output measures
relevant for the C&D industry:
The Building Permits Program collects monthly information on building permits issued
for new private residential construction.
The Survey of Construction collects information on residential units started, sold, and
completed each month. Several data series are produced from this program. These
include:
• Housing Starts (Series C20)—Provides monthly data on the number of housing
starts, including number of housing units authorized, started, and authorized but
not yet started.
• New One-Family Houses Sold (Series C25)—Provides monthly data on units sold
and for sale, average and median sales prices, and price distribution of units sold.
This series also produces the Price Index of New One-Family Houses Sold.
• Characteristics of New Housing (Series C25A)—Compiles and publishes data
annually on housing prices and physical characteristics such as size of unit,
number of bathrooms, type of heating system, and type of exterior wall.
• Housing Completions (Series C22)— This series, published monthly, provides
data on the number of housing units completed in a month and on those under
construction.
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• New Residential Construction in Selected Metropolitan Areas (Series
C21)—Provides quarterly data by metropolitan area on units authorized, started,
and completed.20
• The Value Put in Place program publishes estimates of the value of construction work
performed each month.
Combined, these data programs produce vast amounts of information on construction industry
output. This profile focuses on building permits, since the activities most likely to be influenced by the
proposed effluent guidelines regulations are those that take place early in the development process. The
following discussion and supporting tables provide further details about the building permits data
collection program.
The Building Permits Program collects data on private residential construction authorized by
building permits based upon reports submitted by local building permit officials.21 The data include the
number of permits authorized by type22 and the value of permits. These reports are provided in response to
a mail survey using Form C-404 "Report of Building or Zoning Permits Issued and Local Public
Construction." The mail survey covers a sample of 8,500 permit-issuing places from a universe of 19,000
in the U.S.23 Approximately 96 percent of all privately owned housing units are built in areas that require
building permits.
20 Census has discontinued publication of this series. The last year for which data were published was
1998.
21 Census discontinued collection of data on nonresidential construction authorized by building permits in
1995 due to budget cuts. EPA has used historical data from this series to create projections of nonresidential
building activity beyond 1995. See Section 2.6.1.2.
22 Private residential construction is classified as: single-family homes, 2-family buildings, 3-4 family
buildings, or 5 or more family buildings. Data collection for other types of construction (including nonresidential
housekeeping, nonresidential buildings, and demolition and razing) was discontinued in 1995.
23 All permit-issuing places in the most active MSAs and all CMSAs are selected with certainty for the
sample. The remaining places are stratified by State into two strata based on the number of housing units authorized
in 1989, 1990, 1991, and 1992. In each State, all places that authorized housing units during the period greater than
or equal to a predetermined number of units were selected with certainty. The other places were selected at the rate
ofl in 10.
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Figure 2-3 shows monthly data from January 1994 through July 2000 on the number of housing
units authorized by building permit. The data in this chart represent seasonally adjusted annual averages.
Seasonal adjustment eliminates the effect of changes that normally occur at about the same time and with
about the same magnitude every year.24 As seen, the seasonally adjusted annual rate of building permits
issued shows a steady rise over the recent period. From an average of between 1.3 and 1.5 million units
per year over the 1994 to 1997 period, the rate then rose through the 1998 to 2000 period. The rate
appears to have reached a peak in January 2000 when it hit 1.7 million units, and has since fallen steadily
back to approximately 1.5 million units per year.
24 This includes the influence of factors such as normal or average changes in weather conditions,
differences in the lengths of the months, and differences in the composition (trading-day variation) of the months.
The seasonally adjusted annual rate is the seasonally adjusted monthly rate multiplied by 12. The seasonally adjusted
annual rate for a particular month, for example July, can be interpreted to mean that if the only changes which occur
in building permits from July through June of the following year were the normal seasonal changes described by the
seasonal indexes, then the total building permits in that 12-month interval would equal the seasonally adjusted
annual rate for July. The seasonally adjusted annual rate has the advantage of facilitating comparisons with previous
annual building permit figures as well as with the seasonally adjusted annual rates for prior months. The seasonally
adjusted annual rate is neither a forecast nor a projection; rather it is a description of the rate at which building
permits are issued in the particular month for which it is calculated.
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The total number of new housing units authorized in 1997 was 1,441,136. Of these, 1,062,396
or 73.7 percent were for single housing units.25 Table 2-15 shows the number of new privately owned
housing units authorized by building permit, allocated to Census region and subregion.
('000)
1,800
Figure 2-3. New Privately Owned Housing Units Authorized, Seasonally Adjusted Annual Rate, U.S.
Source: U.S. Census Bureau (2000e), Series C-40, Building Permits.
25 A "housing unit" consists of a room or group of rooms intended for occupancy as separate living quarters
by a family, by a group of unrelated persons living together, or by a person living alone. Separate living quarters are
those in which the occupants live and eat separately from other persons in the building and have direct access from
the outside of the building or through a common hall. In accordance with this definition, each apartment unit in an
apartment building is counted as one housing unit.
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Table 2-15
New Privately Owned Housing Units Authorized by Building Permits in Permit-Issuing Places in 1997, by Region
Region
Northeast
Midwest
West
South
Sub-Region
New England
Middle Atlantic
Total Region
East North Central
West North Central
Total Region
Mountain
Pacific
Total Region
South Atlantic
East South Central
West South Central
Total Region
TOTALS
Total
41,110
100,776
141,886
209,213
90,628
299,841
179,632
183,913
363,545
392,540
79,979
163,345
635,864
1,441,136
lUnit
35,838
75,312
111,150
154,513
65,510
220,023
134,403
132,670
267,073
291,564
61,863
110,723
464,150
1,062,396
2 Units
904
4,278
5,182
8,168
4,472
12,640
2,548
4,590
7,138
5,070
2,264
2,556
9,890
34,850
3 and 4 Units
687
2,347
3,034
8,401
2,910
11,311
3,675
5,180
8,855
5,605
1,933
2,850
10,388
33,588
5 Units or
More
3,681
18,839
22,520
38,131
17,736
55,867
39,006
41,473
80,479
90,301
13,919
47,216
151,436
310,302
Number of
Structures
with 5 Units or
More
236
963
1,199
3,118
1,105
4,223
3,098
2,902
6,000
5,839
1,106
2,760
9,705
21,127
Source: U.S. Census Bureau (2000a).
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Value of Projects
The same Census program that compiles and reports data on the number of housing units
authorized by building permit also compiles data on the value of permits issued. The value reported in
the permits data refers to the value of structures and site improvements covered by the building permit,
but excludes land costs.
The total value of residential building permits issued in the U.S. in 1997 was $141.0 billion. Of
this, $121.2 billion, or 86.0 percent, was accounted for by single-family housing units.
Table 2-16 shows the value of new privately owned housing units authorized by building permits
in 1997, by Census region and subregion. The South region accounted for $55.9 billion (39.6 percent of
the total), followed by the West with $40.7 billion (28.8 percent), the Midwest with $30.3 billion (21.4
percent), and the Northeast with $14.1 billion (10.0 percent).
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Table 2-16
New Privately Owned Housing Units Authorized- Valuation for Regions (Millions of 1997 Dollars)
Region
Northeast
Midwest
West
South
Sub-Region
New England
Middle Atlantic
Total Region
East North Central
West North
Central
Total Region
Mountain
Pacific
Total Region
South Atlantic
East South Central
West South
Central
Total Region
TOTAL
Total
$4,737.7
$9,399.5
$14,137.2
$21,688.0
$8,573.9
$30,261.9
$17,426.3
$23,299.2
$40,725.5
$35,206.7
$6,840.6
$13,832.4
$55,879.7
$141,004.4
lUnit
$4,423.8
$8,142.4
$12,566.2
$18,858.2
$7,292.4
$26,150.5
$15,038.7
$19,693.7
$34,732.4
$29,973.8
$6,042.5
$11,729.1
$47,745.4
$121,194.5
2 Units
$59.3
$232.4
$291.7
$584.1
$294.3
$878.3
$225.4
$389.6
$615.0
$301.1
$106.1
$111.8
$518.9
$2,304.0
3 and 4 Units
$49.0
$134.3
$183.3
$516.4
$184.1
$700.4
$245.8
$410.3
$656.1
$341.9
$66.3
$109.6
$517.8
$2,057.7
5 Units or More
$205.5
$890.4
$1,095.9
$1,729.4
$803.3
$2,532.6
$1,916.4
$2,805.6
$4,722.0
$4,590.0
$625.7
$1,881.9
$7,097.6
$15,448.2
Figures rounded from thousands reported by Census.
Source: U.S. Census Bureau (2000a).
2.4.1.2 Nonresidential Building
Census discontinued the collection of data on nonresidential construction authorized by building
permits in 1995 due to budgetary restraints. To fill this data gap, EPA has used historical (pre-1995) data
on nonresidential starts to establish a relationship between residential and nonresidential starts from
which current nonresidential activity can be estimated.
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Number and Value of Projects
EPA analyzed data from 1980 through 1994 on the number of nonresidential building permits,
number of residential building permits, the value of nonresidential buildings put in place, and a time
trend to estimate a statistical relationship that could be used to predict the number of nonresidential
permits issued in 1997.26 Table 2-17 shows, for each region and subregion, the results from EPA's
analysis. EPA used a linear regression of nonresidential building permits on the remaining three
variables to estimate the number of permits.
The value of nonresidential building projects is reported by Census in the Value Put in Place
data series. Table 2-17 also shows the value of nonresidential projects constructed in 1997 by region and
subregion.
26 EPA assumes that there is a one-to-one correspondence between permits and projects for nonresidential
construction activity. Therefore, the predicted number of nonresidential permits issued in 1997 is assumed to also
be the predicted number of nonresidential projects for that year.
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Table 2-17
Estimated Number of Nonresidential Building Permits for 1997, by Region
Region
Northeast
Midwest
West
South
TOTALS
Sub-Region
New England
Middle Atlantic
Total Region
East North Central
West North Central
Total Region
Mountain
Pacific
Total Region
South Atlantic
East South Central
West South Central
Total Region
United States
Nonresidential Permits
(estimated)
26,936
51,530
78,466
62,193
30,374
92,568
27,696
51,408
79,105
124,452
20,340
31,093
175,886
426,024
Value Put in Place
(millions of dollars)
$1,034
$2,482
$3,516
$8,606
$1,745
$10,351
$2,187
$6,736
$8,922
$6,098
$3,228
$4,624
$13,950
$36,739
Figures may not add to totals due to rounding.
Source: U.S. Census Bureau (2000a).
As shown in Table 2-17, the number of nonresidential building projects authorized by permits in
1997 is estimated at 426,024. The South had the highest number of nonresidential permits in 1997, with
175,886, or 41.3 percent of the total. The Northeast had the fewest nonresidential permits issued, with
only 78,466, or 18.4 percent of the total.
The total value of nonresidential building projects constructed in 1997 was $36.7 billion. As
with nonresidential permits, the South had the highest value put in place, with $13.9 billion (38.0 percent
of total value put in place) while the Northeast had the lowest value of projects put in place with $3.5
billion (9.6 percent of total).
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2.4.1.3 Heavy Construction
Heavy construction encompasses both building and nonbuilding construction activities, although
95 percent of the work performed by establishments in NAICS 234 (Heavy construction) is classified as
nonbuilding construction. The largest component of heavy construction work is highway and street
construction. These activities account for one-third of the value of construction work completed by the
heavy construction industries. When highway and street construction is combined with bridge and tunnel
construction, the total value of work climbs to $53.3 billion, or 41.7 percent of the industry total. Heavy
construction activities excluding roads, bridges, and tunnels (e.g., airport runways, sewers and water
mains, transmission lines) account for the remaining 58.3 percent of construction value, but there is little
data providing further detail on such activities. As a result, this section focuses principally on road,
highway, bridge, and tunnel construction.
The Federal Highway Administration (FHWA) publishes the most detailed report on highway,
bridge, and transit systems in the United States. The 1999 Report to Congress, Status of the Nation's
Highways, Bridges and Transit: Conditions and Performance (C&P Report) includes not only
information on the condition of these systems, but details on capital expenditures and improvements as
well. The sections below summarize some of this data.
Number of Projects
Table 2-18 summarizes information from the C&P Report on the number of miles of highway,
urban, and rural roads in the U.S., as well as the number of lane-miles represented Highway lane-
mileage has increased by an average of only 0.3 percent annually over the period 1987-1997. Although
the report and Table 2-18 show the annual capital and maintenance expenditures on this roadway system,
nowhere in the report (nor in any other data reviewed for this analysis) does FHWA present the number
of projects funded or number of miles of new road completed. As a result, EPA lacks current estimates of
the number of highway, road, bridge or transit construction projects that potentially would disturb land.
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The number of rural highway road-miles (as distinguished from lane-miles) declined by an
average of 0.2 percent annually between 1987 and 1997. During the same period, urban highway road-
miles grew by an average of 1.7 percent annually. The decline of rural road mileage and comparative
growth in urban road mileage may be due, at least in part, by the expansion of existing urban roadways
indicated by the figures above for lane-mileage growth trends. Some areas that were previously
classified as rural may also have been reclassified as urban during that 10-year period based on
population growth.27
Table 2-18. Highway Statistics
Statistic
Total Rural Highway Miles
Total Urban Highway Miles
Total Highway Miles
Total Rural Highway Lane-Miles
Total Urban Highway Lane-Miles
Total Highway Lane-Miles
Total Highway Expenditures
(All Govts.)
Total Highway Capital Outlay
(All Govts.)
Total Highway Capital Outlay Per Lane-Mile
Total Highway Capital Outlay Per Road-Mileb
1997 Data
3.11 million
0.84 million
3.95 million
6.37 million
1.89 million
8.26 million
$101. 3 billion
$48.7 billion
$5,914
$12,329-$12,360
1987-1997 Average
Annual Growth
(percent)3
-0.2
1.7
-
-
2.1
0.3
—
—
-
-
— Not provided
a Not provided for all statistic categories.
b Range calculated by EPA as described in text.
Source: FHWA 1999, various tables.
27 The C&P Report defines "rural" areas as areas with a population under 5,000. "Urban" areas are those
with a population greater than or equal to 5,000.
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Value of Projects
The C&P Report presents highway and road expenditures by all levels of government ownership.
Expenditures are further classified as capital and non-capital. Non-capital expenditures include
maintenance and service outlays.28 Maintenance activities are not expected to disturb significant amounts
of land. Capital outlays refer to activities such as land acquisition and other right-of-way costs;
preliminary and construction engineering; new construction, reconstruction, resurfacing, rehabilitation, and
restoration of roadways, bridges, and other structures; and installation of guardrails, fencing, signs, and
signals. Capital outlays are further classified according to whether they support system preservation,
system expansion, or system enhancement. Definitions for these are as follows:
• System Preservation—capital improvements on existing roads and bridges; includes
reconstruction, resurfacing, pavement restoration/rehabilitation, widening of narrow lanes
and shoulders, bridge replacement and bridge rehabilitation; does not include routine
maintenance costs (these costs are captured by "non-capital expenditures").
• System Expansion—construction of new roads and bridges, as well as costs associated
with adding lanes to existing roads; includes all of "New Construction," "New Bridge,"
"Major Widening," and most costs associated with "Reconstruction - Added Capacity."
• System Enhancement—includes safety enhancements, installation of intelligent
transportation systems, and environmental enhancements.
Based on a review of these definitions, EPA concludes that the activities classified as capital
outlays are most likely to result in land disturbances. In 1997, capital outlays totaled $48.7 billion. Table
2-20 provides a more detailed breakdown of these expenditures.
Another 1999 FHWA report, Our Nation's Highways, shows that 6.9 percent of total state
disbursements29 for highways in 1998 went to new road and bridge construction. Another 36.3 percent
went to other capital improvements on existing highways. Between 1995 and 1997, expenditures (from all
jurisdictions) for system expansion grew at a faster rate than expenditures for either system
28 Maintenance outlays cover spot patching, crack sealing (roads and bridge decks), and maintenance/repair
of route markers, signs, guardrails, fencing, signals, and lighting.
29 Total state disbursements were $80.5 billion in 1998. This figure includes Federal Aid for highways.
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preservation or system enhancements. The C&P report shows that in 1997, 47.6 percent of capital
outlays went toward system preservation; 8.0 percent went toward system enhancement; 15.6 percent
went toward new roads and bridges; and another 28.8 percent went toward other system expansion.
The FHWA data does not report the mileage of new roads constructed versus the mileage lost
(removed or taken out of commission due to condition). Some data is available for capital outlays by
improvement type (such as new road construction, resurfacing, etc.). This information is presented in
Table 2-19.30
30 The data in Table 2-19 is based on a sample of direct State expenditures on particular improvements.
FHWA then used this state data to estimate a national average for roads under jurisdiction of all governmental units
(local, state, federal) and for all roadway systems. The "Total, State Arterials & Connectors" is based on the direct
State expenditures data; "Total, Arterials and Collectors, All Jurisdictions" is estimated based on the State data.
FHWA reports that there is very little information on expenditures for local functional class roads. FHWA assumed
that the expenditure patterns for local functional class roads more or less followed the expenditure patterns for
arterials and collectors and used this assumption to estimate the total capital outlay by all government units for all
road systems (arterials, collectors, and local functional class roads). These expenditures are accounts of
governmental unit spending, not of construction contractor spending, though it may be assumed that since the
majority of roads are owned by some government unit (local, state, federal), any costs incurred by the construction
contractor would ultimately be paid for with government funds.
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Table 2-19. Highway Capital Outlay by Improvement Type, 1997 (Billions of Dollars)
Expenditure Item
System
Preservation
System Expansion
New Roads
& Bridges
Existing
Roads
Enhancemen
t
Total
Direct State Expenditures on Arterials and Collectors
Right-of-Way
Engineering
New Construction
Relocation
Reconstruction- Added Capacity
Reconstruction-No Added Capacity
Major Widening
Minor Widening
Restoration & Rehabilitation
Resurfacing
New Bridge
Bridge Replacement
Major Bridge Rehabilitation
Minor Bridge Work
Safety
Traffic Management/Engineering
Environmental and Other
Total, State Arterials & Collectors
2.6
1.1
1.0
0.8
2.5
3.4
1.7
1.5
0.7
75.2
0.9
0.8
3.1
0.6
5.4
1.5
1.3
1.7
2.6
1.8
8.9
0.4
1.2
0.4
0.5
2.5
2.4
5.1
3.1
1.7
3.7
1.0
1.8
0.8
2.5
3.4
0.6
1.7
1.5
0.7
1.2
0.4
0.5
32.1
Total Expenditures on Arterials and Collectors, All Jurisdictions (estimated)3
Highways and Other
Bridge
Total, Arterials and Collectors
13.7
4.9
18.5
5.3
0.8
6.0
11.2
11.2
3.1
3.1
33.2
5.6
3S..9
Total Capital Outlay on All Systems (estimated)1"
Highways and Other
Bridges
Total Capital Outlay, All Systems
Percent of Total Expenditures
17.1
6.1
23.2
47.6%
6.6
1.0
7.6
15.6%
14.0
14.0
28.8%
3.9
3.9
8.0%
41.7
7.0
48.7
100.0%
a Improvement type distribution was estimated based on State Arterial and Collector data.
b Includes expenditures for arterials and collectors as well as for local functional class roads.
Sources: Highway Statistics 1997, Table SF12-A and unpublished FHWA data; all FHWA 1999 Exhibit 6-13
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2.4.1.4 Characterization of Supply
This section discusses the characteristics of supply in the C&D industry such as market structure,
barriers to entry, and supply trends.
Market Structure
Section 2.3 summarized information about the size distribution of developers and builders, based
on employee and revenue size criteria. As shown there, the industry consists predominantly of small
firms and sole proprietorships who generally operate on a localized basis within a specific geographic
market. Anecdotal information indicates that a large number of small firms focus on niche markets that
are not as easily accessible to the large-scale builders (Housing Zone, 2001).
While the majority of firms are small, a small number of large operators do control a sizeable
share of the market. In its special report on homebuilding, for example, Census reports that just over 100
builders, representing only 0.3 percent of all establishments, accounted for 90,772 new single-family
homes, or 18.4 percent of the total. This represented an average of 865 homes per builder (see Table 2-
20).31 Assuming an average sales price of $200,000, builders in this size class would have average
revenues of $173 million, substantially above the overall industry average of $1.0 million. At the top of
the industry are builders like Pulte Corporation ($3.8 billion in housing revenues), Kaufman and Broad
($3.7 billion), and Centex Corporation ($3.3 billion) who operate nationwide and wield considerable
market power.32
Discussions with representatives of the homebuilding industry suggest there are at least two
common business models in the industry. Most projects are managed by either a single land developer
who sells improved lots to individual builders, or feature a developer-builder who both develops the land
and builds on it (some developers may sell some lots and retain others to build on themselves). Figure 2-
4 illustrates these two alternatives.
31 These data are based on a subset of builders that are 100 percent specialized in new single-family home
construction.
32
http://www.housingzone.com/topics/pb/build/giants2000/2000400.asp accessed 3/9/01.
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Table 2-20
Selected Statistics for Establishments by Single-Family Housing Starts Size Class: 1997
[Detail may not add to total because of rounding]
Number of
Housing Starts
0
1-4
5-9
10-24
25-99
100-499
500+
Total
Establishments
No.
3,736
14,781
6,557
5,411
2,608
720
105
33,918
% of Total
11.0%
43.6%
19.3%
16.0%
7.7%
2.1%
0.3%
100.0%
Starts
No.
0
33,363
42,175
79,226
109,258
138,000
90,772
492,792
% of Total
0.0%
6.8%
8.6%
16.1%
22.2%
28.0%
18.4%
100.0%
Starts per
Establishment
0.0
2.3
6.4
14.6
41.9
191.7
864.5
14.5
Source: U.S. Bureau of the Census, Construction Sector Special Study Table 3a.
(http: //www. census. gov/ftp/pub/const/www/starts. pdf)
Barriers to Entry
In the economics literature, barriers to entry are considered to exist when it is difficult for a new
firm to enter an existing market. According to academics who have studied the homebuilding industry,
there are two types of barriers to entry for new homebuilding firms—entry costs and input cost
differentials (Landis, 1986).
Entry cost differentials are the additional costs a new homebuilder must incur to
participate in a given market. These costs may be manifested in the form of local
development fees, abnormally high land costs, or abnormally high wages. In the short
run, entry cost barriers raise the cost of building and keep builders who are unable or
unwilling to pay the extra costs out of the market. In the long run, builders produce at
less than their optimal scale (i.e., to the left of the lowest point on their marginal cost
curve) to avoid holding unsold inventory in a downturn. Thus, entry barriers flatten the
industry average cost curve by increasing builders' exposure to "cyclical risk." In
addition, these barriers tend to reduce the advantage of high volume builders over the
long term (Landis, 1986).
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• Input cost differentials are exhibited when new homebuilders must pay higher prices for
inputs than existing firms, or when they are prevented from accessing necessary inputs.
Usually, input price differentials are a temporary phenomenon but some forms of
regulation can create permanent price differentials.
The existence of entry costs also increases the importance of up-front financing for home
building projects. The builder must invest more funds earlier in the project to overcome the entry barrier.
Firms with established credit may be able to borrow some of this up-front financing, while less well-
established firms must use their own capital. In either case, the opportunity costs of the investment are
larger so regulatory delays and environmental compliance requirements become more burdensome
(Landis, 1986). Much of the cost of building regulation is the interest that accrues on invested funds
while permits and variances are negotiated. Luger and Temkin (2000) estimate that the costs of delay for
a 25-unit subdivision rise from $3,692 per month in the approvals stage to $13,400 per month in the
construction phase.
Similar issues confront non-residential and heavy construction contractors. Non-residential
projects are generally larger than residential projects, so builder financing and carrying costs are
proportionately larger. Since fewer firms can take on large projects, the opportunity for incumbent firms
to maintain barriers to entry is also greater. Most heavy construction is carried out under government or
utility contracts where competitive bidding is required. This may tend to level the playing field for
entering firms who can overcome the basic qualification requirements.
2.4.1.5 Supply Trends
This section provides a brief overview of trends in homebuilding practices that could potentially
influence baseline ESC practices or the adoption of ESC options proposed by EPA under the effluent
guidelines.
The National Governors Association (NGA) recently published a report examining a concept
they have termed New Community Design (NCD). According to the report, NCD encompasses many of
the concepts popular in residential design today: New Urbanism, Traditional Neighborhood
Development, compact development, livable communities, master-planned communities, and neo-
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traditional design. NCD has been described as "neighborhoods of housing, parks, and schools within
walking distance of shops, civic services, jobs, and transit-a modern version of the traditional town"
(Peter Calthorpe, as quoted in Hirschhorn and Souza, 2001, p. 9). This and other types of design such as
low impact development (LID) have garnered new-found attention in recent years, and continue to be key
topics for development professionals. Both NCD and LID are discussed in more detail below.
New Community Design
NCD is a development design philosophy aiming to create a walkable, multi-purpose community
structure that decreases dependency on automobiles, takes advantage of public transportation,
incorporates parks and other green spaces, and uses existing infrastructure. A community based on NCD
incorporates residential, commercial, and institutional facilities. Residential communities are a blend of
single and multi-family housing, and often blend commercial and retail facilities with housing units as
well. According to the NGA report, approximately one-third of potential homebuyers would prefer an
NCD community versus a traditional, sprawl-based development—provided that the option existed.
Currently less than one percent of total housing construction is based on NCD principles. This means
that the option to live in a NCD community versus a traditional sprawl community does not exist for
many potential homebuyers. NGA identifies the following factors as limiting the adoption of NCD and
similar concepts:
• Local zoning codes make it difficult for mixed-use communities to get approved.
• Lenders favor single-use residential projects, strip malls, and suburban office parks. This
favoritism "causes conventional real estate analyses to discount the long-term returns of
NCDs, making them difficult to finance" (Hirschhorn and Souza, p. 13).
• Conventional developers and builders have expertise in single-use projects and, as a
result, continue doing what they are already familiar with. In many cases these
individuals are not able, or prepared, to deal with the increase in up-front costs arising
from the increased intensity at the planning and design stage of a NCD project.
A survey by the Canada Mortgage and Housing Corporation compared the costs and benefits of a
conventional development (4,505 dwellings) with an NCD alternative (6,875 dwellings). The
incremental savings resulting from the NCD alternative, on a per housing unit basis, were as follows:
roads, $3,054; storm water management, $1,499; transit, $1,330; water, $1,099; policing, $1,016; and
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sanitary services, $975. The total infrastructure savings for the NCD alternative are $61.5 million
(Hirschhorn and Souza, p. 36). The NGA report offers one solution to the lagging supply of NCD
construction: implement parallel building codes. Such parallel building codes may serve to "level the
playing field" with conventional subdivision development while still allowing conventional development
to take place.
Low-Impact Development
LID is a development design strategy that aims to protect the natural pre-development
hydrological function of a site. True LID shares many features with NCD, such as smaller lot sizes and
the addition of greenspace to the site plan. However, whereas NCD focuses on mixed-use development,
LID at this time focuses primarily on residential development, although LID concepts may be easily
applied to other types of development (e.g., commercial, mixed-use).
The primary goals of LID are to: (1) minimize development impacts by reducing impervious
surfaces, maintaining natural site drainage, reducing curb and gutter construction, and reducing clearing
and grading; (2) create dispersed runoff controls on individual lots utilizing swales, flatter slopes, rain
gardens, etc.; (3) maintain pre-development hydrology; and (4) encourage pollution prevention and
runoff management by individual property owners (Coffman et al., 1998).
Conventional site design relies on storm water controls that collect and convey runoff away from
the property as quickly as possible. This type of design relies on pipes, paved surfaces, drainage ditches,
and gutters as well as traditional best management practices (BMPs) such as ponds and sediment basins.
Such conventional design actually amplifies hydrologic changes (increased volume, runoff frequency,
and discharge rate) as "natural storage is lost, the amount of impervious surfaces in increased, the time of
concentration is decreased, runoff travel times are decreased and the degree of hydraulic connection is
increased" (Prince George's County, 1999). In addition, while many conventional storm water control
techniques are designed to "maintain the peak runoff discharge rate at predevelopment levels for a
particular design storm event," only the runoff rate is controlled, leaving the runoff volume, frequency,
and duration to increase unchecked (Coffman et al., 1998).
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As with any relatively new technology or approach,33 there are many concerns surrounding the
effectiveness, costs, and benefits of LID as compared with conventional site design. Developers and
builders want to know how using LID techniques will affect financing and their bottom line, while
consumers want to know how it will affect their ability to purchase a new house, as well as their resale
value.
Many in the construction industry have found that they face lower development costs with LID
than with conventional "curb and gutter" design. A presentation at a 1999 Storm Water Workshop for
the Florida Keys Carrying Capacity Study (FKCC; sponsored by the U.S. Army Corps of Engineers,
Jacksonville Division) demonstrates how LID can lower overall development costs. Table 2-21
reproduces the construction cost table presented for a residential development in Maryland.
Table 2-21.
Construction Cost Comparison for Low Impact Development
Cost Element
Grading/Roads
Storm Drains
SWM Pond/Fees
Bioretention/Micro
Total
Unit Cost
Lot Yield
Conventional Development
$569,698
$225,721
$260,858
--
$1,086,277
$14,679
74
Low Impact Development
$426,575
$132,558
$10,530
$252,124
$821,787
$10,146
81
Source: Coffman, 1999
As shown above, construction costs associated with development were estimated to be nearly
$250,000 lower for a LID development plan than for a conventional plan. In addition, the LID design
actually increased lot yield from 74 lots to 81 lots. This is only one example of reduced construction
costs and/or increased lot yield achievable though LID design.
33 The term "relatively new" is used quite loosely here. LID technologies have been in use for some time,
although such designs are just now beginning to gain mainstream acceptance.
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The major additional cost developers incur when choosing LID (as well as NCD), is the
increased time and effort often needed at the design stage of a project. The additional planning time is
used to assess site hydrology, design runoff controls for each lot, and other considerations.
Conservation-oriented design "creates significant upfront costs and raises questions of financial viability"
(Mammoser, 2000, p. 45). These costs can increase more if structures are built using environmentally-
friendly materials, which have generally higher "first cost" compared to more traditional materials. As
noted by Mammoser, (2000), potential lenders may be wary of financing a LID project. As more LID
projects prove successful and profitable, however, lenders may become more accepting of such
"alternative" forms of development and perceive them as no more risky—and perhaps less risky—than
conventional developments.
2.4.2 Characteristics of Construction Demand
This section describes the factors and characteristics of demand in the C&D industry. The major
demand factors addressed are: housing demand and demand elasticity, the impact of regulation on
demand for housing, and demand for nonresidential and heavy construction.
2.4.2.1 Demand Factors Affecting Construction and Development Activities
According to a recent study (Luger and Temkin, 2000), market demand is one of the three major
factors taken into consideration by a builder/developer when deciding whether or not to propose a
development. Market demand includes the types and quantities of housing units the public wants, and is
affected by general macroeconomic conditions, demographics, and consumer tastes. Other factors that
may affect demand for C&D activities include inflation (Henderschott, 1980), transaction costs (i.e.,
costs associated with purchasing a new home/facility) (Haurin and Chung, 1998), expected length of
tenure (Haurin and Lee, 1989), mortgage loan to house value (Haurin and Lee, 1989), and borrowing
constraints (Linneman et al., 1997; Zorn, 1993). Changing demographics tend to have a fairly large
effect on the type of residential housing demanded (i.e., single-family versus multifamily) (Hirsch, 1994;
Eppli and Childs, 1995).
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2.4.2.2 Housing Demand and Elasticity
As discussed above, housing demand is largely determined by macroeconomic factors,
demographics, and consumer tastes. Changes in the age of family formation, the size of families, and
their perceived needs for space will affect the market's demand for houses of various sizes and styles.
Geographic shifts in economic activity and changes in worker mobility affect where people wish to live.
As these market factors evolve, an increasing number of buyers find that existing housing does not meet
their desires. In other words it becomes an imperfect substitute for new housing (Landis, 1986). As an
illustration, the average size of new homes has been increasing in the U.S., even as family sizes have
diminished or remained unchanged. In 1995, the average size of a new home was 2,095 square feet. By
1999 the average had risen more than 6 percent, to 2,225 square feet (Census, 2000c). Existing housing
does, however, act as a check on the prices of new housing (Landis, 1986) since it serves as the default
alternative.
Demand for new construction may be viewed as the outcome of a four-way household decision
process in which households decide whether to buy an existing home, buy a newly constructed home,
improve their current home, or do nothing. In light of demographically-driven demand and the existence
of near substitutes, it is not surprising that empirical studies find a somewhat inelastic demand for new
housing (DiPasquale, 1999). Price is not the strong determining factor in housing markets that it is in
more commodity-like markets. Luger and Temkin (2000) report that this inelasticity is more pronounced
in the higher-end housing markets.
Demographic trends are local as well as national phenomena. Different parts of the country grow
at different rates and as the size and make up of the local population changes so do housing tastes and
preferences. Location is a key aspect of housing demand, perhaps more significant than price. As a
result, demand for homes in favorable locations is far stronger than demand for homes in less desirable
locations. Strong demand in certain regions or neighborhoods will be reflected in a less elastic demand
curve.
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2.4.2.3 Impact of Regulation on Housing Demand
Increased regulations may exert upward pressure on housing prices which may, in turn, price
some potential homebuyers out of the market due to income constraints. Luger and Temkin (2000) give
the following example: if regulations on the construction industry increase the price of a house by
$10,000, a household would need $2,500 more in annual income to still qualify for the house. The
authors define "excessive" regulation as those regulations that are "beyond what is essential" to
accomplish set environmental or developmental goals, or those delays that are longer than what should
be necessary to accomplish a fair review of plans (Luger and Temkin, 2000). Table 2-22 illustrates this
effect.
Table 2-22.
Impact of Regulatory-Driven Delays on Housing Affordability
Parameters
House Price
PITI Payment3 (per month)
Income Needed to Qualify for Mortgage
No Delay/No Excessive
Regulation
$175,000
$1,377
$55,000
With Delays and Excessive
Regulation
$185,000b
$1,437°
$57,500
a Principal, Interest, Tax, Insurance Payment. Assumes an 80 percent, 30-year conventional mortgage at 8
percent interest, using tax and insurance data from New Jersey.
b Assumes $10,000 in regulatory costs added to the home price.
0 Calculated using typical mortgage spending limit equal to 30 percent of gross income.
Source: Luger and Temkin 2000, pages 10-11.
Housing demand, especially in the higher-end market, tends to be fairly inelastic. This
inelasticity results in the appearance of a multiplier effect with regard to regulatory costs and sales price.
In other words, a one dollar increase in costs to the builder will translate into a more than one dollar cost
to the consumer (if costs are passed forward as they tend to be with inelastic markets). Estimates for the
magnitude of this multiplier range from two to six, with the average being approximately four (Luger and
Temkin, 2000). The potential impact of this proposed rule on housing prices is discussed and analyzed
in Chapters Four and Five.
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2.4.2.4 Trends in New Homes Sold
Table 2-23 shows the number of new one-family houses sold and for sale from 1981 through
1999, including the median number of months from start to sale, average sales prices, and median sales
price.
Table 2-23
New One-Family Houses Sold and For Sale
Year
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
Total
(Thousands)
436
412
623
639
688
750
671
676
650
534
509
610
666
670
667
757
804
886
907
Median Months
Start to Sale
5.1
3.9
2.9
3.4
3.9
3.6
3.9
4.0
4.3
4.5
4.4
3.5
3.6
3.8
4.3
4.2
3.7
3.5
3.3
Average Sales Price
$83,000
$83,900
$89,800
$97,600
$100,800
$111,900
$127,200
$138,300
$148,800
$149,800
$147,200
$144,100
$147,700
$154,500
$158,700
$166,400
$176,200
$181,900
$195,800
Median Sales Price
$68,900
$69,300
$75,300
$79,900
$84,300
$92,000
$104,500
$112,500
$120,000
$122,900
$120,000
$121,500
$126,500
$130,000
$133,900
$140,000
$146,000
$152,500
$160,000
Source: Bureau of the Census (2000c).
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2.4.2.5 NonresidentialDemand Characteristics
Demand characteristics affecting the nonresidential and heavy construction sectors are similar to
those affecting the residential sector. General economic conditions, interest rates, and past industry
activity all have an effect on current demand. According to a recent press release by CMD (2001b), the
demand and supply cycles in construction are highly localized, and at any given time different cities
across the nation are at different points in their own cycles. For example, as of October, 2001, office
markets in Washington B.C., San Diego, Los Angeles, and several areas in New York were experiencing
increasing office vacancies, but new construction was still occurring. In markets such as Dallas,
Jacksonville, Tampa, and Salt Lake City, however, there has been low or even negative demand growth.
While buildings in progress are still being completed, new construction starts have slowed dramatically.
The industrial market was still fairly stable in October and had not yet begun showing signs of substantial
decline (CMD, 200Ib).
As with residential construction, general population growth should ensure that demand for all
building types will continue to rise in the future (CMD, 2001b). The rate at which demand increases,
however, is certainly variable and may not be the same for all markets in all portions of the United States.
For the commercial building market in particular, past building activity has affected demand through
recent years. The Economic Recovery Tax Act of 1981 fueled a commercial building boom that
ultimately generated severe excess capacity in the market (CMD, 200la). This caused a decrease in
demand for new commercial construction throughout the late 1980s and into the 1990s as the market
worked to absorb some of the excess commercial space. The growth in the technology sector in the late
1990s spurred another boom in the office market. According to CMD (2001a), approximately 20 million
square feet of office space was built between 1998 and 2000 as a result of increased demand from this
one sector. Vacancy rates increased once again as the year 2000 brought the decline of the technology
sector and associated economic downturn.
For the commercial and industrial sectors, increasing vacancy rates tend to be followed by a
decrease in new construction activity as the market tries to absorb the over-supply of space. The demand
for new construction in these sectors is heavily influenced by the performance of other sectors, as
evidenced by the technology sector example above. A "boom" in one industry necessitates the
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acquisition of new space for expansion; if the market does not have a ready supply of the type of space
needed, then new construction increases. At the same time, a "bust" in a given industry will free up
space in the market, and until the space is absorbed, new construction will slow. As with residential
construction, lower interest rates may increase construction activity, while higher rates will tend to slow
activity.
2.4.2.6 Heavy Construction Demand Characteristics
The heavy construction industry (NAICS 234) is defined by the U.S. Census Bureau to include
those establishments that are "engaged in the construction of heavy engineering and industrial projects
(except buildings) such as highways, power plants, and pipelines" (U.S. Census Bureau, 2000f). Heavy
construction projects are characterized by their linear nature, as many projects are spread along a
horizontal, rather than vertical, plane (Ringwald, 1993). Since the definition of heavy construction
projects excludes buildings, these projects are much more weather-sensitive than building construction
and there are fewer days suited for heavy construction projects nationwide, especially in the northern
states (Ringwald, 1993). The general trend in heavy construction through the 1990s was toward the
rehabilitation of existing infrastructure (Ringwald, 1993).
In addition, the majority of heavy construction projects (and the majority of the value of
construction work) is performed for public, rather than private, owners (Ringwald, 1993; U.S. Census
Bureau, 2000f, p.5). As Table 2-24 shows, more than 50 percent of the value of construction work in
NAICS 234 occurs under government-owned projects, compared with less than 25 percent of the value in
NAICS 233 (Building, developing, and general contracting) and NAICS 235 (Special trades). This
division of project ownership sets the heavy construction sector apart from the other major construction
sectors.
For heavy construction firms, work done for a public entity generally entails different contractual
requirements than work done for private entities. When the project owner is a public entity such as a
city, state, or federal government, at least 50 percent of the contract-related jobs are generally performed
by the prime contractor, or conversely, less than half of the work under a given contract will be
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subcontracted to other firms (Ringwald, 1993). This practice provides a public owner with more easily
enforceable specifications, since the majority of the work is done by the primary contractor (Ringwald,
1993). On the other hand, 80 to 100 percent of the work on a privately-owned project may be
subcontracted to firms other than the prime contractor (Ringwald, 1993).
The negotiated contracts often used in private-sector construction are not as common in the
public arena. This is because a private owner generally has to prove the cost-effectiveness of the contract
only to the owner's satisfaction, whereas a public owner may be called on to demonstrate the cost-
effectiveness of such contracts to large numbers of taxpayers (Ringwald, 1993). For this reason, most
heavy construction contracts let by public entities are competitively bid. Often, local law or agency
regulations require the use of competitive bidding for public projects. There is a sense that such a system
provides fairness in the awarding of contracts, as well as providing value to the taxpayers (ASCE, 2000).
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Table 2-24. Value of Construction Work by Project Ownership (1997, Sthousands)
1997
NAICS
code
233
234
235
Description
Building, developing, and
general contracting
Heavy Construction
Special Trade Contractors3
TOTAL
Owned by
Federal
Government
$14,362,134
$8,845,515
$559,910
$23,767,559
Owned by
State/Local
Govts.
$43,472,528
$60,368,420
$2,179,346
$106,020,294
Total Govt.
Owned
$57,834,664
$69,213,936
$2,739,258
$129,787,858
Govt.
Owned
as
Percent
of Total
15.2%
54.1%
17.2%
24.7%
Privately
Owned
$323,806,944
$58,627,664
$13,171,513
$395,606,121
Privately
Owned as
Percent of
Total
84.8%
45.9%
82.8%
75.3%
Total Private
and
Government
$381,641,608
$127,841,600
$15,910,771
$525,393,979
''Covers establishments inNAICSs 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only.
Source: U.S. Census Bureau (2000f), 1997 Census of Construction.
Figures may not add to totals due to rounding.
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2.5 ECONOMIC AND FINANCIAL CHARACTERISTICS
2.5.1 Value of Work Done
For the C&D industries, the Bureau of Census defines the value of construction work as the
combined value of completed work on new construction, additions, alterations, reconstruction, and
maintenance and repair. In addition, the Census defines the value of business done as the sum of the
value of construction work plus other business receipts, which include: receipts from retail and wholesale
trade, rental of equipment, manufacturing, transportation, legal service, insurance, finance, rental of
property and other real estate operations, and other non-construction activities. While the value of
construction work is a good indicator of economic performance specifically related to C&D activity, the
value of business done measure provides a better overall indicator of the economic performance of
establishments in the C&D industries.
In addition to value of construction work, value of other receipts, and value of work done, the
1997 Census of Construction Industries includes three other measures: value of construction work
subcontracted in from others, net value of construction work, and value added. The value of construction
work subcontracted in from others includes the value of construction work done by reporting
establishments as subcontractors. The net value of construction work is calculated by subtracting the
costs of construction work subcontracted out to others from the value of construction work done. The
value added component is equal to the value of business done minus the costs of construction work
subcontracted to others and the costs for materials, components, supplies, and fuels (see Section 2.5.2 for
discussion of these costs).
Table 2-25 below shows, for each of the C&D industries, the dollar value of business done (or
total revenues), value of construction work, value of other business receipts, value of construction work
subcontracted in from others, net value of construction work, and value added. Overall, the total value of
business done (or revenues) in the C&D industries was $534.2 billion in 1997. This represented a
nominal increase of 57.8 percent over the $338.5 billion in business done in 1992. NAICS 233 (Building
and Developing, including NAICS 2331) accounted for $386.9 billion or 72.4 percent of the total in
1997. The value of business done by heavy construction contractors (NAICS 234) was $130.8 billion
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(24.4 percent of the total), while special trade contractors (NAICS 23593 and 23594) earned $16.5
billion (3.1 percent of the total).
The total value of construction work done in the C&D industries was $525.4 billion and
represented 98.3 percent of total business done in 1997. This represented a nominal increase of 58.9
percent over the $330.6 billion in construction work done in 1992. Again, NAICS 233 (Building,
developing, and general contracting, including NAICS 2331) accounted for the largest share, completing
$381.6 billion (or 74.7 percent) of the total value of construction work done in the C&D industries in
1997. Construction work by heavy construction contractors (NAICS 234) was valued at $127.8 billion
(24.3 percent of the total). Work done by excavation and wrecking/demolition contractors (NAICS
23593 and 23594) was worth $15.9 billion and represented 3.0 percent of the total value of construction
work done in 1997.
In addition to the $525.4 billion in construction work done, the C&D industries also
subcontracted in $43.0 billion in construction work from others. This represented a nominal increase of
91.2 percent over the $28.2 billion in work subcontracted in during 1992. Although NAICS 233
accounted for the highest share of construction work value, NAICS 234 (Heavy construction) earned the
greatest share of work subcontracted in, totaling $28.4 billion or 52.6 percent of the total construction
work subcontracted in by the C&D industries in 1997.
As explained above, the net value of construction work is calculated by subtracting the value of
work subcontracted out to others from the value of construction work done. For the C&D industries, this
measure totaled $318.6 billion in 1997, a nominal increase of close to 60 percent over the 1992 figure of
$199.3 billion. Costs for materials, components, supplies, and fuels can be further subtracted to obtain
the value added measure, which amounted to $199.9 billion in 1997, a nominal increase of 70.3 percent
over 1992. Of the 1997 total, NAICS 233 (including NAICS 2331) accounted for $120.3 billion, or 60.2
percent. Establishments in NAICS 234 (Heavy construction) accounted for $68.8 billion, or 34.4 percent
of the value added while NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition
contractors) accounted for $10.8 billion, representing 5.4 percent of the total.
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Table 2-26 shows the value of construction work done by major type of construction (building
construction, nonbuilding construction, and construction not specified by kind) for each of the large
NAICS categories (Building, developing, and general contracting; Heavy construction, and Special
trades). The largest type of activity for both building contractors and special trades was single-family
house construction. Highways and street-related construction were the largest category of activity for
heavy construction contractors, followed by sewer and water main construction. Table 2A-3 in
Appendix 2A contains a more detailed table, showing value of construction work done by specific type
of construction.
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Table 2-25
Value and Net Value of Construction Work (Thousands of 1997 Dollars)
NAICS
233, except
2331
2331
234
235s
Description
Building, developing,
and general contracting,
except land development
and subdivision
Land subdivision and
land development
Heavy construction
Special trade contractors
TOTAL
Dollar Value of
Business Done"
($1,000)
$372,516,170
$14,409,755
$130,794,520
$16,497,584
$534,218,029
Value of const
work" ($1,000)
$368,006,098
$13,635,521
$127,841,600
$15,910,770
$525,393,989
Value of other
business receipts0
($1000)
$15,451,969
$774,235
$2,952,920
$586,814
$19,765,938
Construction
work
subcontracted ind
($1,000)
$4,510,092
$272,860
$28,386,274
$9,845,092
$43,014,318
Net value of
construction
work6 ($1000)
$188,579,070
$10,247,820
$105,639,352
$14,130,038
$318,596,280
Value added r
($1,000)
$111,168,087
$9,154,633
$68,775,976
$10,818,550
$199,917,246
1 Dollar value of business done comprises the total value of construction work and other business receipts from 1997.
b Value of construction work includes all value of construction work done during 1997 for construction work performed by general contractors and special trade contractors.
Included is new construction, additions and alterations or reconstruction, and maintenance and repair construction work. Also included is the value of any construction work
done by reporting establishments for themselves.
c Other business receipts include receipts from retail and wholesale trade, rental of equipment, manufacturing, transportation, legal service, insurance, finance, rental of property
and other real estate operations, and other non-construction activities.
d Value of construction work subcontracted in from others includes the value of construction work during 1997 for work done by reporting establishments as subcontractors
e Net value of construction work is derived for each establishment by subtracting the costs for construction work subcontracted to others from the value of construction work
done.
f Value added, derived for each establishment, is equal to dollar value of business done less the costs of construction work subcontracted to others and costs for materials,
components, supplies, and fuels.
8 Covers establishments in NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only.
Source: U.S. Census Bureau (2000a).
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Table 2-26
Value of Construction Work by Type of Construction (Thousands of 1997 Dollars)
Type of Construction
Building construction, total
Nonbuilding construction, total
Construction work, n.s.k.
Total value of construction
work
Building, developing, and general
contracting
Value
$371,426,049
$5,970,952
$4,244,630
$381,641,600
Pet
97.32%
1.56%
1.11%
100.00%
Heavy construction
Value
$5,218,782
$121,763,483
$859,210
$127,841,600
Pet
4.08%
95.25%
0.67%
100.00%
Special trade contractors"
Value
$12,550,515
$3,036,318
$323,939
$15,910,770
Pet
78.88%
19.08%
2.04%
100.00%
Total
Value
$389,195,346
$130,770,753
$5,427,779
$525,393,970
Pet.
74.08%
24.89%
1.03%
100.00%
NA = Data Not Available
"Covers establishments in NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only.
Source: U.S. Census Bureau (2000a).
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2.5.2 Selected Costs
The Census of Construction reports on the categories of costs incurred by the C&D industries,
including costs of materials, components, and supplies; costs of construction work subcontracted out to
others; costs of power, fuels, and lubricants; costs of machinery, equipment, and buildings; and other
selected purchased services. Costs of materials, components, and supplies reflect the costs of purchasing
all materials, components, and supplies, except fuels, but do not include industrial and specialized
machinery and equipment costs such as printing presses and computer systems nor costs of materials
furnished to contractors by the owners of projects. Costs of construction work subcontracted out to
others do not include the costs of purchasing materials, components, and supplies provided to a
subcontractor for use nor costs for machinery or equipment rental. Included in the costs of power, fuels,
and lubricants are the costs of fuels, lubricants, and electric energy purchased from other companies or
received from other establishments of the company, plus costs for natural and manufactured gas, fuel oil,
coal, and coke products. The selected materials costs described above are presented in Table 2-27.
2.5.2.7 All Costs
As shown in Table 2-27, all C&D establishments incurred costs of $334.3 billion in 1997 for
materials, components, work subcontracted out, power, fuels, and lubricants. This represented a nominal
increase of 59.6 percent over the $209.5 billion in costs incurred in 1992. Establishments in NAICS 233
(Building and developing, including NAICS 2331) accounted for $266.6 billion, or 79.7 percent of the
total. Establishments in NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition
contractors) incurred costs of $5.7 billion, or 1.7 percent of the total.
2.5.2.2 Machinery and Equipment Costs
Machinery and equipment costs include the costs to rent or lease construction machinery and
equipment; transportation equipment; production equipment; office equipment, furniture and fixtures;
and scaffolding; and the costs of renting or leasing office space and buildings, which define the costs of
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buildings. The Census Bureau also reports costs of selected purchased services, including
communication services purchased from other companies or from other establishments of the company,
and the costs of all repairs made to structures and equipment by outside companies or from other
establishments of the same company. These machinery, equipment costs, and selected services costs are
presented in Table 2-28.
According to Table 2-28, establishments in the C&D industries spent $7.3 billion on machinery,
equipment, and buildings in 1997. This represented a nominal increase of 43.1 percent from 1992, when
these expenditures totaled $5.1 billion. Establishments in NAICS 234 (Heavy construction) accounted
for $4.3 billion, or roughly 60 percent of the total. The C&D industries also spent $7.7 billion on
communication services, repairs to buildings and other structures, and repairs to machinery and
equipment. NAICS 234 (Heavy construction) accounted for $4.2 billion of this total.
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Table 2-27
Selected Costs in the Construction Industry (Thousands of 1997 Dollars)
NAICS Industry
Building, developing, and general
233, except contracting, except land subdivision
2331 and development
2331 Land subdivision and development
234 Heavy construction
23 5 d Special trade contractors
TOTAL
Materials,
Components,
and Supplies"
$79,936,341
$1,778,171
$36,655,772
$3,254,362
$121,624,646
Construction
Work
Subcontracted
out to Others"
$179,427,020
$3,387,700
$22,202,246
$1,780,731
$206,797,697
Selected Costs of Power, Fuels, and Lubricantsc
Electricity
$599,022
$31,244
$340,172
$38,952
$1,009,390
Natural
and
Manu-
factured
Gas
$134,485
$9,068
$160,257
$12,973
$316,783
Gasoline
and
Diesel
Fuel
$1,179,930
$46,600
$2,409,752
$540,227
$4,176,509
Other,
Including
Lubricating
Oils and
Greases
$73,637
S
$250,340
$51,789
$375,766
Total
Power,
Fuels, and
Lubricants
$1,984,736
$89,251
$3,160,521
$643,942
$5,878,450
Total
Selected
Costs
$261,348,110
$5,255,122
$62,018,540
$5,679,034
$334,300,806
1 Costs to reporting establishments during 1997 for the purchase of all materials, components, and supplies, except fuels. Does not include industrial and other specialized
machinery and equipment such as printing presses and computer systems, and materials furnished to contractors by the owners of projects.
b Costs during 1997 for construction work subcontracted out to other contractors, not including costs of purchasing materials, components, and supplies provided to a
subcontractor for use and costs for machinery and equipment rental.
c Costs include fuels, lubricants, and electric energy purchased during the year from other companies or received from other establishments of the company and costs for natural
and manufactured gas, fuel oil, coal, and coke products.
d Covers establishments in NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only.
S Withheld because estimate did not meet publication standards on the basis of either response rate, associated relative standard error, or a consistency review.
Source: U.S. Census Bureau (2000a).
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Table 2-28
Additional Selected Costs in the Construction Industry (Thousands of 1997 Dollars)
NAICS Description
233,
except Building, developing, and general contracting,
233 1 except land development and subdevelopment
233 1 Land subdivision and development
234 Heavy construction
23 5e Special trade contractors
TOTAL
Machinery, Equipment, and Buildings
For
Machinery
and
Equipment11
$1,403,930
S
$3,853,016
$615,405
$5,872,351
For
Buildings'"
$901,176
$36,251
$444,702
$91,657
$1,473,786
Total
$2,260,517
$80,840
$4,297,718
$707,063
$7,346,138
Selected Purchased Services
Communication
Services0
$1,260,796
$54,022
$647,860
$133,414
$2,096,092
Repairs to
Buildings and
Other
Structures'1
$203,102
$10,048
$188,895
$28,471
$430,516
Repairs to
Machinery
and
Equipment'
$1,060,589
$39,290
$3,349,522
$729,510
$5,178,911
Total
$2,521,488
$103,359
$4,186,276
$891,395
$7,705,518
1 Includes all costs during 1997 for renting or leasing construction machinery and equipment, transportation equipment, production equipment, office equipment, furniture and
fixtures, scaffolding, etc.
b Includes all costs of renting or leasing office space and buildings.
c Includes all costs during 1997 for communication services purchased from other companies or from other establishments of the company.
d Includes the cost of all repairs made to structures and equipment by outside companies or from other establishments of the same company. Only costs required to maintain
property and equipment are reflected here.
e Covers establishments in NAICS 23593 (Excavation contractors) and NAICS 23594 (Wrecking and demolition contractors) only.
S Withheld because estimate did not meet publication standards on the basis of either response rate, associated relative standard error, or a consistency review.
Source: U.S. Census Bureau (2000a).
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2.5.3 Capital Expenditures and Depreciation
In addition to the materials costs discussed above, the Census of Construction reports on the
capital expenditures incurred by construction establishments. Among these capital expenditures are the
costs incurred to cover the acquisition, construction, and the major alteration of the establishment's own
new and used buildings and other structures, and the acquisition of machinery and equipment. Table 2-
29 presents data for total capital expenditures and depreciation for buildings, structures, machinery, and
equipment, both new and used.34
Table 2-29 presents total capital expenditures for NAICS 233 (Building and developing), 234
(Heavy construction), 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors).
Total capital expenditures (other than land) were $9.5 billion in 1997, which represented a 51.6 percent
increase over the $4.9 billion spent in 1992. Beginning of year gross book value of depreciable assets
totaled $70.6 billion in 1997. Of this, NAICS 233 (Building and developing, including NAICS 2331)
accounted for $20.3 billion (28.8 percent). Establishments in NAICS 234 (Heavy construction)
accounted for 60.0 percent of the total with $42.4 billion and establishments in NAICS 235 (Special
trade contractors) accounted for 11.2 percent of total value with $7.9 billion. Depreciation charges
during the year totaled $7.8 billion, with NAICS 234 (Heavy construction) accounting for $4.6 billion, or
59.3 percent of total depreciation charges. NAICS 233 (Building, developing, and general contracting,
including NAICS 2331) accounted for $2.2 billion (27.9 percent) and NAICS 235 (Special trades
contractors) accounted for $1.0 billion (12.8 percent) of total depreciation charges.
34 The 1992 Census of Construction presented considerably more detailed data on capital expenditures, first
dividing capital costs into those for (a) buildings and structures, and (b) machinery and equipment and then further
subdividing these costs by "new" and "used" categories. The 1997 Census of Construction reports only the
industry's total capital expenditure figures.
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Table 2-29
Capital Expenditures in the Construction Industry: Total (Thousands of 1997 Dollars)"'
NAICS Description
Building, developing, and
233, general contracting, except
except land development and
2331 subdevelopment
Land subdivision and
2331 development
234 Heavy construction
23 5 b Special trade contractors
TOTAL
Beginning-of-
year gross
book value of
depreciable
assets
$18,737,612
$1,571,722
$42,372,868
$7,890,728
$70,572,930
Capital
expenditures,
other than
land
$2,761,153
$276,804
$5,313,180
$1,104,527
$9,455,664
Retirements
and disposition
of depreciable
assets
$940,445
$102,440
$1,839,777
$291,243
$3,173,905
End-of-year
gross book
value of
depreciable
assets
$20,558,320
$1,746,086
$45,846,272
$8,704,113
$76,854,791
Depreciation
charges during
year
$2,021,179
$152,751
$4,627,363
$1,001,533
$7,802,826
1 Capital expenditures refers to all costs actually incurred during 1997 which were or would be chargeable to the fixed assets
accounts of the reporting establishments and which were the type for which depreciation accounts are ordinarily maintained.
These expenditures cover the acquisition, the construction, and the major alteration of the reporting establishment's own
buildings and other structures, and the acquisition of machinery and equipment.
b Covers establishments in NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only.
Source: U.S. Census Bureau (2000a).
2.5.4 Value of Inventories
The Census of Construction Industries presents data on establishments' end-of-year inventories
of materials and supplies. A total of 47,841 establishments in the C&D industries reported holding
inventories of materials and supplies at the end of 1997. These inventories were valued at $7.0 billion at
the end of the year. An additional 109,094 establishments reported no inventories, while 104,680
establishments did not report their inventories. Table 2-30 presents the inventory data for C&D
establishments.
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Table 2-30
Total Value of Inventories for Construction Industry Establishments, 1997 ($1,000)
NAICS Description
Building, developing, and
233, general contracting, except
except land development and
2331 subdevelopment
2331 Land subdivision and
development
234 Heavy construction
23 5C Special trade contractors
TOTALS
Establishments with Inventories"
Number
33,100
2,248
9,634
2,859
47,841
Value of
Construction
Work"
$89,182,562
$2,137,038
$50,131,852
$8,865,177
$150,316,629
End of year
Materials &
Supply
Inventory
$5,648,406
$269,847
$1,017,171
$35,467
$6,970,891
Beginning
of year
Materials &
Supply
Inventory
$5,015,102
$214,701
$910,164
$61,040
$6,201,007
Establishments without
Inventories
Number
81,735
1,486
17,864
8,009
109,094
Value of
Construction
Work"
$196,519,085
$2,993,955
$54,143,044
$7,389,990
$261,046,074
Establishments not
Reporting
Number
76,268
4,452
15,058
8,902
104,680
Value of
Construction
Work"
$82,304,448
$8,504,528
$23,566,700
$4,655,603
$119,031,279
1 Inventory includes all of the materials and supplies that are owned regardless of where they are held, excluding materials that are owned by others, but held by the reporting
establishment.
b Value of construction work includes all value of construction work done during 1997 for construction work performed by general contractors and special trades contractors.
Included is new construction, additions and alterations or reconstruction, and maintenance and repair construction work. Also included is the value of any construction work
done by reporting establishments for themselves.
c Covers establishments in NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only.
Source: U.S. Census Bureau (2000a).
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Among establishments in the C&D industries that reported inventories, NAICS 233 (Building,
developing, and general contracting, including NAICS 2331) accounted for $5.9 billion or 84.9 percent
of the total. A further $1.0 billion was reported by NAICS 234 (Heavy construction), representing 14.6
percent, while NAICS 235 (Special trades contractors) held $35.5 million in materials and supplies (1.0
percent).
2.6 KEY BUSINESS INDICATORS AND RATIOS
Table 2-31 below presents key financial characteristics for the construction industry as a whole
(i.e., not just C&D industries). The items presented in the table are taken from Dun and Bradstreet's
(D&B) Industry Norms & Key Business Ratios Desk-Top Edition 1999-2000. D&B bases this report on
more than one million financial statements of U.S. corporations, partnerships and proprietorships, in all
size ranges, including more than 800 business sectors defined by SIC codes. Though the Census Bureau
is now using NAICS codes for most reporting of industry data, Dun & Bradstreet continues to use SIC
codes. Therefore, Table 2-31 differs from the rest of this profile in presenting data based on the SIC code
system.
In addition to various financial terms, Table 2-31 also presents a series of financial ratios for
solvency, efficiency, and profitability. The table also notes the sample size of the financial statements
used to estimate the values in each SIC code. The sample size for SIC 15 (General building contractors)
is roughly three times the sample size for this SIC in 1998 (6,746 establishments versus 2,138). The
sample size for SIC 16 (Heavy construction) also increased from 1998, from 2,135 to 2,847. The sample
sizes for SICs 1794 (Excavation work) and 1795 (Wrecking and demolition work) are, as expected, much
smaller than the sample sizes for the previous two SICs, at 755 and 87 establishments, respectively.
Solvency, or liquidity, ratios are used to evaluate a company's ability to meet short and long-term
obligations and include the Quick Ratio, Current Ratio, Current Liability to Net Worth, Current Liability
to Inventory, Total Liability to Net Worth , and Fixed Assets to Net Worth. The Quick Ratio is defined
as the sum of cash and accounts receivable divided by total current liabilities and reveals the amount of
liquid assets available to cover each dollar of current debt. The larger this ratio, the greater the liquidity.
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The Current Ratio is calculated by dividing current assets by current liabilities; this ratio measures the
margin of safety available to cover any possible shrinkage in the value of current assets. The quotient of
current liabilities divided by net worth is the Current Liability to Net Worth ratio and relates the funds
that are temporarily risked by creditors with the funds permanently invested by owners. Another ratio,
Current Liability to Inventory, is obtained by dividing current liabilities by inventory, and is an indicator
of the extent to which a business relies on funds from disposal of unsold inventories to meet its debts.
Total Liability to Net Worth, calculated by dividing total liabilities by net worth, can be used to
determine the effect of long-term (funded) debt on a business when compared with the Current Liabilities
to Net Worth ratio. The final solvency ratio, Fixed Assets to Net Worth, is calculated when fixed assets
are divided by Net Worth and identifies the proportion of net worth that consists of fixed assets. Chapter
Four presents the financial characteristics of model firms in the C&D industry and an analysis of the
effects of the proposed rule on the financial health of the model firms.
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Table 2-31
Key Business Statistics and Ratios of the Construction Industry (1999)"
SIC
Item
Sample Sizeb
Cash
Accounts
Receivable
Notes
Receivable
Inventory
Other Current
Assets
Total Current
Assets
15
Building
Constn.
General
Contrs.
and
Operative
Builders
6,746
245,212
374,595
11,090
71,469
247,675
950,041
1521
General
Contrs. —
Single-
Family
Houses
1,780
102,836
112,769
7,012
84,138
108,094
414,849
1522
General
Contrs. —
Residential
Buildings,
Other Than
Single-
Family
283
250,363
364,659
17,689
57,148
303,429
993,288
1531
Operative
Builders
112
425,696
318,378
25,041
1,087,493
790,579
2,647,187
1541
General
Contrs. —
Industrial
Buildings and
Warehouses
870
309,137
579,430
14,567
24,278
313,992
1,241,404
1542
General
Contrs. -
Non-
residential
Buildings,
Other Than
Industrial
Buildings and
Warehouses
3,701
323,254
532,241
10,525
30,070
315,737
1,211,827
16
Heavy
Constn.
Other Than
Building
Constn.
Contrs.
2,847
277,028
459,331
10,724
37,533
257,368
1,041,984
1611
Highway and
Street
Constn.,
Except
Elevated
Highways
959
333,899
536,775
12,680
46,492
278,954
1,208,800
1622
Bridge,
Tunnel, and
Elevated
Highway
Constn.
159
385,604
461,613
3,708
31,516
317,010
1,199,451
1623
Water,
Sewer,
Pipeline, and
Communi-
cations and
Power Line
Constn.
1,086
238,632
444,349
9,874
27,978
245,215
966,048
1629
Heavy
Constn.,
NEC
643
247,547
384,015
11,108
44,431
228,504
915,605
1794
Excavation
Work
755
132,318
247,424
6,455
17,212
96,818
500,227
1795
Wrecking
and
Demolition
Work
87
137,765
371,096
6,206
31,028
162,587
708,682
Fixed Assets
Other Non-
current
Total Assets
209,477
72,701
1,232,219
129,129
40,317
584,295
261,248
106,132
1,360,668
565,210
364,883
3,577,280
280,004
97,111
1,618,519
215,002
76,678
1,503,507
639,846
105,450
1,787,280
794,596
109,891
2,113,287
532,060
122,355
1,853,866
580,945
98,744
1,645,737
566,501
104,731
1,586,837
531,423
44,106
1,075,756
480,315
52,128
1,241,125
Accounts
Payable
Bank Loans
Notes Payable
Other Current
Liabilities
Total Current
Liabilities
312,984
8,626
54,218
272,319
648,147
92,903
7,596
49,665
170,614
320,778
327,921
10,885
83,001
459,906
881,713
293,337
60,814
525,860
1,019,525
1,899,536
424,052
3,237
38,844
310,756
776,889
457,066
7,518
36,084
275,142
775,810
266,305
8,936
64,342
298,476
638,059
336,013
10,566
73,965
321,220
741,764
292,911
3,708
40,785
339,257
676,661
230,403
6,538
57,601
291,295
585,882
231,678
9,521
66,647
271,350
579,196
112,954
7,530
59,167
204,394
384,045
142,729
7,447
71,985
245,743
467,904
Other Long
Term Debt
99,810
79,464
134,706
422,119
119,770
81,189
266,305
336,013
226,172
236,987
242,785
244,197
249,466
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Table 2-31
Key Business Statistics and Ratios of the Construction Industry (1999)"
SIC
Item
Deferred Credits
Net Worth
Total Liability
& Net Worth
15
Building
Constn.
General
Contrs.
and
Operative
Builders
2,464
481,798
1,232,219
1521
General
Contrs. —
Single-
Family
Houses
1,169
182,884
584,295
1522
General
Contrs. —
Residential
Buildings,
Other Than
Single-
Family
5,443
338,806
1,360,668
1531
Operative
Builders
28,618
1,227,007
3,577,280
1541
General
Contrs. —
Industrial
Buildings and
Warehouses
1,619
720,241
1,618,519
1542
General
Contrs. -
Non-
residential
Buildings,
Other Than
Industrial
Buildings and
Warehouses
3,007
643,501
1,503,507
16
Heavy
Constn.
Other Than
Building
Constn.
Contrs.
7,149
875,767
1,787,280
1611
Highway and
Street
Constn.,
Except
Elevated
Highways
10,566
1,024,944
2,113,287
1622
Bridge,
Tunnel, and
Elevated
Highway
Constn.
11,123
939,910
1,853,866
1623
Water,
Sewer,
Pipeline, and
Communi-
cations and
Power Line
Constn.
4,937
817,931
1,645,737
1629
Heavy
Constn.,
NEC
3,174
761,682
1,586,837
1794
Excavation
Work
3,227
444,287
1,075,756
1795
Wrecking
and
Demolition
Work
4,965
518,790
1,241,125
Net Sales
Gross Profit
Net Profit After
Tax
Working Capital
4,191,221
779,567
138,310
301,894
1,941,179
475,589
77,647
94,071
4,490,653
853,224
157,173
111,575
5,176,961
1,180,347
62,124
747,651
5,359,334
986,117
182,217
464,515
5,238,700
832,953
157,161
436,017
3,910,897
985,546
175,990
403,925
4,727,711
1,054,280
203,292
467,036
4,128,878
792,745
156,897
522,790
3,562,201
961,794
167,423
380,166
3,397,938
965,014
152,907
336,409
2,130,210
705,100
104,380
116,182
2,709,880
875,291
124,654
240,778
RATIOS (median)
SOLVENCY RATIOS
Quick Ratio
(times)
Current Ratio
(times)
Current
Liability to Net
Worth (%)
Current
Liability to
Inventory (%)
Total Liability
to Net Worth
(%)
1.1
1.5
122.3
740.3
145.9
0.8
1.4
115.5
153.5
157.4
1.0
1.5
102.7
837.6
128.0
0.2
1.4
143.2
96.9
179.6
1.2
1.6
107.7
999.9
130.0
1.2
1.5
128.1
999.9
145.6
1.2
1.6
65.7
999.9
100.1
1.2
1.6
67.1
999.9
103.1
1.3
1.8
62.9
999.9
93.5
1.2
1.7
64.2
999.9
96.3
1.1
1.6
66.6
841.5
100.6
1.1
1.4
65.5
999.9
119.3
1.2
1.6
75.1
668.1
116.9
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Table 2-31
Key Business Statistics and Ratios of the Construction Industry (1999)"
SIC
Item
Fixed Assets to
Net Worth (%)
15
Building
Constn.
General
Contrs.
and
Operative
Builders
25.9
1521
General
Contrs. —
Single-
Family
Houses
37.0
1522
General
Contrs. —
Residential
Buildings,
Other Than
Single-
Family
23.1
1531
Operative
Builders
17.1
1541
General
Contrs. —
Industrial
Buildings and
Warehouses
27.6
1542
General
Contrs. -
Non-
residential
Buildings,
Other Than
Industrial
Buildings and
Warehouses
23.0
16
Heavy
Constn.
Other Than
Building
Constn.
Contrs.
68.5
1611
Highway and
Street
Constn.,
Except
Elevated
Highways
75.4
1622
Bridge,
Tunnel, and
Elevated
Highway
Constn.
51.7
1623
Water,
Sewer,
Pipeline, and
Communi-
cations and
Power Line
Constn.
66.1
1629
Heavy
Constn.,
NEC
68.6
1794
Excavation
Work
105.0
1795
Wrecking
and
Demolition
Work
77.8
EFFICIENCY RATIOS
Collection
Period (days)
Sales to
Inventory
(times)
Assets to Sales
(%)
Sales to Net
Working Capital
(times)
Accounts
Payable to Sales
(%}
42.0
65.3
29.4
12.5
7.2
21.5
13.8
30.1
12.1
4.3
39.1
34.8
30.3
10.5
6.5
4.8
2.6
69.1
6.6
3.9
47.1
203.7
30.2
11.8
7.6
48.2
149.9
28.7
12.9
8.6
49.6
86.2
45.7
9.0
5.7
46.4
98.2
44.7
9.5
5.9
46.7
78.8
44.9
7.7
5.6
54.6
96.8
46.2
8.5
5.8
49.3
53.5
46.7
8.9
5.4
51.5
99.4
50.5
9.7
5.0
56.2
46.5
45.8
8.3
4.6
PROFITABILITY RATIOS
Return on Sales
(%)
Return on
Assets (%)
Return on Net
Worth (%)
2.0
6.5
18.3
2.5
8.0
27.5
2.6
6.7
22.7
2.9
4.4
16.8
2.0
6.5
15.1
1.8
6.0
16.4
3.2
6.6
15.5
3.0
6.5
14.8
3.1
6.4
12.9
3.5
6.9
16.4
3.2
6.6
15.0
3.5
6.7
17.7
3.4
9.0
24.2
The dollar figures are the result of translating the common-size percentages into dollar figures. Common-size percentages are calculated for each item as a percentage of its respective aggregate
total. The dollar figures are then computed by multiplying the common-size percentages for each statement item by their respective total amounts. This detailed data is not available for NAICS 655
bNumber of establishments upon which calculations are based.
Source: Dun and Bradstreet Industry Norms & Key Business Ratios 1999-2000.
2-75
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
Efficiency ratios are indicators of how effectively a company uses and controls its assets. The
five efficiency ratios presented by D&B are Collection Period, Sales to Inventory, Asset to Sales, Sales to
Net Working Capital, and Accounts Payable to Sales. The Collection Period, measured in number of
days, is calculated by multiplying 365 by the quotient of accounts receivable divided by sales. This
measure helps determine the quality of the receivables of a company when compared with selling terms
and industry norms. Dividing annual net sales by inventory results in the Sales to Inventory ratio, an
indicator of the rapidity with which merchandise moves and the effect of the flow of funds into the
business. Total assets are divided by net sales to obtain the Asset to Sales ratio. This ratio relates sales
volume to the total investment used to generate those sales. Another sales-related ratio, Sales to Net
Working Capital, is obtained by dividing sales by net working capital. This is an indicator of whether a
company is overtrading or, conversely, carrying more liquid assets than needed for its volume. Finally,
dividing accounts payable by annual net sales yields the Accounts Payable to Sales ratio, which measures
how the company is paying its suppliers in relation to the volume being transacted.
D&B also reports three measures of profitability: Return on Sales (also known as Profit Margin),
Return on Assets, and Return on Net Worth (also known as Return on Equity). These profitability ratios
show how successfully a business is at earning a return for its owners. The Return on Sales ratio is
computed by dividing net profits after taxes by annual net sales; this measure reveals the profits earned
per dollar of sales, and ultimately is an indicator of the operation's efficiency. The Return on Assets
ratio, derived by dividing net profit after taxes by total assets, is a key indicator of a firm's profitability as
it matches operating profits with the assets available to earn a return. The final financial ratio is Return
on Net Worth, or the value of net profit after taxes divided by net worth. This ratio can be used to
analyze the ability of the firm to achieve an adequate return on the capital invested by the owners.
Further information about all ratios presented in D&B can be found in Appendix 2C.
2-76
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
2.7 INDUSTRY GROWTH
Table 2-32 presents annual totals for private housing units authorized by building permits for
1981 through 1999, by type of structure. These data show fluctuation in the number of units authorized
each year, increasing from 985,500 units in 1981 to a peak of 1.8 million units in 1986. The period of
1987 through 1991 was marked by a steady decrease, with a low of 948,800 units in 1991. The number
of units authorized then began a steady increase to 1.7 million units in 1999, representing an annual
growth rate of 9.4 percent from 1991 to 1999. Table 2-33 shows national growth in terms of value of
housing units authorized by building permits, by type of structure. Valuation of units authorized has
grown from $78.8 billion in 1991 to $181.2 billion in 1999 (nominal), with an annual growth rate of 16.3
percent.
Total value of new privately owned housing units rose steadily from 1991 to 1994. From 1994 to
1995, total value of new privately owned housing units declined slightly, from $123.3 billion to $120.8
billion. This decrease was realized only in the 1-unit sector, which showed a decline from $109.3 billion
in 1994 down to $104.8 billion in 1995; the remaining sectors actually realized continued increases in
value.
2-77
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2-32
New Privately Owned Housing Units Authorized by Building Permit - Annual (Number of Housing Units), 1981-1999
Year
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
Total Units
985,500
1,000,500
1,605,200
1,681,800
1,733,300
1,769,400
1,534,800
1,455,600
1,338,400
1,110,800
948,800
1,094,900
1,199,100
1,371,600
1,332,500
1,425,600
1,441,100
1,612,300
1,663,500
Number of Units by Type of Structure
lUnit
564,300
546,400
901,500
922,400
956,600
1,077,600
1,024,400
993,800
931,700
793,900
753,500
910,700
986,500
1,068,500
997,300
1,069,500
1,062,400
1,187,600
1,246,700
2 units
44,600
38,400
57,500
61,900
54,000
50,400
40,800
35,000
31,700
26,700
22,000
23,300
26,700
31,400
32,200
33,600
34,900
33,200
32,500
3 and 4 units
57,200
49,900
76,100
80,700
66,100
58,000
48,500
40,700
35,300
27,600
21,100
22,500
25,600
30,800
31,500
32,200
33,600
36,000
33,300
5 units or more
319,400
365,800
570,100
616,800
656,600
583,500
421,100
386,100
339,800
262,600
152,100
138,400
160,200
241,000
271,500
290,300
310,300
355,500
351,100
Source: Bureau of the Census (2000e).
2-78
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2-33
Value of New Privately Owned Housing Units Authorized by Building Permit, Annual (Millions of Dollars)
Year
1991
1992
1993
1994
1995
1996
1997
1998
1999
Total Value
$78,772.2
$95,539.0
$106,801.0
$123,278.3
$120,810.7
$134,175.8
$141,004.4
$165,265.7
$181,245.7
Valuation by Type of Structure
1 unit
$69,772.7
$87,071.5
$97,118.6
$109,294.0
$104,738.7
$116,535.0
$121,194.5
$142,240.8
$157,123.5
2 units
$1,169.6
$1,272.2
$1,478.6
$1,813.3
$1,910.4
$2,069.1
$2,304.0
$2,254.2
$2,319.9
3 and 4 units
$1,061.6
$1,126.2
$1,281.7
$1,595.7
$1,713.3
$1,861.4
$2,057.7
$2,282.0
$2,317.5
5 units or more
$6,818.3
$6,069.2
$6,922.0
$10,575.3
$12,448.4
$13,710.2
$15,448.2
$18,488.8
$19,485.2
Source: Bureau of the Census (2000e).
2.8
INTERNATIONAL COMPETITIVENESS
Construction activities are highly localized, with most activities being performed either within
the state the establishment is located in or within neighboring states. Some of the largest builders may
perform work nationwide. The Census Bureau reports only construction activities within the United
States; no data is reported on construction work by U.S. establishments that takes place outside the U.S.
(Census, 2000a). EPA concludes that only a very small percentage of construction work done by U.S.
construction firms is conducted outside of the U.S.
2-79
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
2.9 REFERENCES
Ahulwalia G., J. Chapman. 2000. Structure of the Residential Construction Industry. Housing
Economics. National Association of Home Builders. 38(10):7-11.
ASCE. 2000. Quality in the Constructed Project: A Guide for Owners, Designers, and Constructors.
Second ed. Reston, VA: American Society of Civil Engineers.
CMD. 2001a. Commercial Real Estate Market Weak, but Still Fundamentally Sound. CMD Press
Release. October 22, 2001. Available at: http://www.cmdg.com/press_release/list.cgi.
CMD 2001b. Demand/Supply Cycles and Capital Markets Impact Office, Industrial, Labor Forecast.
CMD Press Release. October 22, 2001. Available at:
http://www.cmdg.com/press_release/list.cgi.
Coffman L.S. 1999. Low Impact Development: A New Paradigm for Storm Water Management. Florida
Keys Carrying Capacity Study Storm Water Workshop; 1999 Sep 23-1999 Sep 24; U.S. Army
Corps of Engineers, Jacksonville Division.
Coffman L.S., M.L. Clar, N. Weinstein. 1998. New Low Impact Design: Site Planning and Design
Techniques for Storm water Management. 1998 National Planning Conference. AICP Press.
Dun and Bradstreet 2000. Dun and Bradstreet Industry Norms & Key Business Ratios 1999-2000.
Eppli M.J., MJ. Childs. 1995. A Descriptive Analysis of U.S. Housing Demand for the 1990s. Journal of
Real Estate Research 10(l):69-86.
FHWA (Federal Highway Administration). 1999. Status of the Nation's Highways, Bridges and Transit:
Conditions and Performance, Report to Congress. U.S. Department of Transportation.
FHWA (Federal Highway Administration). 1998. Our Nation's Highways. U.S. Department of
Transportation.
Haurin D.R., E.-C. Chung. 1998. The Demand for Owner-Occupied Housing: Implications From
Intertemporal Analysis. Journal of Housing Economics 7(l):49-68.
Haurin D.R., K. Lee. 1989. A Structural Model of the Demand for Owner-Occupied Housing. Journal of
Urban Economics 26(3):348-60.
Henderschott P.H. 1980. Real User Costs and the Demand for Single-Family Housing. Brookings Papers
on Economic Activity 2:401-52.
Hirsch A. A. 1994. Residential Construction From a Long-Run Perspective. Survey of Current Business
74:30-41.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
Hirschhorn J.S., P. Souza. 2001. New Community Design to the Rescue: Fulfilling Another American
Dream. Washington, D.C.: National Governors Association. Available at:
http://www.nga.org/Center.
Housing Zone. 2001. Perfect Fit: Small Builders Zero in on Personal Touches and Niche Markets. San
Diego Union-Tribune, Available at: http://www.housingzone.com.
Joint Center . (Joint Center for Housing Studies of Harvard University). 2001. Remodeling Homes for
Changing Households.
Kone, D. L. 2000. Land Development 9th ed. Home Builder Press of the National Association of Home
Builders, Washington, DC.
Landis J.D. 1986. Land Regulation and the Price of New Housing: Lessons From Three California Cities.
APA Journal 52:9-21.
Linneman P., I.F. Megbolugbe, S.M. Wachter, M. Cho. 1997. Do Borrowing Constraints Change U.S.
Homeownership Rates? Journal of Housing Economics 6(4):318-33.
Luger M.I., K. Temkin. 2000. Red Tape and Housing Costs. New Brunswick, New Jersey: CUPR Press.
Mammoser A.P. 2000. Let It Flow. Urban Land(June):42-5.
Prince George's County (Maryland). 1999. Low Impact Design Strategies: An Integrated Design
Approach. Prepared by Prince George's County, Maryland Department of Environmental
Resources Programs and Planning Division. Also published ast EPA-841-B-00-003, January
2000 and available on EPA website at: http://www.epa.gov/owow/nps/urban.html.
Rappaport B.A., T.A. Cole. (U.S. Census Bureau, Manufacturing and Construction Division). 2000.
Construction Sector Special Study: Housing Starts Statistics~A Profile of the Homebuilding
Industry.
Ringwald, Richard C. 1993. Means Heavy Construction Handbook. Kingston, MA: R.S. Means
Company, Inc.
U.S. Census Bureau. 2000a. 1997 Economic Census: Construction, United States. Various Reports.
Available at: http://www.census.gov/epcd/ec97/us/USOOO_23.HTM.
U.S. Census Bureau. 2000b. Current Construction Reports, Series C30~Value Put in Place. Available at:
http://www.census.gov/ftp/pub/const/www.c30index.html.
U.S. Census Bureau. 2000c. Current Construction Reports, Series C25--Characteristics of New Housing.
Available at: http://www.census.gov/const.html.
U.S. Census Bureau. 2000d. Current Construction Reports, Series C20~Housing Starts. Available at:
http://www.census.gov/ftp/pub/const/www/c20index.html.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
U.S. Census Bureau. 2000e. Current Construction Reports, Series C40~Building Permits. Available at:
http://www.census.gov/ftp/pub/const/www/c40index.html.
U.S. Census Bureau. 2000f. 1997 Economic Census, Construction: Industry Summary. Available at:
http://www.census.gov/epcd/www/econ97.html
U.S. Census Bureau. 1998a. County Business Patterns, 1997. Available at:
http://www.census.gov/epcd/cbp/view/cbpview.html.
U.S. EPA. 2002a. Development Document for the Effluent Guidelines for the Construction and
Development Point Source Category. Washington, D.C.: U.S. Environmental Protection Agency.
EPA-821-R-02-007. Available at: http://www.epa.gov/waterscience/guide/construction/.
U.S. EPA. 2002b. Environmental Assessment of Effluent Guidelines for the Construction and
Development Point Source Category. Washington, D.C.: U.S. Environmental Protection Agency.
EPA-821-R-02-009. Available at: http://www.epa.gov/waterscience/guide/construction/.
U.S. EPA. 2001a. Our Built and Natural Environments: A Technical Review of the Interactions Between
Land Use, Transportation, and Environmental Quality. Washington, D.C.: U.S. Environmental
Protection Agency. EPA 231-R-01-002. Available at: http://www.smartgrowth.org.
U.S. EPA. 2001b. Revised C&D Site Size and Permit Distribution. Memo from Jesse Pritts, U.S. EPA,
to John Swanson and Jim Collins, Tetra Tech. Received by ERG on November 6, 2001.
U.S. EPA. 1999. Economic Analysis of the Final Phase II Storm Water Rule. U.S. Environmental
Protection Agency, Office of Wastewater Management.
U.S. Small Business Administration. 1998. Statistics of U.S. Businesses: Firm Size Data [HTML Files].
Available at: http://www.sba.gov/advo/stats/data.html.
Zorn P.M. 1993. The Impact of Mortgage Qualification Criteria on Households' Housing Decisions: An
Empirical Analysis Using Microeconomic Data. Journal of Housing Economics 3(l):51-75.
2-82
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APPENDIX 2A
Additional Detailed 5-Digit NAICS Tables
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2A-1
Detailed Number of Establishments in the C&D Industry with Payroll, by Legal Form of Organization
NAICS
Code
23311
23321
23322
23331
23332
23411
23412
23491
Description
Land subdivision and
land development
Single-family
housing construction
Multifamily housing
construction
Manufacturing and
industrial building
construction
Commercial and
institutional building
construction
Highway and street
construction
Bridge and tunnel
construction
Water, sewer, and
pipeline construction
Corporations
Number
6,268
84,437
5,265
5,863
28,910
8,390
1,032
6,267
Percent
of Total
76.6%
60.8%
69.8%
80.5%
77.2%
74.4%
87.7%
77.9%
Proprietorships
Number
327
41,735
1,430
1,052
6,018
1,933
60
1,214
Percent
of Total
4.0%
30.1%
19.0%
14.5%
16.1%
17.2%
5.1%
15.1%
Partnerships
Number
1,323
7,567
494
239
1,527
606
66
342
Percent
of Total
16.2%
5.5%
6.5%
3.3%
4.1%
5.4%
5.6%
4.3%
Other
Number
268
5,110
355
126
975
341
19
218
Percent
of Total
3.3%
3.7%
4.7%
1 .7%
2.6%
3.0%
1 .6%
2.7%
Total
Number
8,186
138,850
7,544
7,280
37,430
11,270
1,177
8,042
Percent of
Total
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
2A-1
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2A-1
Detailed Number of Establishments in the C&D Industry with Payroll, by Legal Form of Organization
NAICS
Code
23492
23493
23499
23593
23594
Description
Power and
communication
transmission line
construction
Industrial
nonbuilding structure
construction
All other heavy
construction
Excavation
contractors
Wrecking and
demolition
contractors
Corporations
Number
2,395
419
12,177
11,001
1,176
Percent
of Total
72.6%
78.9%
66.8%
60.3%
76.3%
Proprietorships
Number
625
77s
4,493
5,529
241
Percent
of Total
18.9%
14.5%
24.6%
30.3%
15.6%
Partnerships
Number
158
19
923
951
97
Percent
of Total
4.8%
3.6%
5.1%
5.2%
6.3%
Other
Number
122
16
643
747
29
Percent
of Total
3.7%
3.0%
3.5%
4.1%
1.9%
Total
Number
3,300
531
18,236
18,229
1,542
Percent of
Total
100.0%
100.0%
100.0%
100.0%
100.0%
s: Sampling error exceeds 40 percent.
Source: Bureau of the Census (1997)
2A-2
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2A-2
Detailed Number of Small Establishments with Payroll in the C&D Industry, By Employment Size Class
NAICS
Code
23311
23321
23322
23331
23332
23411
23412
23491
23492
23493
23499
23593
23594
Description
Land subdivision and development
Single-family housing construction
Multifamily housing construction
Manufacturing and industrial
building construction
Commercial and institutional
building construction
Highway and street construction
Bridge and tunnel construction
Water, sewer, and pipeline
construction
Power and communication
transmission line construction
Industrial nonbuilding structure
construction
All other heavy construction
Excavation contractors
Wrecking and demolition
contractors
Total
8,186
138,850
7,544
7,280
37,430
11,270
1,177
8,042
3,300
531
18,236
18,229
1,542
Establishments with less than
5 employees
Number
S
S
S
3,136
S
S
S
2,892
1,432
S
10,100
S
700
Percent of
Total
..
..
43.1%
36.0%
43.4%
..
55.4%
-
45.4%
Establishments with less
than 10 employees
Number
1,011
21,377
1,456
4,802
7,644
1,987
212
4,332
2,167
30
13,542
3,642
1,048
Percent of
Total
12.4%
15.4%
19.3%
66.0%
20.4%
17.6%
18.0%
53.9%
65.7%
5.6%
74.3%
20.0%
68.0%
Establishments with less
than 20 employees
Number
1,465
28,611
2,238
6,063
13,505
3,863
439
5,976
2,564
95
15,868
5,522
1,311
Percent of
Total
17.9%
20.6%
29.7%
83.3%
36.1%
34.3%
37.3%
74.3%
77.7%
17.9%
87.0%
30.3%
85.0%
Source: Bureau of Census (1997)
2A-3
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2A-3
Value of Construction Work by Type of Construction (Thousands of 1997 Dollars)
Type of Construction
Building construction, total
Single-family houses
Detached
Attached, including townhouses
and townhouse-type condominiums
Apartment buildings, apartment type
condominiums and cooperatives
All other residential buildings
Manufacturing and light industrial
buildings
Manufacturing and light industrial
warehouses
Hotels and motels
Office buildings
All other commercial buildings, nee
Commercial warehouses
Religious buildings
Educational buildings
Health care and institutional buildings
Public Safety buildings
Farm buildings, nonresidential
Amusement, social, and recreational
buildings
Other building construction
Nonbuilding construction, total
Highways, streets, and related work
Airport runways and related work
Private driveways and parking areas
Building, developing, and
general contracting
Value
$371,426,049
$150,532,478
$133,869,882
$16,662,596
$19,617,644
$954,291
$26,211,179
$10,666,086
$9,370,227
$40,371,389
$36,519,818
$8,262,304
$4,936,913
$25,194,532
$18,798,347
$5,584,102
$2,107,126
$7,265,413
$5,034,201
$5,970,952
$1,639,808
$16,088
$107,129
Pet.
97.32%
39.44%
35.08%
4.37%
5.14%
0.25%
6.87%
2.79%
2.46%
10.58%
9.57%
2.16%
1.29%
6.60%
4.93%
1.46%
0.55%
1.90%
1.32%
1.56%
0.43%
0.00%
0.03%
Heavy construction
Value
$5,218,782
$840,247
$689,265
$150,982
$77,084
$9,661
$1,314,909
$98,046
$85,071
$730,524
$952,333
$106,978
$21,500
$261,157
$81,173
$129,939
$52,862
$42,312
$414,988
$121,763,483
$42,628,013
$1,696,575
$3,722,761
Pet
4.08%
0.66%
0.54%
0.12%
0.06%
0.01%
1.03%
0.08%
0.07%
0.57%
0.74%
0.08%
0.02%
0.20%
0.06%
0.10%
0.04%
0.03%
0.32%
95.25%
33.34%
1.33%
2.91%
Special trade contractors"
Value
$12,550,515
$4,863,142
$4,147,573
$715,569
$611,174
NA
$1,215,516
$429,738
$176,654
$1,207,915
$2,283,510
$433,003
$131,868
$445,626
$276,604
NA
NA
NA
$475,764
$3,036,318
$675,214
NA
$437,042
Pet
78.88%
30.57%
26.07%
4.50%
3.84%
0.00%
7.64%
2.70%
1.11%
7.59%
14.35%
2.72%
0.83%
2.80%
1.74%
0.00%
0.00%
0.00%
2.99%
19.08%
4.24%
0.00%
2.75%
Total
Value
$389,195,346
$156,235,867
$138,706,720
$17,529,147
$20,305,902
$963,952
$28,741,604
$11,193,870
$9,631,952
$42,309,828
$39,755,661
$8,802,285
$5,090,281
$25,901,315
$19,156,124
$5,714,041
$2,159,988
$7,307,725
$5,924,953
$130,770,753
$44,943,035
$1,712,663
$4,266,932
Pet.
74.08%
29.74%
26.40%
3.34%
3.86%
0.18%
5.47%
2.13%
1.83%
8.05%
7.57%
1.68%
0.97%
4.93%
3.65%
1.09%
0.41%
1.39%
1.13%
24.89%
8.55%
0.33%
0.81%
2A-4
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2A-3
Value of Construction Work by Type of Construction (Thousands of 1997 Dollars)
Type of Construction
Bridges, tunnels, and elevated highways
Bridges and elevated highways
Tunnels
Sewers, water mains, and related
facilities
Sewers, sewer lines, septic systems,
and related facilities
Water mains and related facilities
Pipeline construction other than sewer or
water lines
Power and communication transmission
lines, cables, towers, and related facilities
Power plants
Power and cogeneration plants,
except hydroelectric
Power plants, hydroelectric
Blast furnaces, petroleum refineries,
chemical complexes, etc
Sewage treatment and water treatment
plants
Sewage treatment plants
Water treatment plants
Mass transit construction
Urban mass transit construction
Railroad construction
Conservation and development
construction
Dam and reservoir construction
Dry/solid waste disposal
Harbor and port facilities
Building, developing, and
general contracting
Value
$587,747
$477,670
$110,076
$211,602
$123,480
$88,122
$31,188
$160,372
$24,237
$11,702
$12,535
$37,950
$1,790,144
$787,323
$1,002,821
$69,134
$28,929
$40,205
$63,574
$18,688
$13,970
$66,927
Pet.
0.15%
0.13%
0.03%
0.06%
0.03%
0.02%
0.01%
0.04%
0.01%
0.00%
0.00%
0.01%
0.47%
0.21%
0.26%
0.02%
0.01%
0.01%
0.02%
0.00%
0.00%
0.02%
Heavy construction
Value
$10,697,254
$8,799,646
$1,897,608
$19,475,202
$11,642,425
$7,832,777
$5,437,692
$8,79,079
$2,621,409
$1,916,102
$705,307
$6,505,276
$5,401,944
$3,110,034
$2,291,910
$2,127,939
$745,507
$1,382,432
$2,954,381
$876,118
$1,101,556
$681,255
Pet
8.37%
6.88%
1.48%
15.23%
9.11%
6.13%
4.25%
6.48%
2.05%
1.50%
0.55%
5.09%
4.23%
2.43%
1.79%
1.66%
0.58%
1.08%
2.31%
0.69%
0.86%
0.53%
Special trade contractors"
Value
56,554
NA
NA
$988,387
$642,755
$325,439
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
Pet
0.36%
0.00%
0.00%
6.21%
4.04%
2.05%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Total
Value
11,341,555
$9,277,316
$2,007,684
$20,675,191
$12,408,660
$8,246,338
$5,468,880
$8,439,451
$2,645,646
$1,927,804
$717,842
$6,543,226
$7,192,088
$3,897,357
$3,294,731
$2,197,073
$774,436
$1,422,637
$3,017,955
$894,806
$1,115,526
$748,182
Pet.
2.16%
1.77%
0.38%
3.94%
2.36%
1.57%
1.04%
1.61%
0.50%
0.37%
0.14%
1.25%
1.37%
0.74%
0.63%
0.42%
0.15%
0.27%
0.57%
0.17%
0.21%
0.14%
2 A-5
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2A-3
Value of Construction Work by Type of Construction (Thousands of 1997 Dollars)
Type of Construction
Marine construction
Outdoor swimming pools
Water storage facilities
Tank storage facilities other than water
Fencing
Recreational facilities
Billboards
Heavy military construction
Ships
Oilfields
Other nonbuilding construction, nee
Construction work, n.s.k.
Total value of construction work
Building, developing, and
general contracting
Value
S
$17,356
$6,667
$7,298
$4,485
$213,600
D
D
$738
D
$805,656
$4,244,630
$381,641,600
Pet.
-
0.00%
0.00%
0.00%
0.00%
0.06%
—
—
0.00%
-
0.21%
1.11%
100.00%
Heavy construction
Value
$2,240,422
$11,307
$289,122
$129,440
S
$2,084,069
D
D
S
D
$2,639,358
$859,210
$127,841,600
Pet
-
0.01%
0.23%
0.10%
—
1.63%
-
-
-
-
2.06%
0.67%
100.00%
Special trade contractors"
Value
NA
NA
NA
$84,043
NA
NA
NA
NA
NA
NA
$795,078
$323,939
$15,910,770
Pet
0.00%
0.00%
0.00%
0.53%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.00%
2.04%
100.00%
Total
Value
$2,240,422
$28,663
$295,789
$220,781
$4,485
$2,297,669
D
D
$738
D
$4,240,092
$5,427,779
$525,393,970
Pet.
0.43%
0.01%
0.06%
0.04%
0.00%
0.44%
0.00%
0.00%
0.00%
0.00%
0.81%
1.03%
100.00%
NA = Data Not Available
"Covers establishments in NAICS 23593 (Excavation contractors) and 23594 (Wrecking and demolition contractors) only.
D = Withheld to avoid disclosure.
S = Data withheld because it did not meed publication standards.
Source: Bureau of the Census (1997).
2A-6
-------
APPENDIX 2B
Specialization Within the C&D Industry, Categorized by Value of Construction Work
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2B-1
Specialization within NAICS 23311 (Land subdivision and land development), Categorized by Value of Construction Work (Thousands of 1997 Dollars)
Type of Construction
Single-family houses, detached and
Single-family houses, attached, including
townhouses and townhouse-type condominiums
Apartment buildings with two or more units,
including rentals, apartment-type condominiums,
and cooperatives
Hotels, motels, and tourist cabins
Other residential buildings
Office buildings
Other commercial buildings such as stores,
restaurants, and automobile service stations
All other commercial buildings, n.e.c.
Industrial buildings
Warehouses
Religious buildings
Educational buildings
Hospitals and institutional buildings
Farm buildings, nonresidential
Amusement, social, and recreational buildings,
indoors
Other nonresidential buildings
Highways, streets, and related work such as
installation of guard rails, highway signs,
lighting, etc.
Outdoor swimming pools
Airport runways and related work
Private driveways and parking areas
Fencing
Recreational facilities
Tunnels
Bridges and elevated highways
Estabs.
specializing 51 %
or more
$7,903,746
$1,690,850
$0
$0
$0
$0
$1,009,513
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
100 %
specialization
$5,705,996
$1,561,253
$0
$0
$0
$0
$935,619
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 90
to 99 %
specialization
$633,804
S
$0
$0
$0
$0
D
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 80
to 89 %
specialization
$701,844
S
$0
$0
$0
$0
D
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
70 to 79 %
specialization
$519,252
$15,817
$0
$0
$0
$0
$11,283
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 60
to 69 %
specialization
$162,598
$0
$0
$0
$0
S
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 51
to 59 %
specialization
$180,251
$33,114
$0
$0
$0
$0
$37,543
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
2B-1
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2B-1
Specialization within NAICS 23311 (Land subdivision and land development), Categorized by Value of Construction Work (Thousands of 1997 Dollars)
Type of Construction
Dam and reservoir construction
Marine construction
Harbor and port facilities
Conservation and development construction
Power and communication transmission lines,
towers, and related facilities
Sewers, sewer lines, septic systems, and related
facilities
Water mains and related facilities
Pipeline construction other than sewer or water
lines
Urban mass transit
Railroad construction
Blast furnaces, petroleum refineries, chemical
complexes, etc.
Power plants, nuclear
Power plants and cogeneration plants, except
nuclear
Sewage treatment plants
Water treatment plants
Water storage facilities
Heavy military construction, missile sites, etc.
Ships
Oilfields
Other nonbuilding construction
Construction work, n.s.k.
Estabs.
specializing 51 %
or more
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
100 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 90
to 99 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 80
to 89 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
70 to 79 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 60
to 69 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 51
to 59 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
2B-2
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2B-2
Specialization within NAICS 23321 (Single-family housing construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)
Type of Construction
Single-family houses, detached
Single-family houses, attached, including
townhouses and townhouse-type condominiums
Apartment buildings with two or more units,
including rentals, apartment-type condominiums,
and cooperatives
Hotels, motels, and tourist cabins
Other residential buildings
Office buildings
Other commercial buildings such as stores,
restaurants, and automobile service stations
Industrial buildings
Warehouses
Religious buildings
Educational buildings
Hospitals and institutional buildings
Farm buildings, nonresidential
Amusement, social, and recreational buildings,
indoors
Other nonresidential buildings
Highways, streets, and related work such as
installation of guard rails, highway signs,
lighting, etc.
Outdoor swimming pools
Airport runways and related work
Private driveways and parking areas
Fencing
Recreational facilities
Tunnels
Bridges and elevated highways
Estabs.
specializing 51 %
or more
$127,870,584
$12,534,326
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
100 %
specialization
$90,434,819
$6,623,485
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 90
to 99 %
specialization
$14,615,758
$1,292,951
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 80
to 89 %
specialization
$7,040,769
$877,906
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
70 to 79 %
specialization
$6,600,743
$1,074,921
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 60
to 69 %
specialization
$6,603,687
$1,693,806
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 51
to 59 %
specialization
$2,574,808
$971,257
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
2B-3
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2B-2
Specialization within NAICS 23321 (Single-family housing construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)
Type of Construction
Dam and reservoir construction
Marine construction
Harbor and port facilities
Conservation and development construction
Power and communication transmission lines,
towers, and related facilities
Sewers, sewer lines, septic systems, and related
facilities
Water mains and related facilities
Pipeline construction other than sewer or water
lines
Urban mass transit
Railroad construction
Blast furnaces, petroleum refineries, chemical
complexes, etc.
Power plants, nuclear
Power plants and cogeneration plants, except
nuclear
Sewage treatment plants
Water treatment plants
Water storage facilities
Heavy military construction, missile sites, etc.
Ships
Oilfields
Other nonbuilding construction
Construction work, n.s.k.
Estabs.
specializing 51 %
or more
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
100 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 90
to 99 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 80
to 89 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
70 to 79 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 60
to 69 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 51
to 59 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
2B-4
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2B-3
Specialization within NAICS 23322 (Multifamily housing construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)
Type of Construction
Single-family houses, detached
Single-family houses, attached, including
townhouses and townhouse-type condominiums
Apartment buildings with two or more units,
including rentals, apartment-type condominiums,
and cooperatives
Hotels, motels, and tourist cabins
Other residential buildings
Office buildings
Other commercial buildings such as stores,
restaurants, and automobile service stations
Industrial buildings
Warehouses
Religious buildings
Educational buildings
Hospitals and institutional buildings
Farm buildings, nonresidential
Amusement, social, and recreational buildings,
indoors
Other nonresidential buildings
Highways, streets, and related work such as
installation of guard rails, highway signs,
lighting, etc.
Outdoor swimming pools
Airport runways and related work
Private driveways and parking areas
Fencing
Recreational facilities
Tunnels
Bridges and elevated highways
Estabs.
specializing 51 %
or more
$0
$0
$12,806,889
$0
$302,387
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
100 %
specialization
$0
$0
$5,719,872
$0
$156,078
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 90
to 99 %
specialization
$0
$0
$1,913,033
$0
s
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 80
to 89 %
specialization
$0
$0
$1,301,955
$0
$71,059
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
70 to 79 %
specialization
$0
$0
$1,381,979
$0
$60,965
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 60
to 69 %
specialization
$0
$0
$1,267,724
$0
$11,358
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 51
to 59 %
specialization
$0
$0
$1,222,326
$0
—
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
2B-5
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2B-3
Specialization within NAICS 23322 (Multifamily housing construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)
Type of Construction
Dam and reservoir construction
Marine construction
Harbor and port facilities
Conservation and development construction
Power and communication transmission lines,
towers, and related facilities
Sewers, sewer lines, septic systems, and related
facilities
Water mains and related facilities
Pipeline construction other than sewer or water
lines
Urban mass transit
Railroad construction
Blast furnaces, petroleum refineries, chemical
complexes, etc.
Power plants, nuclear
Power plants and cogeneration plants, except
nuclear
Sewage treatment plants
Water treatment plants
Water storage facilities
Heavy military construction, missile sites, etc.
Ships
Oilfields
Other nonbuilding construction
Construction work, n.s.k.
Estabs.
specializing 51 %
or more
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
100 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 90
to 99 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 80
to 89 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
70 to 79 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 60
to 69 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 51
to 59 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
2B-6
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2B-4
Specialization within NAICS 23331 (Manufacturing and industrial building construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)
Type of Construction
Single-family houses, detached
Single-family houses, attached, including
townhouses and townhouse-type condominiums
Apartment buildings with two or more units,
including rentals, apartment-type condominiums,
and cooperatives
Hotels, motels, and tourist cabins
Other residential buildings
Office buildings
Other commercial buildings such as stores,
restaurants, and automobile service stations
Industrial buildings
Warehouses
Religious buildings
Educational buildings
Hospitals and institutional buildings
Farm buildings, nonresidential
Amusement, social, and recreational buildings,
indoors
Other nonresidential buildings
Highways, streets, and related work such as
installation of guard rails, highway signs,
lighting, etc.
Outdoor swimming pools
Airport runways and related work
Private driveways and parking areas
Fencing
Recreational facilities
Tunnels
Bridges and elevated highways
Estabs.
specializing 51 %
or more
$0
$0
$0
$0
$0
$0
$0
$17,409,811
$5,725,339
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
100 %
specialization
$0
$0
$0
$0
$0
$0
$0
$5,934,603
$1,495,030
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 90
to 99 %
specialization
$0
$0
$0
$0
$0
$0
$0
$1,398,775
$601,604
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 80
to 89 %
specialization
$0
$0
$0
$0
$0
$0
$0
$2,472,131
$662,223
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
70 to 79 %
specialization
$0
$0
$0
$0
$0
$0
$0
$1,713,645
$663,498
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 60
to 69 %
specialization
$0
$0
$0
$0
$0
$0
$0
$3,795,456
$770,299
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 51
to 59 %
specialization
$0
$0
$0
$0
$0
$0
$0
$2,095,200
$1,532,686
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
2B-7
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2B-4
Specialization within NAICS 23331 (Manufacturing and industrial building construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)
Type of Construction
Dam and reservoir construction
Marine construction
Harbor and port facilities
Conservation and development construction
Power and communication transmission lines,
towers, and related facilities
Sewers, sewer lines, septic systems, and related
facilities
Water mains and related facilities
Pipeline construction other than sewer or water
lines
Urban mass transit
Railroad construction
Blast furnaces, petroleum refineries, chemical
complexes, etc.
Power plants, nuclear
Power plants and cogeneration plants, except
nuclear
Sewage treatment plants
Water treatment plants
Water storage facilities
Heavy military construction, missile sites, etc.
Ships
Oilfields
Other nonbuilding construction
Construction work, n.s.k.
Estabs.
specializing 51 %
or more
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
100 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 90
to 99 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 80
to 89 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
70 to 79 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 60
to 69 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 51
to 59 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
2B-8
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2B-5
Specialization within NAICS 23332 (Commercial and institutional building construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)
Type of Construction
Single-family houses, detached
Single-family houses, attached, including
townhouses and townhouse-type condominiums
Apartment buildings with two or more units,
including rentals, apartment-type condominiums,
and cooperatives
Hotels, motels, and tourist cabins
Other residential buildings
Office buildings
Other commercial buildings such as stores,
restaurants, and automobile service stations
All other commercial buildings, n.e.c.
Industrial buildings
Warehouses
Religious buildings
Educational buildings
Hospitals and institutional buildings
Public safety buildings
Farm buildings, nonresidential
Amusement, social, and recreational buildings,
indoors
Other nonresidential buildings
Highways, streets, and related work such as
installation of guard rails, highway signs,
lighting, etc.
Outdoor swimming pools
Airport runways and related work
Private driveways and parking areas
Fencing
Recreational facilities
Estabs.
specializing 51 %
or more
$0
$0
$0
$5,336,593
$0
$26,385,309
$0
$27,163,363
$0
$4,530,491
$1,152,216
$15,079,182
$7,772,628
$884,390
$1,637,968
$2,424,893
$2,557,999
$0
$0
$0
$0
$0
$0
Estabs. with
100 %
specialization
$0
$0
$0
$2,593,469
$0
$6,293,039
$0
$11,059,298
$0
$1,198,731
$230,911
$2,176,769
$1,768,726
$254,765
$1,077,154
$689,938
$1,446,128
$0
$0
$0
$0
$0
$0
Estabs. with 90
to 99 %
specialization
$0
$0
$0
$240,813
$0
$5,074,920
$0
$3,048,609
$0
$470,726
$36,077
$2,024,132
$844,655
$120,669
$141,707
$599,733
$310,839
$0
$0
$0
$0
$0
$0
Estabs. with 80
to 89 %
specialization
$0
$0
$0
$403,713
$0
$2,976,921
$0
$3,714,883
$0
$402,550
$196,952
$1,921,258
$592,229
$77,181
$66,058
$411,573
$337,232
$0
$0
$0
$0
$0
$0
Estabs. with
70 to 79 %
specialization
$0
$0
$0
$931,858
$0
$3,531,528
$0
$3,343,257
$0
$609,786
$173,876
$3,214,962
$1,359,586
$70,047
$96,840
S
$100,882
$0
$0
$0
$0
$0
$0
Estabs. with 60
to 69 %
specialization
$0
$0
$0
$505,167
$0
$5,531,461
$0
$3,127,898
$0
$1,421,744
$319,808
$2,560,961
$1,911,122
$298,196
$163,533
$363,722
$276,818
$0
$0
$0
$0
$0
$0
Estabs. with 51
to 59 %
specialization
$0
$0
$0
$661,573
$0
$2,977,440
$0
$2,869,418
$0
$426,956
$194,592
$3,181,102
$1,296,310
$63,532
$92,675
$200,426
$86,100
$0
$0
$0
$0
$0
$0
2B-9
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2B-5
Specialization within NAICS 23332 (Commercial and institutional building construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)
Type of Construction
Tunnels
Bridges and elevated highways
Dam and reservoir construction
Marine construction
Harbor and port facilities
Conservation and development construction
Power and communication transmission lines,
towers, and related facilities
Sewers, sewer lines, septic systems, and related
facilities
Water mains and related facilities
Pipeline construction other than sewer or water
lines
Urban mass transit
Railroad construction
Blast furnaces, petroleum refineries, chemical
complexes, etc.
Power plants, nuclear
Power plants and cogeneration plants, except
nuclear
Sewage treatment plants
Water treatment plants
Water storage facilities
Heavy military construction, missile sites, etc.
Ships
Oilfields
Other nonbuilding construction
Construction work, n.s.k.
Estabs.
specializing 51 %
or more
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
100 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 90
to 99 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 80
to 89 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
70 to 79 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 60
to 69 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 51
to 59 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
2B-10
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2B-6
Specialization within NAICS 23411 (Highway and street construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)
Type of Construction
Single-family houses, detached
Single-family houses, attached, including
townhouses and townhouse-type condominiums
Apartment buildings with two or more units,
including rentals, apartment-type condominiums,
and cooperatives
Hotels, motels, and tourist cabins
Other residential buildings
Office buildings
Other commercial buildings such as stores,
restaurants, and automobile service stations
Industrial buildings
Warehouses
Religious buildings
Educational buildings
Hospitals and institutional buildings
Farm buildings, nonresidential
Amusement, social, and recreational buildings,
indoors
Other nonresidential buildings
Highways, streets, and related work such as
installation of guard rails, highway signs,
lighting, etc.
Outdoor swimming pools
Airport runways and related work
Private driveways and parking areas
Fencing
Recreational facilities
Tunnels
Bridges and elevated highways
Estabs.
specializing 51 %
or more
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$43,439,086
$0
$476,352
$0
$0
$0
$0
$0
Estabs. with
100 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$15,061,825
$0
$206,565
$0
$0
$0
$0
$0
Estabs. with 90
to 99 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$5,949,644
$0
-
$0
$0
$0
$0
$0
Estabs. with 80
to 89 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$5,659,718
$0
-
$0
$0
$0
$0
$0
Estabs. with
70 to 79 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$6,827,389
$0
$164,989
$0
$0
$0
$0
$0
Estabs. with 60
to 69 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$5,700,890
$0
$87,063
$0
$0
$0
$0
$0
Estabs. with 51
to 59 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$4,239,620
$0
$17,736
$0
$0
$0
$0
$0
2B-11
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2B-6
Specialization within NAICS 23411 (Highway and street construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)
Type of Construction
Dam and reservoir construction
Marine construction
Harbor and port facilities
Conservation and development construction
Power and communication transmission lines,
towers, and related facilities
Sewers, sewer lines, septic systems, and related
facilities
Water mains and related facilities
Pipeline construction other than sewer or water
lines
Urban mass transit
Railroad construction
Blast furnaces, petroleum refineries, chemical
complexes, etc.
Power plants, nuclear
Power plants and cogeneration plants, except
nuclear
Sewage treatment plants
Water treatment plants
Water storage facilities
Heavy military construction, missile sites, etc.
Ships
Oilfields
Other nonbuilding construction
Construction work, n.s.k.
Estabs.
specializing 51 %
or more
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
100 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 90
to 99 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 80
to 89 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
70 to 79 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 60
to 69 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 51
to 59 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
2B-12
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2B-7
Specialization within NAICS 23412 (Bridge and tunnel construction) Categorized by Value of Construction Work (Thousands of 1997 Dollars)
Type of Construction
Single-family houses, detached
Single-family houses, attached, including
townhouses and townhouse-type condominiums
Apartment buildings with two or more units,
including rentals, apartment-type condominiums,
and cooperatives
Hotels, motels, and tourist cabins
Other residential buildings
Office buildings
Other commercial buildings such as stores,
restaurants, and automobile service stations
Industrial buildings
Warehouses
Religious buildings
Educational buildings
Hospitals and institutional buildings
Farm buildings, nonresidential
Amusement, social, and recreational buildings,
indoors
Other nonresidential buildings
Highways, streets, and related work such as
installation of guard rails, highway signs,
lighting, etc.
Outdoor swimming pools
Airport runways and related work
Private driveways and parking areas
Fencing
Recreational facilities
Bridges, tunnels and elevated highways
Dam and reservoir construction
Estabs.
specializing 51 %
or more
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$8,249,795
$0
Estabs. with
100 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$3,472,091
$0
Estabs. with 90
to 99 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$547,816
$0
Estabs. with 80
to 89 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$952,468
$0
Estabs. with
70 to 79 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$1,095,565
$0
Estabs. with 60
to 69 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$1,623,637
$0
Estabs. with 51
to 59 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$558,218
$0
2B-13
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2B-7
Specialization within NAICS 23412 (Bridge and tunnel construction) Categorized by Value of Construction Work (Thousands of 1997 Dollars)
Type of Construction
Marine construction
Harbor and port facilities
Conservation and development construction
Power and communication transmission lines,
towers, and related facilities
Sewers, sewer lines, septic systems, and related
facilities
Water mains and related facilities
Pipeline construction other than sewer or water
lines
Urban mass transit
Railroad construction
Blast furnaces, petroleum refineries, chemical
complexes, etc.
Power plants, nuclear
Power plants and cogeneration plants, except
nuclear
Sewage treatment plants
Water treatment plants
Water storage facilities
Heavy military construction, missile sites, etc.
Ships
Oilfields
Other nonbuilding construction
Construction work, n.s.k.
Estabs.
specializing 51 %
or more
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
100 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 90
to 99 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 80
to 89 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
70 to 79 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 60
to 69 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 51
to 59 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
2B-14
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2B-8
Specialization within NAICS 23491 (Water, sewer, and pipeline construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)
Type of Construction
Single-family houses, detached
Single-family houses, attached, including
townhouses and townhouse-type condominiums
Apartment buildings with two or more units,
including rentals, apartment-type condominiums,
and cooperatives
Hotels, motels, and tourist cabins
Other residential buildings
Office buildings
Other commercial buildings such as stores,
restaurants, and automobile service stations
Industrial buildings
Warehouses
Religious buildings
Educational buildings
Hospitals and institutional buildings
Farm buildings, nonresidential
Amusement, social, and recreational buildings,
indoors
Other nonresidential buildings
Highways, streets, and related work such as
installation of guard rails, highway signs,
lighting, etc.
Outdoor swimming pools
Airport runways and related work
Private driveways and parking areas
Fencing
Recreational facilities
Tunnels
Bridges and elevated highways
Estabs.
specializing 51 %
or more
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
100 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 90
to 99 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 80
to 89 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
70 to 79 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 60
to 69 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 51
to 59 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
2B-15
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2B-8
Specialization within NAICS 23491 (Water, sewer, and pipeline construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)
Type of Construction
Dam and reservoir construction
Marine construction
Harbor and port facilities
Conservation and development construction
Power and communication transmission lines,
towers, and related facilities
Sewers, sewer lines, septic systems, and related
facilities
Water mains and related facilities
Pipeline construction other than sewer or water
lines
Urban mass transit
Railroad construction
Blast furnaces, petroleum refineries, chemical
complexes, etc.
Power plants, nuclear
Power plants and cogeneration plants, except
nuclear
Sewage treatment plants
Water treatment plants
Water storage facilities
Heavy military construction, missile sites, etc.
Ships
Oilfields
Other nonbuilding construction
Construction work, n.s.k.
Estabs.
specializing 51 %
or more
$0
$0
$0
$0
$0
$5,862,775
$3,011,687
$4,250,644
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
100 %
specialization
$0
$0
$0
$0
$0
$1,760,074
$873,574
$2,881,228
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 90
to 99 %
specialization
$0
$0
$0
$0
$0
$459,745
$165,404
$257,301
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 80
to 89 %
specialization
$0
$0
$0
$0
$0
$455,130
$214,313
$332,370
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
70 to 79 %
specialization
$0
$0
$0
$0
$0
$1,101,984
$427,597
$197,666
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 60
to 69 %
specialization
$0
$0
$0
$0
$0
$1,470,400
$1,074,354
$244,868
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 51
to 59 %
specialization
$0
$0
$0
$0
$0
$615,442
$256,446
$337,212
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
2B-16
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2B-9
Specialization within NAICS 23492 (Power and communication transmission line construction), Categorized by Value of Construction Work (Thousands of 1997
Dollars)
Type of Construction
Single-family houses, detached
Single-family houses, attached, including
townhouses and townhouse-type condominiums
Apartment buildings with two or more units,
including rentals, apartment-type condominiums,
and cooperatives
Hotels, motels, and tourist cabins
Other residential buildings
Office buildings
Other commercial buildings such as stores,
restaurants, and automobile service stations
Industrial buildings
Warehouses
Religious buildings
Educational buildings
Hospitals and institutional buildings
Farm buildings, nonresidential
Amusement, social, and recreational buildings,
indoors
Other nonresidential buildings
Highways, streets, and related work such as
installation of guard rails, highway signs,
lighting, etc.
Outdoor swimming pools
Airport runways and related work
Private driveways and parking areas
Fencing
Recreational facilities
Tunnels
Bridges and elevated highways
Estabs.
specializing 51 %
or more
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
100 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 90
to 99 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 80
to 89 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
70 to 79 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 60
to 69 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 51
to 59 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
2B-17
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2B-9
Specialization within NAICS 23492 (Power and communication transmission line construction), Categorized by Value of Construction Work (Thousands of 1997
Dollars)
Type of Construction
Dam and reservoir construction
Marine construction
Harbor and port facilities
Conservation and development construction
Power and communication transmission lines,
towers, and related facilities
Sewers, sewer lines, septic systems, and related
facilities
Water mains and related facilities
Pipeline construction other than sewer or water
lines
Urban mass transit
Railroad construction
Blast furnaces, petroleum refineries, chemical
complexes, etc.
Power plants, nuclear
Power plants and cogeneration plants, except
nuclear
Sewage treatment plants
Water treatment plants
Water storage facilities
Heavy military construction, missile sites, etc.
Ships
Oilfields
Other nonbuilding construction
Construction work, n.s.k.
Estabs.
specializing 51 %
or more
$0
$0
$0
$0
$7,598,682
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
100 %
specialization
$0
$0
$0
$0
$5,714,825
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 90
to 99 %
specialization
$0
$0
$0
$0
$596,189
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 80
to 89 %
specialization
$0
$0
$0
$0
$315,103
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
70 to 79 %
specialization
$0
$0
$0
$0
$426,416
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 60
to 69 %
specialization
$0
$0
$0
$0
$271,981
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 51
to 59 %
specialization
$0
$0
$0
$0
$274,169
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
2B-18
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2B-10
Specialization within NAICS 23493 (Industrial non-building structure construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)
Type of Construction
Single-family houses, detached
Single-family houses, attached, including
townhouses and townhouse-type condominiums
Apartment buildings with two or more units,
including rentals, apartment-type condominiums,
and cooperatives
Hotels, motels, and tourist cabins
Other residential buildings
Office buildings
Other commercial buildings such as stores,
restaurants, and automobile service stations
Industrial buildings
Warehouses
Religious buildings
Educational buildings
Hospitals and institutional buildings
Farm buildings, nonresidential
Amusement, social, and recreational buildings,
indoors
Other nonresidential buildings
Highways, streets, and related work such as
installation of guard rails, highway signs,
lighting, etc.
Outdoor swimming pools
Airport runways and related work
Private driveways and parking areas
Fencing
Recreational facilities
Tunnels
Bridges and elevated highways
Estabs.
specializing 51 %
or more
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
100 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 90
to 99 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 80
to 89 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
70 to 79 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 60
to 69 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 51
to 59 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
2B-19
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2B-10
Specialization within NAICS 23493 (Industrial non-building structure construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)
Type of Construction
Dam and reservoir construction
Marine construction
Harbor and port facilities
Conservation and development construction
Power and communication transmission lines,
towers, and related facilities
Sewers, sewer lines, septic systems, and related
facilities
Water mains and related facilities
Pipeline construction other than sewer or water
lines
Urban mass transit
Railroad construction
Blast furnaces, petroleum refineries, chemical
complexes, etc.
Power plants, all
Sewage treatment plants
Water treatment plants
Water storage facilities
Heavy military construction, missile sites, etc.
Ships
Oilfields
Other nonbuilding construction
Construction work, n.s.k.
Estabs.
specializing 51 %
or more
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$6,499,398
$1,616,857
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
100 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$3,103,223
$1,095,143
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 90
to 99 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$802,685
$53,785
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 80
to 89 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$683,762
$216,704
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
70 to 79 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$75,497
$176,694
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 60
to 69 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$1,520,280
$49,333
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 51
to 59 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$313,951
$25,197
$0
$0
$0
$0
$0
$0
$0
$0
2B-20
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2B-11
Specialization within NAICS 23499 (All other heavy construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)
Type of Construction
Single-family houses, detached
Single-family houses, attached, including
townhouses and townhouse-type condominiums
Apartment buildings with two or more units,
including rentals, apartment-type condominiums,
and cooperatives
Hotels, motels, and tourist cabins
Other residential buildings
Office buildings
Other commercial buildings such as stores,
restaurants, and automobile service stations
Industrial buildings
Warehouses
Religious buildings
Educational buildings
Hospitals and institutional buildings
Farm buildings, nonresidential
Amusement, social, and recreational buildings,
indoors
Other nonresidential buildings
Highways, streets, and related work such as
installation of guard rails, highway signs,
lighting, etc.
Outdoor swimming pools
Airport runways and related work
Private driveways and parking areas
Fencing
Recreational facilities
Bridges, tunnels, and elevated highways
Dam and reservoir construction
Estabs.
specializing 51 %
or more
$0
$0
$0
$0
$0
$0
$0
$316,194
$0
$0
$0
$0
$0
$0
$0
$428,206
$0
$0
$499,123
$0
$1,606,298
$272,411
$0
Estabs. with
100 %
specialization
$0
$0
$0
$0
$0
$0
$0
s
$0
$0
$0
$0
$0
$0
$0
$99,675
$0
$0
$193,346
$0
$1,185,338
$64,282
$0
Estabs. with 90
to 99 %
specialization
$0
$0
$0
$0
$0
$0
$0
$42,314
$0
$0
$0
$0
$0
$0
$0
D
$0
$0
$40,682
$0
$48,268
$39,300
$0
Estabs. with 80
to 89 %
specialization
$0
$0
$0
$0
$0
$0
$0
$61,092
$0
$0
$0
$0
$0
$0
$0
s
$0
$0
$75,732
$0
$98,438
$36,403
$0
Estabs. with
70 to 79 %
specialization
$0
$0
$0
$0
$0
$0
$0
$6,240
$0
$0
$0
$0
$0
$0
$0
D
$0
$0
$84,589
$0
$60,307
$54,103
$0
Estabs. with 60
to 69 %
specialization
$0
$0
$0
$0
$0
$0
$0
$113,838
$0
$0
$0
$0
$0
$0
$0
D
$0
$0
$82,867
$0
$112,769
$39,085
$0
Estabs. with 51
to 59 %
specialization
$0
$0
$0
$0
$0
$0
$0
$15,227
$0
$0
$0
$0
$0
$0
$0
$50,790
$0
$0
$21,908
$0
$101,178
$39,239
$0
2B-21
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2B-11
Specialization within NAICS 23499 (All other heavy construction), Categorized by Value of Construction Work (Thousands of 1997 Dollars)
Type of Construction
Marine construction
Harbor and port facilities
Conservation and development construction
Power and communication transmission lines,
towers, and related facilities
Sewers, sewer lines, septic systems, and related
facilities
Sewers, water mains and related facilities
Pipeline construction other than sewer or water
lines
Urban mass transit
Railroad construction
Mass transit construction, total
Blast furnaces, petroleum refineries, chemical
complexes, etc.
Power plants, nuclear
Power plants and cogeneration plants, except
nuclear
Sewage treatment plants
Water treatment plants
Sewage and water treatment plants
Water storage facilities
Dry/solid waste disposal
Heavy military construction, missile sites, etc.
Ships
Oilfields
Other nonbuilding construction
Construction work, n.s.k.
Estabs.
specializing 51 %
or more
$1,728,083
$0
$2,215,356
$468,520
$0
$1,420,057
$351,404
$0
$0
$1,675,367
$0
$0
$0
$0
$0
$2,699,575
$0
$746,785
$0
$0
$0
$0
$0
Estabs. with
100 %
specialization
$1,433,105
$0
$1,159,140
$368,874
$0
$485,718
$112,249
$0
$0
$1,043,053
$0
$0
$0
$0
$0
$818,096
$0
$352,148
$0
$0
$0
$0
$0
Estabs. with 90
to 99 %
specialization
$108,622
$0
$229,741
S
$0
$131,224
$78,524
$0
$0
$112,182
$0
$0
$0
$0
$0
$327,674
$0
$90,543
$0
$0
$0
$0
$0
Estabs. with 80
to 89 %
specialization
$81,257
$0
$249,653
$24,608
$0
$121,354
$32,448
$0
$0
D
$0
$0
$0
$0
$0
$255,130
$0
$53,407
$0
$0
$0
$0
$0
Estabs. with
70 to 79 %
specialization
$38,123
$0
$134,677
$8,159
$0
$220,041
D
$0
$0
$107,298
$0
$0
$0
$0
$0
$413,160
$0
$74,059
$0
$0
$0
$0
$0
Estabs. with 60
to 69 %
specialization
$47,960
$0
$353,501
$11,886
$0
$291,336
D
$0
$0
D
$0
$0
$0
$0
$0
$539,916
$0
S
$0
$0
$0
$0
$0
Estabs. with 51
to 59 %
specialization
S
$0
$88,644
S
$0
$170,385
$78,678
$0
$0
D
$0
$0
$0
$0
$0
$345,601
$0
$70,040
$0
$0
$0
$0
$0
2B-22
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2B-12
Specialization within NAICS 23593 (Excavation contractors), Categorized by Value of Construction Work (Thousands of 1997 Dollars)
Type of Construction
Single-family houses, detached and
Single-family houses, attached, including
townhouses and townhouse-type condominiums
Apartment buildings with two or more units,
including rentals, apartment-type condominiums,
and cooperatives
Hotels, motels, and tourist cabins
Other residential buildings
Office buildings
Other commercial buildings such as stores,
restaurants, and automobile service stations
All other commercial buildings, n.e.c.
Manufacturing and light industrial buildings
Manufacturing and light industrial warehouses
Commercial warehouses
Religious buildings
Educational buildings
Hospitals and institutional buildings
Farm buildings, nonresidential
Amusement, social, and recreational buildings,
indoors
Other nonresidential buildings
Highways, streets, and related work such as
installation of guard rails, highway signs,
lighting, etc.
Outdoor swimming pools
Airport runways and related work
Private driveways and parking areas
Fencing
Recreational facilities
Tunnels
Estabs.
specializing 51 %
or more
$4,056,605
$296,995
$0
$0
$379,068
$0
$1,103,861
$482,405
$50,302
$103,275
$0
$158,777
$0
$0
$0
$207,614
$0
$0
$0
$341,556
$0
$0
$0
Estabs. with
100 %
specialization
$1,537,017
$104,666
$0
$0
$76,339
$0
$433,494
$168,083
$14,307
$20,441
$0
$10,557
$0
$0
$0
$109,377
$0
$0
$0
$154,315
$0
$0
$0
Estabs. with 90
to 99 %
specialization
$594,683
$27,862
$0
$0
$42,754
$0
$84,081
$66,232
$1,709
$5,074
$0
$42,653
$0
$0
$0
S
$0
$0
$0
$26,982
$0
$0
$0
Estabs. with 80
to 89 %
specialization
$459,760
S
$0
$0
$31,338
$0
$119,400
$28,855
D
$19,998
$0
$50,732
$0
$0
$0
$21,017
$0
$0
$0
$49,792
$0
$0
$0
Estabs. with
70 to 79 %
specialization
$734,403
D
$0
$0
$128,109
$0
$142,382
$79,252
$18,071
$35,699
$0
$11,804
$0
$0
$0
$17,709
$0
$0
$0
$26,455
$0
$0
$0
Estabs. with 60
to 69 %
specialization
$493,142
$137,324
$0
$0
$70,563
$0
$136,372
$94,099
$9,185
S
$0
$30,845
$0
$0
$0
$24,895
$0
$0
$0
$67,760
$0
$0
$0
Estabs. with 51
to 59 %
specialization
$237,601
D
$0
$0
$29,965
$0
$188,133
$45,883
D
$13,556
$0
$12,185
$0
$0
$0
$29,177
$0
$0
$0
$16,253
$0
$0
$0
2B-23
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2B-12
Specialization within NAICS 23593 (Excavation contractors), Categorized by Value of Construction Work (Thousands of 1997 Dollars)
Type of Construction
Bridges and elevated highways
Dam and reservoir construction
Marine construction
Harbor and port facilities
Conservation and development construction
Power and communication transmission lines,
towers, and related facilities
Sewers, sewer lines, septic systems, and related
facilities
Water mains and related facilities
Pipeline construction other than sewer or water
lines
Urban mass transit
Railroad construction
Blast furnaces, petroleum refineries, chemical
complexes, etc.
Power plants, nuclear
Power plants and cogeneration plants, except
nuclear
Sewage treatment plants
Water treatment plants
Water storage facilities
Heavy military construction, missile sites, etc.
Ships
Oilfields
Other nonbuilding construction
Construction work, n.s.k.
Estabs.
specializing 51 %
or more
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
100 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 90
to 99 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 80
to 89 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
70 to 79 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 60
to 69 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 51
to 59 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
2B-24
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2B-13
Specialization within NAICS 23594 (Wrecking and demolition contractors), Categorized by Value of Construction Work (Thousands of 1997 Dollars)
Type of Construction
Single-family houses, detached and
Single-family houses, attached, including
townhouses and townhouse-type condominiums
Apartment buildings with two or more units,
including rentals, apartment-type condominiums,
and cooperatives
Hotels, motels, and tourist cabins
Other residential buildings
Office buildings
Other commercial buildings such as stores,
restaurants, and automobile service stations
All other commercial buildings, n.e.c.
Manufacturing and light industrial buildings
Warehouses
Religious buildings
Educational buildings
Hospitals and institutional buildings
Farm buildings, nonresidential
Amusement, social, and recreational buildings,
indoors
Other nonresidential buildings
Highways, streets, and related work such as
installation of guard rails, highway signs,
lighting, etc.
Outdoor swimming pools
Airport runways and related work
Private driveways and parking areas
Fencing
Recreational facilities
Tunnels
Bridges and elevated highways
Estabs.
specializing 51 %
or more
$131,122
$0
$0
$0
$134,487
$0
$266,265
$201,368
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
100 %
specialization
$73,376
$0
$0
$0
$66,668
$0
$184,232
$76,279
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 90
to 99 %
specialization
S
$0
$0
$0
$10,005
$0
$13,410
$25,174
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 80
to 89 %
specialization
$17,406
$0
$0
$0
$27,727
$0
$19,643
D
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
70 to 79 %
specialization
$5,488
$0
$0
$0
$13,096
$0
D
$35,900
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 60
to 69 %
specialization
$18,869
$0
$0
$0
$13,996
$0
$42,138
D
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 51
to 59 %
specialization
$7,553
$0
$0
$0
S
$0
D
D
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
2B-25
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2B-13
Specialization within NAICS 23594 (Wrecking and demolition contractors), Categorized by Value of Construction Work (Thousands of 1997 Dollars)
Type of Construction
Dam and reservoir construction
Marine construction
Harbor and port facilities
Conservation and development construction
Power and communication transmission lines,
towers, and related facilities
Sewers, sewer lines, septic systems, and related
facilities
Water mains and related facilities
Pipeline construction other than sewer or water
lines
Urban mass transit
Railroad construction
Blast furnaces, petroleum refineries, chemical
complexes, etc.
Power plants, nuclear
Power plants and cogeneration plants, except
nuclear
Sewage treatment plants
Water treatment plants
Water storage facilities
Heavy military construction, missile sites, etc.
Ships
Oilfields
Other nonbuilding construction
Construction work, n.s.k.
Estabs.
specializing 51 %
or more
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
100 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 90
to 99 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 80
to 89 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with
70 to 79 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 60
to 69 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Estabs. with 51
to 59 %
specialization
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
2B-26
-------
APPENDIX 2C
Definitions of Key Business Ratios From Dun & Bradstreet
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
SOLVENCY RATIOS
Quick Ratio
Cash + Accounts Receivable
Current Liabilities
The Quick Ratio is computed by divided cash plus accounts receivable by total current liabilities.
Current liabilities are all the liabilities that fall due within one year. This ratio reveals the
protection afforded short-term creditors in cash or near-cash assets. It shows the number of
dollars of liquid assets available to cover each dollar of current debt. Any time this ratio is as
much as 1 to 1 (1.0) the business is said to be in a liquid condition. The larger the ratio the
greater the liquidity.
Current Ratio
Current Assets
Current Liabilities
Total current assets are divided by total current liabilities. Current assets include cash, accounts
and notes receivable (less reserves for bad debts), advances on inventories, merchandise
inventories and marketable securities. This ratio measures the degree to which current assets
cover current liabilities. The higher the ratio the more assurance exists that the retirement of
current liabilities can be made. The current ratio measures the margin of safety available to cover
any possible shrinkage in the value of current assets. Normally a ratio of 2 to 1 (2.0) or better is
considered good.
Current Liabilities to Net Worth
Current Liabilities
Net Worth
Current Liabilities to Net Worth is derived by dividing current liabilities by net worth. This
contrasts the funds that creditors temporarily are risking with the funds permanently invested by
the owners. The smaller the net worth and the larger the liabilities, the less security for the
creditors. Care should be exercised when selling any firm with current liabilities exceeding two-
thirds (66.6 percent) of net worth.
2C-1
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
Current Liabilities to Inventory
Current Liabilities
Inventory
Dividing current liabilities by inventory yields another indication of the extent to which the
business relies on funds from disposal of unsold inventories to meet its debts. This ratio
combines with Net Sales to Inventory to indicate how management controls inventory. It is
possible to have decreasing liquidity while maintaining consistent sales-to-inventory ratios.
Large increases in sales with corresponding increases in inventory levels can cause an
inappropriate rise in current liabilities if growth isn't made wisely.
Total Liabilities to Net Worth
Total Liabilities
Net Worth
Obtained by dividing total current plus long-term and deferred liabilities by net worth. The effect
of long-term (funded) debt on a business can be determined by comparing this ratio with Current
Liabilities to Net Worth. The difference will pinpoint the relative size of long-term debt, which,
if sizable, can burden a firm with substantial interest charges. In general, total liabilities
shouldn't exceed net worth (100 percent) since in such cases creditors have more at stake than
owners.
Fixed Assets to Net Worth
Fixed Assets
Net Worth
Fixed assets are divided by net worth. The proportion of net worth that consists of fixed assets
will very greatly from industry to industry but generally a smaller proportion is desirable. A high
ratio is unfavorable because heavy investment in fixed assets indicates that either the concern has
a low net working capital and is overtrading or has utilized large funded debt to supplement
working capital. Also, the larger the fixed assets, the bigger then annual depreciation charge that
must be deducted from the income statement. Normally, fixed assets over 75 percent of net
worth indicate possible over-investment and should be examined with care.
2C-2
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
EFFICIENCY RATIOS
Collection Period
Accounts Receivable
Sales x 365
Accounts receivable are divided by sales and then multiplied by 365 days to obtain this figure.
The quality of the receivables of a company can be determined by this relationship when
compared with selling terms and industry norms. IN some industries where credit sales are not
the normal way of doing business, the percentage of cash sales should be taken into
consideration. Generally, where most sales are for credit, any collection period more than one-
third over normal selling terms (40.0 for 30-day terms) is indicative of some slow-turning
receivables. When comparing the collection period of one concern with that of another,
allowances should be made for possible variations in selling terms.
Sales to Inventory
Annual Net Sales
Inventory
Obtained by dividing annual net sales by inventory. Inventory control is a primate management
objective since poor controls allow inventory to become costly to store, obsolete or insufficient
to meet demands. The sales-to-inventory relationship is a guide to the rapidity at which
merchandise is being moved and the effect on the flow of funds into the business. This ratio
varies widely between lines of business and a company's figure is only meaningful when
compared with industry norms. Individual figures that are outside either the upper or lower
quartiles for a given industry should be examined with care. Although low figures are usually the
biggest problem, as they indicate excessively high inventories, extremely high turnovers might
reflect insufficient merchandise to meet customer demand and result in lost sales.
Asset to Sales
Total Assets
Net Sales
Assets to sales is calculated by dividing total assets by annual net sales. This ratio ties in sales
and the total investment that is used to generate those sales. While figures vary greatly from
industry to industry, by comparing a company's ratio with industry norms it can be determined
2C-3
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
whether a firm is overtrading (handling an excessive volume of sales in relation to investment) or
undertrading (not generating sufficient sales to warrant the assets invested). Abnormally low
percentages (above the upper quartile) can indicate overtrading which may lead to financial
difficulties if not corrected. Extremely high percentages (below the lower quartile) can be the
result of overly conservative or poor sales management, indicating a more aggressive sales policy
may need to be followed.
Sales to Net Working Capital
Sales
Net Working Capital
Net Sales are divided by net working capital (net working capital is current assets minus current
liabilities). This relationship indicates whether a company is overtrading or conversely carrying
more liquid assets than needed for its volume. Each industry can vary substantially and it is
necessary to compare a company with its peers to see if it is either overtrading on its available
funds or being overly conservative. Companies with substantial sales gains often reach a level
where their working capital becomes strained. Even if they maintain an adequate total investment
for the volume being generated (Assets to Sales), that investment may be so centered in fixed
assets or other noncurrent items that it will be difficult to continue meeting all current
obligations without additional investment or reducing sales.
Accounts Payable to Sales
Accounts Payable
Annual Net Sales
Computed by dividing accounts payable by annual net sales. This ratio measures how the
company is paying its suppliers in relation to the volume being transacted. An increasing
percentage, or one larger than the industry norm, indicates the firm may be using suppliers to
help finance operations. This ratio is especially important to short-term creditors since a high
percentage could indicate potential problems in paying vendors.
2C-4
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
PROFITABILITY RATIOS
Return on Sales (Profit Margin)
Net Profit After Taxes
Annual Net Sales
Obtained by dividing net profit after taxes by annual net sales. This reveals the profits earned per
dollar of sales and therefore measures the efficiency of the operation. Return must be adequate
for the firm to be able to achieve satisfactory profits for its owners. This ratio is an indicator of
the firm's ability to withstand adverse conditions such as falling prices, rising costs and declining
sales.
Return on Assets
Net Profit After Taxes
Total Assets
Net profit after taxes divided by total assets. This ratio is the key indicator of profitability for a
firm. It matches operating profits with the assets available to earn a return. Companies efficiently
using their assets will have a relatively high return while less well-run businesses will be
relatively low.
Return on Net Worth (Return on Equity)
Net Profit After Taxes
Net Worth
Obtained by dividing net profit after tax by net worth. This ratio is used to analyze the ability of
the firm's management to realize an adequate return on the capital invested by the owners of the
firm. Tendency is to look increasingly to this ratio as a final criterion of profitability. Generally,
a relationship of at least 10 percent is regarded as a desirable objective for providing dividends
plus funds for future growth.
2C-5
-------
APPENDIX 2D
Summary Statistics for the C&D Industry, By NAICS Code
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 2D-1.
Summary Statistics for the C&D Industry
NAICS
23
Description
Construction
Number
of
Establishments
656,448
Number of
Employees
5,664,853
Annual
Payroll
($1000)
174,184,608
Number of
Construction
Workers
4,332,737
Annual
Payroll -
Construction
Workers
($1000)
119,676,792
Value
of
Construction
Work ($1000)
845,543,552
Value of
Construction
Work
Subcontracted
In ($1000)
237,691,136
Net Value of
Construction
Work
612,209,024
Value Added
($1000)
383,845,728
233
Building, developing, and
general contracting
199,289
1,342,953
42,546,112
885,939
23,135,832
381,641,600
15,724,829
198,826,896
120,322,720
2331
233110
2332
233210
233220
2333
233310
233320
Land subdivision and land
development
Land subdivision and land
development
Residential housing construction
Single-family housing
construction
Multifamily housing
construction
Nonresidential building
construction
Manufacturing and industrial
building construction
Commercial and institutional
building construction
8,186
8,186
146,394
138,850
7,544
44,709
7,280
37,430
41,827
41,827
629,886
570,990
58,896
671,238
143,066
528,173
1,509,773
1,509,773
16,731,210
14,964,583
1,766,627
24,305,128
5,128,967
19,176,160
10,977
10,977
407,801
367,719
40,082
467,161
107,180
359,981
254,247
254,247
8,762,123
7,739,858
1,022,265
14,119,463
3,322,347
10,797,116
13,635,521
13,635,521
161,286,076
146,798,768
14,487,308
206,720,022
33,514,342
173,205,680
272,860
272,860
5,260,611
4,985,452
275,159
10,191,358
2479077
7712281
10,247,820
10,247,820
100,124,176
92,802,168
7,322,008
88,454,894
17202078
71252816
9,154,633
9,154,633
56,374,697
52,585,924
3,788,773
54,793,388
10429844
44363544
234
Heavy construction
42,557
880,400
30,291,850
710,898
22,218,582
127,841,600
28,386,274
105,639,352
68,775,976
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
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NAICS
2341
234110
234120
2349
234910
234920
234930
234990
Description
Highway, street, bridge & tunnel
construction
Highway and street construction
Bridge and tunnel construction
Other heavy construction
Water, sewer, and pipeline
construction
Power and communication
transmission line construction
Industrial nonbuilding structure
construction
All other heavy construction
Number
of
Establishments
12,447
11,270
1,177
30,107
8,042
3,300
531
18,236
Number of
Employees
325,742
277,979
47,764
554,655
162,566
74,050
98,555
219,486
Annual
Payroll
($1000)
11,374,785
9,527,626
1,847,160
18,917,062
5,522,281
2,387,432
3,722,363
7,284,989
Number of
Construction
Workers
265,267
227,066
38,201
445,630
134,023
60,880
79,473
171,254
Annual
Payroll -
Construction
Workers
($1000)
8,473,898
7,095,139
1,378,759
13,744,685
4,087,007
1,748,715
2,734,020
5,174,943
Value
of
Construction
Work ($1000)
58,011,325
48,472,284
9,539,041
69,830,272
22,204,058
7,849,436
9,255,216
30,521,562
Value of
Construction
Work
Subcontracted
In ($1000)
13,657,005
12,246,944
1,410,061
14,729,269
5,233,440
1,312,622
966,283
7,216,924
Net Value of
Construction
Work
46,274,086
39,102,084
7,172,002
59,365,265
19,126,738
6,741,945
8,129,656
25,366,926
Value Added
($1000)
27,477,466
22,983,910
4,493,556
41,298,511
12,280,098
5,201,423
6288698
17,528,292
235
235930
235940
Special trade contractors
Excavation contractors
Wrecking and demolition
contractors
414,602
18,229
1,542
3,441,500
116,237
18,820
101,346,648
3,353,874
592,176
2,735,901
92,830
14,486
2,940,440
2,525,857
414,583
336,060,352
13,746,608
2,164,162
193,580,032
8,745,278
1,099,814
307,742,752
12,216,146
1,913,892
194,747,056
9,086,184
1,732,366
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
"An establishment is a single physical location at which business is conducted. It is not necessarily identical with a company or enterprise, which may consist of one establishment or more.
'Value of construction work includes all value of construction work done during 1992 for construction work performed by general contractors and special trades contractors. Included is new
construction, additions and alterations or reconstruction, and maintenance and repair construction work. Also included is the value of any construction work done by the reporting
establishments for themselves. This value is not available for SIC 655, instead estimates of annual revenue from the Census of Financial, Insurance, and Real Estate Industries is used. The
measure includes 'reported revenues, which include revenues from all business activities, including amounts received for work subcontracted out to others.
"Employment comprises all full-time and part-time employees on the payrolls of construction establishments, who worked or received pay for any part of the pay period including the 12th of
March, May, August, and November. Included are all persons on paid sick leave, paid holidays, and paid vacations during these pay periods. Officers of corporations are included, but
proprietors and partners of unincorporated firms are not. All employees is the sum of all employees during the pay periods including the 12th of March, May, August, and November, divided
by 4.
dPayroll includes the gross earnings paid in the calendar year 1992 to all employees on the payroll of construction establishments. It includes all forms of compensation such as salaries,
wages, commissions, bonuses, vacation allowances, sick leave pay, prior to such deductions as employees' Social Security contribution, withholding taxes, group insurance, union dues, and
savings bonds.
"Construction workers include all workers up through the working supervisor level directly engaged in construction operations, such as painters, carpenters, plumbers, and electricians.
Included are journeymen, mechanics, apprentices, laborers, truck drivers and helpers, equipment operators, and on-site recordkeepers and security guards.
'Construction worker payroll includes gross earnings paid in the calendar year 1992 to all construction workers only.
^et value of construction work is derived for each establishment by subtracting the costs for construction work subcontracted to others from the value of construction work done.
'Value added, derived for each establishment, is equal to dollar value of business done less the costs of construction work subcontracted to others and costs for materials, components,
supplies, and fuels.
'Value of construction work subcontracted in from others includes the value of construction work during 1992 for work done by reporting establishments as subcontractors.
'Covers establishments in SICs 1794 (Excavation Work) and 1795 (Wrecking and Demolition Work) only.
''Covers establishments in SICs 6552 (Land Subdividers and Developers, Except Cemeteries) and 6553 (Cemetery Subdividers and Developers) only.
S Withheld because estimate did not meet publication standards on the basis of either the response rate, associated relative standard error, or a consistency review.
NA These values are not included in the Census of Financial, Insurance, and Real Estate Industries and therefore are unavailable for SIC 655.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
CHAPTER THREE
DESCRIPTION OF PROPOSED RULE AND REGULATORY OPTIONS
Chapter One provides a summary of the Phase I and Phase II National Pollutant Discharge
Elimination System (NPDES) Storm Water Regulations and the Construction General Permit (CGP) for
the construction industry. This chapter describes the effluent limitation guidelines and standards
program (Section 3.1), the technology alternatives for the proposed effluent limitation guidelines (Section
3.2), and the regulatory options that EPA is proposing for the C&D industry (Section 3.3).
3.1 EFFLUENT LIMITATION GUIDELINES AND STANDARDS
The Federal Water Pollution Control Act, passed in 1972 (CWA, 33 U.S.C. §1251 et seq.X
establishes a comprehensive program to "restore and maintain the chemical, physical, and biological
integrity of the Nation's waters" (§101(a)), often referred to as "fishable, swimmable" status. The statute
was amended in 1987 to include requirements for a comprehensive program to address storm water
discharges. Moreover, EPA is authorized under section 301, 304, 306, and 307 of the CWA to establish
effluent limitation guidelines and pretreatment standards for industrial dischargers. EPA is authorized to
publish the following standards:
Best Practicable Control Technology Currently Available (BPT). Under section
304(b)(l), these rules apply to direct dischargers. BPT limitations are generally based on
the average of the best existing performances by plants of various sizes, ages, and unit
processes within a point source category or subcategory.
Best Available Technology Economically Achievable (BAT). Under section 304(b)(2),
these rules apply to direct discharges of toxic and nonconventional1 pollutants.
1 Toxic pollutants are listed in Table 1 of U.S.C 1317 Section 307(a)(l) and currently include 64 pollutants
and their organic and inorganic compounds. This list includes arsenic, DDT, lead, and mercury. Nonconventional
pollutants are any pollutants that are not statutorily listed (not covered by the list of toxic or conventional pollutants)
or which are poorly understood by the scientific community.
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• Best Conventional Pollutant Control Technology (BCT). Under section 304(b)(4),
these rules apply to direct discharges of conventional pollutants.2 BCT limitations are
generally established using a two-part cost-reasonableness test. BCT replaces BAT for
control of conventional pollutants.
• Pretreatment Standards for Existing Sources (PSES). Under section 307. Analogous to
BAT controls, these rules apply to existing indirect dischargers (i.e., dischargers to
publicly owned treatment works (POTWs).
• New Source Performance Standards (NSPS). Under section 306(b), these rules apply
to discharges of toxic and nonconventional pollutants and apply to new direct
dischargers.
• Pretreatment Standards for New Sources (PSNS). Under section 307. Analogous to
NSPS controls, these rules apply to new source indirect dischargers (i.e., dischargers to
publicly owned treatment works (POTWs).
Under the proposed effluent limitation guidelines (ELG), EPA is proposing BAT, BPT, BCT and
NSPS guidelines and standards for erosion and sediment control (ESC) during the active construction
phase.
3.2 REQUIREMENTS UNDER THE EXISTING CONSTRUCTION GENERAL PERMIT
The CGP, published in 1992 and revised in 1998, directs NPDES permittees to prepare a storm
water pollution prevention plan (SWPPP) for certain construction activities. The CGP also calls for
installation of temporary sediment basins for construction sites with disturbed area of 10 acres or more.
The permit lists a variety of options and goals for other ESCs, but none are required. A description of
ESCs, if any, is to be contained in the SWPPP. Options and goals for post-construction storm water best
management practices (BMPs) are also contained in the CGP, but none are required. As with ESCs,
selected BMPs, if any, are to be described in the SWPPP.
The C&D industry ELG would build upon and complement the CGP by adding inspection and
certification (I&C) requirements for active construction ESCs. As described below, under one option
2 Conventional pollutants include biochemical oxygen demand (BOD), total suspended solids (TSS), fecal
coliform, pH, and oil and grease.
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EPA would add the I&C requirements for sites of one acre or more in size, while under another option
the I&C requirements would apply to sites of 5 acres and above. This second option would also codify in
the Code of Federal Regulations (CFR) the requirements found in the CGP. These options are described
more fully below.
3.3
SUMMARY OF REGULATORY OPTIONS/TECHNOLOGY ALTERNATIVES
EPA is co-proposing two regulatory alternatives, along with a "no regulation" option, for a total
of three regulatory options. EPA has defined the baseline for the proposed rule as full compliance with
the current Phase INPDES storm water regulations and the future Phase II regulations. If any additional
costs are incurred by dischargers under the existing storm water regulations the costs will be added to the
baseline assumption. Table 3-1 summarizes the regulatory options. Throughout the analysis presented in
this report, EPA treats the baseline as "Option 3."
Table 3-1. Summary of Regulatory Options Being Co-Proposed by EPA
Option
Option 1
Option 2
Option 3
Description
Inspection and
Certification of
Construction Site Erosion
and Sediment Controls
"Codification" of the
Construction General
Permit (CGP)
plus Inspection and
Certification
Requirements
No Regulation (Baseline)
Regulatory Mechanism
Amendment to NPDES
storm water permitting
regulations
Effluent limitation
guidelines
N/A
Applicability
Sites of 1 acre or more
Sites of 5 acres or more
All sites
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
3.3.1 Option 1
Option 1 would amend 40 CFR Part 122, the section of the CFR covering NPDES permitting,
adding a new paragraph (t) section to §122.44 entitled Inspection and Certification for Construction Site
Storm Water Discharges. These requirement in this section would include:
(1) Site log book. The permittee for a point source discharge under § 122.26(b)(14)(x) or
§ 122.26(b)(15) shall maintain a record of site activities in a site log book. The site log
book shall be maintained as follows:
(i) A copy of the site log book shall be maintained on site and be made available to the
permitting authority upon request;
(ii) In the site log book, the permittee shall certify, prior to the commencement of
construction activities, that any plans required by the permit meet all Federal, State,
Tribal and local erosion and sediment control requirements and are available to the
permitting authority;
(iii) The permittee shall have a qualified professional (knowledgeable in the principles and
practices of erosion and sediment controls, such as a licensed professional engineer, or
other knowledgeable person) conduct an assessment of the site prior to groundbreaking
and certify in the log book that the appropriate best management practices (BMPs)
described in plans required by the permit have been adequately designed, sized and
installed to ensure overall preparedness of the site for initiation of groundbreaking
activities. The permittee shall record the date of initial groundbreaking in the site log
book. The permittee shall also certify that any inspection, stabilization and BMP
maintenance requirements of the permit have been satisfied within 48 hours of actually
meeting such requirements; and
(iv) The permittee shall post at the site, in a publicly-accessible location, a summary of the
site inspection activities on a monthly basis;
(2) Site Inspections. The permittee or designated agent of the permittee (such as a
consultant, subcontractor, or third-party inspection firm) shall conduct regular
inspections of the site and record the results of such inspection in the site log book in
accordance with paragraph (t)(l) of this section.
(i) After initial groundbreaking, permittees shall conduct site inspections at least every 14
calendar days and within 24 hours of the end of a storm event of 0.5 inches or greater.
These inspections shall be conducted by a qualified professional. During each
inspection, the permittee or designated agent shall record the following information:
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
(A) Indicate on a site map the extent of all disturbed site areas and drainage
pathways. Indicate site areas that are expected to undergo initial disturbance or
significant site work within the next 14 days;
(B) Indicate on a site map all areas of the site that have undergone temporary or
permanent stabilization;
(C) Indicate all disturbed site areas that have not undergone active site work during
the previous 14 days;
(D) Inspect all sediment control practices and note the approximate degree of
sediment accumulation as a percentage of the sediment storage volume (for
example 10 percent, 20 percent, 50 percent, etc.). Note all sediment control
practices in the site log book that have sediment accumulation of 50 percent or
more; and
(E) Inspect all erosion and sediment control BMPs and note compliance with any
maintenance requirements such as verifying the integrity of barrier or diversion
systems (e.g., earthen berms or silt fencing) and containment systems (e.g.,
sediment basins and sediment traps). Identify any evidence of rill or gully
erosion occurring on slopes and any loss of stabilizing vegetation or
seeding/mulching. Document in the site log book any excessive deposition of
sediment or ponding water along barrier or diversion systems. Note the depth of
sediment within containment structures, any erosion near outlet and overflow
structures, and verify the ability of rock filters around perforated riser pipes to
pass water.
(ii) Prior to filing of the Notice of Termination or the end of permit term, a final site erosion
and sediment control inspection shall be conducted by the permittee or designated agent.
The inspector shall certify that the site has undergone final stabilization as required by
the permit and that all temporary erosion and sediment controls (such as silt fencing) not
needed for long-term erosion control have been removed.
Option 1 would also amend §122.44(i)(4) to exclude construction activities from requirements
for monitoring of storm water discharges.
Option 1 would apply to sites of one acre or more in size.
3.3.2 Option 2
Option 2 would add a new section to the effluent limitation guidelines section of the CFR, i.e.,
Part 450—Construction and Development Point Source Category. This section would essentially codify
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
in the CFR the provisions of the CGP (see Section 3.2), and in addition would add the provisions for I&C
introduced under Option 1 (Section 3.3.1). Option 2 would amend 40 CFR 122(i)(3) to specify that
discharges from construction activity are instead governed by Part 450.
40 CFR Part 450, Subpart A describes applicability and provides definitions. Subpart B would
establish the ESC requirements based on application of BPT, BAT, BCT, and NSPS.
Part 450 would apply to construction and development activities subject to an NPDES permit
under the definition of "construction activity" at 40 CFR 122.26(b)(14)(x). Section 450.11 establishes
some general definitions for the following terms: BMPs, commencement of construction, final
stabilization, groundbeaking, new source, operator, perimeter controls, qualified professional, runoff
coefficient, and stabilization.
Section 450.21 would establish effluent limitations reflecting best practicable technology
currently available (BPT), as follows:3
Except as provided in 40 CFR 125.30 through 125.32, any existing point source subject to this
subpart must achieve the following effluent limitations representing the application of the best
practicable control technology currently available (BPT). Permittees with operational control over
construction plans and specification, including the ability to make modifications to those plans and
specifications (e.g., developer or owner), must ensure the project specifications that they develop meet
the minimum requirements of a SWPPP required by § 450.21(d).
(a) General Erosion and Sediment Controls. Each SWPPP shall include a description of
appropriate controls designed to retain sediment on site to the extent practicable. These
general erosion and sediment controls shall be included in the SWPPP developed
pursuant to paragraph (d) of this section. The SWPPP must include a description of
interim and permanent stabilization practices for the site, including a schedule of when
the practices will be implemented. Stabilization practices may include:
(1) Establishment of temporary or permanent vegetation;
3 Parts 450.22, 450.23, and 450.24 would establish identical requirements for BAT, BCT, and NSPS,
respectively.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
(2) Mulching, geotextiles, or sod stabilization;
(3) Vegetative buffer strips;
(4) Protection of trees and preservation of mature vegetation.
(b) Sediment Controls. The SWPPP must include a description of structural practices to
divert flows from exposed soils, store flows, or otherwise limit runoff and the discharge
of pollutants from exposed areas of the site to the degree attainable.
(1) For common drainage locations that serve an area with 10 or more acres
disturbed at one time, a temporary (or permanent) sediment basin that provides
storage for a calculated volume of runoff from a 2 year, 24-hour storm from
each disturbed acre drained, or equivalent control measures, shall be provided
where attainable until final stabilization of the site. Where no such calculation
has been performed, a temporary (or permanent) sediment basin providing 3,600
cubic feet of storage per acre drained, or equivalent control measures, shall be
provided where attainable until final stabilization of the site. When computing
the number of acres draining into a common location it is not necessary to
include flows from off-site areas and flows from on-site areas that are either
undisturbed or have undergone final stabilization where such flows are diverted
around both the disturbed area and the sediment basin.
(2) In determining whether a sediment basin is attainable, the operator may consider
factors such as site soils, slope, available area on site, etc. In any event, the
operator must consider public safety, especially as it relates to children, as a
design factor for the sediment basin, and alternative sediment controls shall be
used where site limitations would preclude a safe basin design.
(3) For portions of the site that drain to a common location and have a total
contributing drainage area of less than 10 disturbed acres, the operator should
use smaller sediment basins and/or sediment traps.
(4) Where neither a sediment basin nor equivalent controls are attainable due to site
limitations, silt fences, vegetative buffer strips or equivalent sediment controls
are required for all down slope boundaries of the construction area and for those
side slope boundaries deemed appropriate as dictated by individual site
conditions.
(c) Pollution Prevention Measures. The SWPPP shall include the following pollution
prevention measures:
(1) Litter, construction chemicals, and construction debris exposed to storm water
shall be prevented from becoming a pollutant source in storm water discharges
(e.g., screening outfalls, picked up daily); and
(2) A description of construction and waste materials expected to be stored on-site
with updates as appropriate, and a description of controls to reduce pollutants
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from these materials including storage practices to minimize exposure of the
materials to storm water, and spill prevention and response.
(d) Storm Water Pollution Prevention Plan. Operators subject to this Part shall compile
Storm Water Pollution Prevention Plans (SWPPPs) prior to groundbreaking at any
construction site. In areas where EPA is not the permit authority, operators may be
required to prepare documents that may serve as the functional equivalent of a SWPPP.
Such alternate documents will satisfy the requirements for a SWPPP so long as they
contain the necessary elements of a SWPPP. A SWPPP shall incorporate the following
information:
(1) A narrative description of the construction activity, including a description of the
intended sequence of major activities that disturb soils on the site (major
activities include grubbing, excavating, grading, and utilities and infrastructure
installation, or any other activity that disturbs soils for major portions of the
site);
(2) A general location map (e.g., portion of a city or county map) and a site map.
The site map shall include descriptions of the following:
(i) Drainage patterns and approximate slopes anticipated after major
grading activities;
(ii) The total area of the site and areas of disturbance;
(iii) Areas that will not be disturbed;
(iv) Locations of major structural and nonstructural controls identified in the
SWPPP;
(v) Locations where stabilization practices are expected to occur;
(vi) Locations of off-site material, waste, borrow or equipment storage areas;
(vii) Surface waters (including wetlands); and
(viii) Locations where storm water discharges to a surface water;
(3) A description of available data on soils present at the site;
(4) A description of BMPs to be used to control pollutants in storm water discharges
during construction as described elsewhere in this section;
(5) A description of the general timing (or sequence) in relation to the construction
schedule when each BMP is to be implemented;
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
(6) An estimate of the pre-development and post-construction runoff coefficients of
the site;
(7) The name(s) of the receiving water(s);
(8) Delineation of SWPPP implementation responsibilities for each site owner or
operator;
(9) Any existing data that describe the storm water runoff characteristics at the site.
(e) Updating the SWPPP. The operator shall amend the SWPPP and corresponding erosion
and sediment control BMPs whenever:
(1) There is a change in design, construction, or maintenance that has a significant
effect on the discharge of pollutants to waters of the United States which has not
been addressed in the SWPPP; or
(2) Inspections or investigations by site operators, local, State, Tribal or Federal
officials indicate that the SWPPP is proving ineffective in eliminating or
significantly minimizing pollutant discharges.
(f) Site Log Book/Certification. The operator shall maintain a record of site activities in a
site log book, as part of the SWPPP. The site log book shall be maintained as follows:
(1) A copy of the site log book shall be maintained on site and be made available to
the permitting authority upon request;
(2) In the site log book, the operator shall certify, prior to the commencement of
construction activities, that the SWPPP prepared in accordance with paragraph
(d) of this section meets all Federal, State and local erosion and sediment control
requirements and is available to the permitting authority;
(3) The operator shall have a qualified professional conduct an assessment of the
site prior to groundbreaking and certify in the log book that the appropriate
BMPs and erosion and sediment controls described in the SWPPP and required
by paragraphs (a), (b), (c) and (d) of this section have been adequately designed,
sized and installed to ensure overall preparedness of the site for initiation of
groundbreaking activities. The operator shall record the date of initial
groundbreaking in the site log book. The operator shall also certify that the
requirements of paragraphs (g), (h) and (i) of this section have been satisfied
within 48 hours of actually meeting such requirements;
(4) The operator shall post at the site, in a publicly-accessible location, a summary
of the site inspection activities on a monthly basis.
(g) Site Inspections. The operator or designated agent of the operator (such as a consultant,
subcontractor, or third-party inspection firm) shall conduct regular inspections of the site
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
and record the results of such inspection in the site log book in accordance with
paragraph (f) of this section.
(1) After initial groundbreaking, operators shall conduct site inspections at least
every 14 calendar days and within 24 hours of the end of a storm event of 0.5
inches or greater. These inspections shall be conducted by a qualified
professional. During each inspection, the operator or designated agent shall
record the following information:
(i) On a site map, indicate the extent of all disturbed site areas and drainage
pathways. Indicate site areas that are expected to undergo initial
disturbance or significant site work within the next 14-day period;
(ii) Indicate on a site map all areas of the site that have undergone temporary
or permanent stabilization;
(iii) Indicate all disturbed site areas that have not undergone active site work
during the previous 14-day period;
(iv) Inspect all sediment control practices and note the approximate degree of
sediment accumulation as a percentage of the sediment storage volume
(for example 10 percent, 20 percent, 50 percent, etc.). Record all
sediment control practices in the site log book that have sediment
accumulation of 50 percent or more; and
(v) Inspect all erosion and sediment control BMPs and record all
maintenance requirements such as verifying the integrity of barrier or
diversion systems (earthen berms or silt fencing) and containment
systems (sediment basins and sediment traps). Identify any evidence of
rill or gully erosion occurring on slopes and any loss of stabilizing
vegetation or seeding/mulching. Document in the site log book any
excessive deposition of sediment or ponding water along barrier or
diversion systems. Record the depth of sediment within containment
structures, any erosion near outlet and overflow structures, and verify the
ability of rock filters around perforated riser pipes to pass water.
(2) Prior to filing of the Notice of Termination or the end of permit term, a final site
erosion and sediment control inspection shall be conducted by the operator or
designated agent. The inspector shall certify that the site has undergone final
stabilization using either vegetative or structural stabilization methods and that
all temporary erosion and sediment controls (such as silt fencing) not needed for
long-term erosion control have been removed.
(h) Stabilization. The operator shall initiate stabilization measures as soon as practicable in
portions of the site where construction activities have temporarily or permanently ceased,
but in no case more than 14 days after the construction activity in that portion of the site
has temporarily or permanently ceased. This requirement does not apply in the following
instances:
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
(1) Where the initiation of stabilization measures by the 14th day after construction
activity temporarily or permanently ceased is precluded by snow cover or frozen
ground conditions, stabilization measures shall be initiated as soon as
practicable;
(2) Where construction activity on a portion of the site is temporarily ceased, and
earth-disturbing activities will be resumed within 21 days, temporary
stabilization measures need not be initiated on that portion of the site.
(3) In arid areas (areas with an average annual rainfall of 0 to 10 inches), semi-arid
areas (areas with an average annual rainfall of 10 to 20 inches), and areas
experiencing droughts where the initiation of stabilization measures by the 14th
day after construction activity has temporarily or permanently ceased is
precluded by seasonably arid conditions, the operator shall initiate stabilization
measures as soon as practicable.
(i) Maintenance. Sediment shall be removed from sediment traps or sediment ponds when
design capacity has been reduced by 50 percent.
Option 2 would apply to sites of five acres or more.
3.3.3 Option 3
Option 3 is the "no regulation" option. Storm water runoff from construction and development
activities would continue to be managed in accordance with the requirements of the CGP. There would
be no incremental compliance requirements and consequently no incremental compliance costs or
benefits.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
CHAPTER FOUR
ECONOMIC IMPACT ANALYSIS METHODOLOGY
4.1 OVERVIEW OF ECONOMIC IMPACT ANALYSIS METHODOLOGY
This chapter presents EPA's methodology for analyzing the economic impacts of the proposed
erosion and sediment control (ESC) regulations for the construction and development (C&D) industry.
EPA has employed a number of different methods for assessing the economic impacts of the proposed rule.
These include models that analyze impacts at the level of the individual construction project, the individual
firm, national construction markets, and the national economy as a whole. The analysis considers impacts
on the firms in the C&D industry who would be complying with the regulations, on those who purchase
the output of the C&D industry, and on those who would be responsible for implementing the proposed
rule.
The analysis is based upon engineering cost estimates developed by EPA. The engineering costs
reflect the costs to comply with requirements related to erosion and sediment controls (ESCs) employed
over a relatively short period (generally less than one year) during which land is being converted from an
undeveloped to a developed state. The engineering costs also include the costs associated with meeting
any paperwork requirements triggered by the proposed rule, including any requirements related to the
permitting of construction and development projects, and incremental inspection and certification
requirements for ESCs.
The outline of the chapter is as follows:
Section 4.2 presents EPA's analysis of the impacts of the proposed rule on model C&D
projects. Here EPA develops pro forma financial analyses for representative projects and
analyzes the impact of the incremental regulatory costs on project viability. The section
includes a description of the model projects, model project analysis methodology, data
sources, and assumptions used in the model project analysis. The model project analysis
results are presented in Chapter Five, Section 5.2.
Section 4.3 presents EPA's analysis of the impacts of the proposed rule on model C&D
firms. This section uses data on the financial condition of representative firms to examine
the impact of the incremental compliance requirements on the model firm's financial
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condition. This section also describes how the model firm analysis is used to evaluate
economic achievability and barrier to entry considerations for the proposed rule, and to
conduct the firm closure analysis and small entity impact analysis. This section includes a
description of the model firms, model firm analysis methodology, data sources, and
assumptions used in the model firm analysis. The model firm analysis results, including
those from the economic achievability, barrier to entry, closure, and employment loss
analyses, are presented in Chapter Five, Sections 5.4 through 5.6.
Section 4.4 presents EPA's methodology for estimating the national compliance costs of
the proposed rule. These costs are estimated starting with the per-acre compliance costs
estimated by EPA. The per-acre costs are applied to national estimates of the amount of
land converted to developed status annually. National compliance cost estimates are
presented in Chapter Five, Section 5.3.
Section 4.5 describes EPA's partial equilibrium market model analysis. This section
considers the impact of the incremental compliance requirements on consumers of the
construction industry's output, in particular the impacts on home buyers and on housing
affordability. The section includes a description of the market model methodology, data
sources, and assumptions used in the market models. The market modeling results are
presented in Chapter Five, Section 5.6.
Section 4.6 expands the analysis to consider the net impacts of the proposed rule on the
national economy. While the compliance costs would reduce output in the construction
industry there may be an offsetting increase in spending related to ESCs and inspection
and certification. EPA uses input-output analysis to trace the implications of these
spending shifts on the national economy. The result is an overall estimate of the impact
on macroeconomic variables such as output and national employment. The results of the
national economic impact analysis are presented in Chapter Five, Section 5.7.
Section 4.7 considers the impacts on governmental units associated with establishing or
modifying permitting programs to reflect the requirements in the proposed rule as well as
new or increased costs related to permit processing. The results of the government cost
impact analyses are presented in Chapter Five, Section 5.8.
4.1.1 Compliance and Baseline Assumptions
In this analysis EPA assumes that the proposed rule would impact markets that have already fully
implemented existing regulations related to storm water controls for C&D activities. EPA assumes that all
states, tribal lands, and territories comply with the existing regulations or have equivalent programs. These
programs are assumed to include all of the requirements affecting C&D activities that were part of the
national storm water Phase I and Phase IINPDES storm water regulations. Since the Phase II regulations
are not scheduled to be fully implemented until 2003, however, EPA acknowledges that
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current market conditions may not fully reflect the baseline that would apply at the time the proposed rule
comes into force. Specifically, EPA notes that the baseline market conditions assumed in this analysis
(including baseline financial conditions for affected firms) may not fully reflect the implementation of
Phase IINPDES storm water requirements. For this reason, EPA has conducted a supplemental analysis
that reflects less than 100 percent implementation of the Phase II NPDES storm water rule in the baseline.
The supplemental baseline analysis is presented in Appendix 5C of this report.
4.1.2 Cost Pass Through Assumptions
EPA has incorporated into each of the impact analyses described below specific assumptions about
the incidence of the compliance costs. This section describes generally EPA's conclusions about cost
incidence for the proposed regulation and then outlines the specific assumptions made for each impact
analysis.
In general, EPA believes that developers and builders faced with an increase in costs due to new
ESC requirements would have an incentive to pass on all or some of the increased cost to the project
owner. (This is referred to as cost pass through, or CPT). The extent to which the costs can be passed
through in practice would depend on market conditions. The demand elasticity of the project owner (i.e.,
the sensitivity of the purchase decision to incremental changes in price) would be influenced by two main
factors:
• The magnitude of the cost increase relative to the overall cost of the project. For example,
on a large office project or even a high end single-family home, the buyer may put up little
resistance if the cost increase is small relative to the overall cost of the project.
• The availability and price of substitutes. If the cost increase affects all suppliers and all
substitutes equally, then the project owner is less likely to resist an incremental price
increase.
Since the proposed rule would be national in scope and the compliance costs would be similar
within a given geographic region (assuming similar sites), the compliance costs should affect the buyer's
alternate suppliers roughly equally. This suggests that if the costs are small relative to the total cost of
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the project, demand should be relatively inelastic and the builder would be able to pass all or most of the
cost increase on to the buyer.
Another factor facilitating cost pass through for builders is that project owners often plan for
unexpected cost changes by building contingencies into their budgets. A common mechanism in new
residential construction, for example, is for the home buyer to absorb an unexpected cost increase at one
stage of construction by reducing costs on a later stage. This might be done, for example, by selecting
less expensive flooring material, deferring finishing of a basement, or opting to build a garage at a later
date.
This line of reasoning, which suggests demand is generally inelastic, presumes that the "good"
the buyer is purchasing is "new construction." In most markets, however, the owner can also elect to buy
from an inventory of existing homes, office or retail space, or industrial facilities available for sale, or to
rent from a corresponding inventory of rental properties. To the extent that existing construction and
rental property serves as a perfect or even partial substitute for new construction, the buyer's demand
elasticity would also be influenced by conditions in the existing construction and rental markets.
Existing homes and existing office, retail or industrial space would not be affected by the
proposed regulation. Cost increases that differentially affect new construction may cause some buyers to
choose existing construction over new, i.e., they could elect to buy or rent rather than build. The strength
of demand for new relative to existing construction depends on the relative availability, suitability, and
price of each type of construction. Buyers choosing new over existing construction often do so for
reasons related to location, the ability to match their specific needs, expected length of tenure, and greater
certainty about a structure's condition and future maintenance requirements. Demand for new
construction is also highly influenced by the availability, quality, and age of existing construction. In
geographic areas or market segments where the existing inventory is weak or unsuitable, demand for new
construction would be stronger.
Evidence from the literature suggests that in residential construction, regulatory-related costs are
usually passed on to consumers (e.g., Luger and Temkin 2000), and this general observation was echoed
during EPA's focus group sessions with members of NAHB. Industry literature points out that in the
recent past, a variety of market forces have shifted the new construction market towards larger, more
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expensive homes (NAHB 2001a). Other things equal, demand in the higher end of the housing market
tends to be more inelastic. Efforts to model the housing sector have shown that new construction is more
affected by changes in household formation and income than marginal changes in price (Hirsch 1994).
Given this evidence, EPA believes overall that demand in the single-family housing sector is relatively
inelastic.
In the other sectors modeled (multifamily housing, commercial, industrial), EPA believes
demand to be relatively inelastic as well. In the non-residential sectors, interest rates, regional economic
performance and outlook, and changing technological needs are important drivers of building demand.
As shown in the subsequent chapter, the change in costs relative to total project costs in these markets are
relatively small and unlikely to influence the purchase decision, given the greater significance of these
other factors.
EPA notes that under certain conditions developers might also attempt to pass regulatory costs
back to land owners. In a depressed market, builders may argue successfully that a regulatory cost
increase would make a particular project unprofitable unless the land costs can be reduced. For example,
if the land owner is convinced that a residential subdivision project would not go ahead because home
buyers would not absorb an unexpected increase in sales price, they may be willing to accept a lower
price per acre for raw land. The ability of developers to pass such costs back would likely depend on the
land owner's experience in land development projects, their knowledge of the local real estate market,
and in particular their understanding of the regulation and its likely cost. While some evidence of cost
pass-back to land owners exists for fixed and readily identifiable regulatory costs, such as development
impact fees (Luger and Temkin 2000), it is unclear whether a builder's claim that costs would be higher
due to the types of requirements imposed by the proposed rule would induce land owners to make
concessions.
In the sections below, EPA has made differing assumptions concerning whether compliance
costs are passed through to buyers, and to what extent. In the model project analyses in Section 4.2, for
example, EPA analyzes results under the extreme conditions of zero and 100 percent CPT. This enables
EPA to examine the impacts under worst-case assumptions with respect to builders (zero CPT), as well
as to owners (100 percent CPT).
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In other parts of the impact analysis EPA introduces more realistic assumptions about actual
market conditions. For example, it is generally thought that the long run supply of new construction is
almost perfectly elastic, as resources can shift easily into the industry. When empirical elasticity
estimates are used to estimate actual cost pass through, the combination of inelastic demand and highly
elastic supply results in relatively high cost pass through rates, on the order of 85 percent. In the model
firm and closure analysis (Section 4.3), EPA analyzes the impacts under conditions of zero CPT (worst-
case) as well as under the most realistic estimates of actual CPT. In the market models (Sections 4.5 and
4.6) EPA uses only the estimates of actual CPT.
4.1.3 Operation and Maintenance Costs
In order to remain effective all of the ESCs should be maintained. The engineering costs for
ESCs include costs for operating and maintaining the controls. The controls used during the active phase
of construction are assumed to be in place for one year and therefore should be maintained throughout
the period.
4.1.4 Impacts Associated With NSPS
Under Option 2, EPA is proposing to define a "new source" under Part 450 as: "any source of
storm water discharge associated with construction activity that results in the disturbance of at least five
acres total land area that itself will produce an industrial source from which there may be a discharge of
pollutants regulated by some other new source performance standard elsewhere under subchapter N."1
This definition would mean that the land-disturbing activity associated with constructing a particular
facility would not itself constitute a "new source" unless the results of that construction would yield a
"new source" regulated by other new source performance standards. For example, construction activity
that is intended to build a new pharmaceutical plant covered by 40 CFR 439.15 would be subject to new
source performance standards under § 450.24. At the same time, EPA is seeking comment on whether
1 All new source performance standards promulgated by EPA for categories of point sources are codified in
subchapter N.
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no sources regulated under Option 2 should be deemed "new sources" on the grounds that construction
activity itself is outside the scope of those activities intended to be covered by Section 306 of the Clean
Water Act (CWA).2
Under the proposed definition, EPA believes that the NSPS standards could trigger a National
Environmental Policy Act (NEPA) review process for those C&D activities permitted by EPA. To assess
the potential impact of such a result, EPA examined NPDES construction permitting data for 19 states
fully or partially administered by EPA. In 2000, the number of permits administered by EPA was 8,563.
EPA believes, however, that by the time the proposed C&D rule is finalized the states of Florida, Maine,
and Texas (currently fully administered by EPA) will have assumed permitting authority for construction
activities. In 2000, the number of permits administered by EPA excluding these three states was 1,454.
The NPDES permitting data does not include sufficient detail to indicate the number of sources
that could be new sources covered by CWA Section 306. EPA notes, however, that in a 1999 study of 14
jurisdictions, slightly under one percent of construction permits were for industrial facilities (EPA, 1999;
see Table 4-15). Based on this, EPA believes that the number of construction permits for new sources
(regulated under Subchapter N) that would be administered by EPA is likely to be small. At this time,
therefore, EPA has not estimated any potential costs for NEPA review as part of this economic analysis.
4.2 IMPACTS ON MODEL PROJECTS
EPA has analyzed the impacts of the proposed rule by developing financial models of
representative C&D projects. These models evaluate whether the additional costs of complying with the
proposed regulation would make the model project unprofitable and vulnerable to abandonment or
closure. In the absence of an industry survey, the economic models are based on EPA's best available
data and assumptions concerning construction project characteristics, and are designed to depict as
accurately as possible the change in cash flow resulting from compliance with the proposed rule for
typical projects, representative of the type required to comply with the proposed rule. The models
developed reflect the range of C&D projects typically undertaken by industry participants.
2 "The term 'new source' means any source, the construction of which is commenced ..." 33 U.S.C. sec.
1316(a)(2)(emphasis added).
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4.2.1 Description of Model Project Approach
EPA selected the model project types by analyzing data on the output of the C&D industry. The
industry output reflects both the diversity of the industry itself and the diversity of the U.S. economy
overall. To illustrate this diversity, EPA notes that the Census of Construction assigns construction
projects to one of 17 building and 32 nonbuilding construction categories (see Appendix 2A, Table 2A-3).
In terms of economic value, building construction projects accounted for $371.4 billion (97.3 percent of
total construction revenues) in 1997, while nonbuilding construction projects accounted for only $5.9
billion (1.5 percent).3
The largest single category of construction activity, accounting for $150.5 billion (39.4 percent of
the total), was single-family home construction. This was followed by office buildings at $40.3 billion
(10.6 percent of the total), all other commercial buildings at $36.5 billion (9.6 percent of the total),
manufacturing and light industrial buildings at $26.2 billion (6.8 percent of the total), educational
buildings at $25.1 billion (6.6 percent of the total), and multifamily housing at $19.6 billion (5.1 percent of
the total). Based on this review, EPA developed models for four types of development projects that reflect
the range of projects undertaken by the industry and that would fall within the ambit of the proposed rule.
These included:
• A residential development of single-family homes
• A residential development of multifamily housing units
• A commercial development (enclosed shopping center)
• An industrial development (industrial park)
Furthermore, for each class of project, EPA has developed models that correspond to a range of
project sizes. In each case, there are versions of the model for projects of 1, 3, 7.5, 25, 70, and 200 acres.
The combination of four project types and six project size classes results in a total of 24 model projects.
EPA's models for these projects assess their vulnerability to shutdown or closure by predicting the
cash flow changes that would result from the incremental costs that project developers would incur in
3 Another $4.2 billion (1.1 percent of the total) was not specified by kind.
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complying with the proposed rule. The models establish the baseline financial conditions for each
representative project and assess the significance of the change in cash flow that results from the
incremental compliance costs. The model project characteristics are based on best available data and
reasonable assumptions about development activities and project financing.
4.2.2 Treatment of Nonbuilding Construction Projects
As noted above, an estimated $5.9 billion in nonbuilding construction is put in place each year.
This total includes highways, roads and streets ($1.6 billion); sewage and water treatment facilities ($1.7
billion); bridges, tunnels, and elevated highways ($587 million); sewers and water mains ($211 million);
power and communication lines and towers ($160 million); and private driveways and parking areas
($100 million). While considerable in absolute value, such nonbuilding construction activity represents
less than two percent of the total value of construction completed. Estimates of the land area disturbed as
a result of nonbuilding construction activity are not available.
EPA has not developed engineering costs applicable to nonbuilding construction projects, due to
the diversity of the activities covered under this category and the relatively small share of overall
construction activity it accounts for.4 By way of analysis, EPA has developed a reduced form model
project for highway construction and analyzed the likely magnitude of the costs and impacts using the
highway model. This analysis is presented in Section 4.2.7.
4.2.3 Description of Model Projects
To develop the model projects, EPA focused first on the single-family residential model project.
As noted above, single-family residential construction represents the highest value category of
construction, and information about the construction and development process for single-family homes is
4 The national costs of the proposed rule, however, do account for the costs borne for these types of
projects. See Section 4.4.
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readily available.5 EPA was able to develop a relatively detailed model for the single-family
development and then adjusted the model parameters as necessary to reflect differences in the other
project categories. In general, EPA believes that projects in the other categories follow a roughly similar
development path, and has thus used a similar general structure for all of the models.
Since many of the data elements and modeling assumptions are based on the single-family
residential model, this model is discussed in detail below. Many of the assumptions and data elements
defined for this model were applied directly or modified only slightly for use in the other models. The
discussion of the other three project types focuses primarily on those assumptions or methods that differ
from those employed in the single-family residential model.
4.2.3.1 Residential Single-family Development
The model single-family residential project or site is an undeveloped parcel zoned for single-
family residential housing. The number of housing units built would depend on the size of the model
project.6 The location of the site is unspecified, and for this reason EPA has used national-level data
wherever possible. In this case, the site is assumed to be controlled by a developer-builder (sometimes
referred to in the industry as merchant builders or operative builders). The developer-builder is
responsible for all aspects of the project, from land acquisition through permitting, subdivision of the
parcel, installation of any ESCs, and construction and marketing of all completed housing units. EPA
recognizes that there are many variations on how a particular site may be developed, but believes this
model project to be representative of a large number of projects actually undertaken each year in the
U.S.7
5 For example, EPA was able to obtain input to the single-family residential model from representatives of
the National Association of Home Builders (NAHB), a prominent C&D industry association. Input from NAHB
assisted EPA in identifying cost elements associated with each stage of project development.
6 Model projects were developed for sites of 1, 3, 7.5, 25, 70, and 200 acres.
7 Other common scenarios involve the developer selling all or some of the finished lots to builders. The
developer may or may not retain lots in the development to complete and sell. See Figure 2-4, for example.
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The starting point for the project is the acquisition of the parcel, which is assumed to be purchased
or optioned from another land owner.8 The development and construction process, as modeled, is assumed
to proceed through three phases, characterized as follows:
Land acquisition—The developer-builder puts together the necessary financing to
purchase the parcel. When lenders are involved, they may require certain documentation,
such as financial statements, tax returns, appraisals, proof of the developer's ability to
obtain necessary zoning, evaluations of project location, assessments of the capacity of
existing infrastructure, letters of intent from city/town to install infrastructure,
environmental approvals, etc. To satisfy these factors, the developer may incur costs
associated with compiling this data.
Land development—The developer-builder obtains all necessary site approvals and
prepares the site for the construction phase of the project. Costs incurred during this stage
are divided among soft costs for architectural and engineering services, legal work,
permits, fees, and testing, and hard costs, such as land clearing, installing utilities and
roads, and preparing foundations or pads. The result of this phase is a legally subdivided
parcel with finished lots ready for construction.
Construction—The developer-builder undertakes the actual construction of the housing
units. A substantial portion of this work may be subcontracted out to specialty
subcontractors (foundation, framing, roofing, plumbing, electrical, painting, etc.).
Marketing of the development generally begins prior to the start of this phase, hence the
developer-builder may also incur some marketing costs at this time. Housing units may
come under sales agreement at any time prior to, during, or after completion of
construction.
While the length of each phase and the overall length of the project may vary considerably, EPA
assumes, for modeling purposes, that the time elapsed from acquisition of the parcel through development
and construction totals 36 months. Focus groups with NAHB in Dallas provided estimates that ranged
from 13 to 63 months. While acknowledging there will be wide variation in the duration of each phase,
EPA further assumes that each phase—land acquisition, development, and construction—takes 12 months.
EPA presently lacks detailed data on the exact timing of ESC installation during project
development. EPA assumes that ESCs installed to control runoff during the active phase of construction
8 Options involve payments from the developer to a land owner to secure the rights to develop the land for
a specified period of time, usually while a more complete assessment of project viability is undertaken.
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are put in place early in the development phase and are maintained throughout the construction phase.
Thus, the capital costs for such ESCs would generally be incurred early in the project, and the structures
would be maintained in place for the duration of the project. The costs for removing the ESCs would be
incurred at project completion.9 These general assumptions aside, in this analysis EPA has used the
simplifying assumption that the costs for all ESCs are incurred at the beginning of the project. EPA
acknowledges that capital costs would actually be incurred some time after the start of the project, and
that as a result, the costs would be discounted back to their present value. In making this assumption,
EPA is thus overstating the magnitude of the true costs incurred, since costs incurred in the future would
have a lower present value.
EPA understands that land development projects involve significant cash outflows early on to
finance land acquisition, development, and construction, with revenues generally received only after
completed houses are sold to buyers. For this reason, EPA assumes that the integrated developer-builder
assumed here would be motivated to have several projects underway at one time. Cash inflows from the
sale of completed units in one development can offset cash outflows associated with the earlier stages of
development on another project. For simplicity, EPA assumes that the developer-builder involved in the
model project has three projects underway so that in any given year the developer-builder incurs all of
the costs—and earns all of the revenues—associated with completing the land acquisition, development,
and construction phases of a project, even though these may occur on different projects.
Additional assumptions and sources for data used in the model project analysis are presented
below. The model project is developed using assumptions about the types and magnitude of costs
incurred during various phases of the project, the sources for these funds (i.e., the amounts borrowed
versus the amounts provided from the developer-builder's equity), and the expected profit margins
earned by the developer-builder from each phase of the project. EPA is seeking comments on these
assumptions as well as any additional data that may enable the Agency to more accurately model such
impacts at the project level.
9 In practice, some ESCs installed to control runoff during the construction phase that are then converted to
permanent BMPs to control post-construction flows. These structures would not need to be removed.
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Assumptions regarding the various cost elements incurred during each phase of the residential
single-family development are described in detail in Section 4.2.5.
4.2.3.2 Residential Multifamily Development
The model multifamily residential development is an apartment building or complex. The
project is assumed to be developed in a similar fashion to the single-family model development described
above: a single developer-builder is responsible for all site acquisition, site preparation, construction, and
marketing of the project; the project timeline is similar, i.e., three years from start to finish; and the
project proceeds through the same project phases. Similarly, the developer-builder is assumed to have
several projects underway to help balance cash flows. This assumption makes it possible to examine the
impacts of a three year project on a single year's cashflow for the affected business. Data sources and
inputs specific to the model multifamily development are discussed in Section 4.2.5.
4.2.3.3 Commercial Development
The commercial development is assumed to be an enclosed retail shopping or office area.
Depending on the size of the model project, it could range from a small stand-alone retail outlet to a
large, enclosed mall or office complex. As with the residential projects, a single developer-builder is
assumed to be responsible for all site acquisition, site preparation, construction, and marketing of the
project. The project timeline is assumed to be the same as for the residential projects, i.e., three years
from start to finish, and to proceed through the same project phases. Similarly, the developer-builder is
assumed to have several projects underway to help balance cash flows. This assumption makes it
possible to examine the impacts of a three year project on a single year's cashflow for the affected
business. Again, the particular data sources used and inputs to this model project are discussed further in
Section 4.2.5.
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4.2.3.4 Industrial Development
The industrial development is assumed to be an industrial park or a stand-alone manufacturing
facility. As with the residential and commercial projects, a single developer-builder is assumed to be
responsible for all site acquisition, site preparation, construction, and marketing of the project. The
project timeline is assumed to be the same as for the residential and commercial projects, i.e., three years
from start to finish, and to proceed through the same project phases. Similarly, the developer-builder is
assumed to have several projects underway to help balance cash flows. This assumption makes it
possible to examine the impacts of a three year project on a single year's cashflow for the affected
business. A detailed discussion of data sources and inputs, which are similar to those used for the model
commercial development, follows in Section 4.2.5.
4.2.4 Cost Pass Through Assumptions
For modeling purposes, EPA has analyzed the impacts of the regulatory options on each model
development project under two extreme alternatives: 100 percent cost pass through (CPT) and zero
percent CPT. As explained in Section 4.2, this allows EPA to show the impacts under worst-case
conditions for builders (zero percent CPT) and worst-case conditions for owners (100 percent CPT).
Under the 100 percent CPT scenario, a fixed percentage is assumed for the developer-builder's profit
margin and the model calculates the final sales price that each buyer would be asked to pay after the
compliance costs have been passed through. Under the zero CPT scenario, a fixed percentage is assumed
for the developer-builder's profit under baseline conditions and the change in profit is calculated under
each regulatory option, with the sale price of each housing unit remaining the same. Section 4.2.5
contains further details on the assumed profit levels and other inputs.
4.2.5 Inputs to the Model Project Analysis
As noted above, the representative projects take place in three phases: land acquisition, site
development, and construction. The process of obtaining options on land to be developed (a common
but not universal step that occurs in the very early stages of development), has been combined with the
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May 2002
"land acquisition" activities for simplicity. Assumptions regarding the various costs that are incurred
during each phase of the project are summarized in Table 4-1 below.
Table 4-1. Costs Incurred at Various Stages of a Residential Construction Project
Project Phase
Cost Elements
Land Acquisition
Raw land (purchase or option)
Interest on land acquisition loan
Opportunity cost of capital
Development
Engineering
Due diligence
Land development
Storm water controls
Contingency
Impact fees
Interest on development loan
Opportunity cost of capital
Overhead
Building Construction
Lot cost (if sold to a builder; includes land acquisition
and development costs plus profit to the developer)
Construction cost
Builder overhead
Interest on construction loan
Opportunity cost of capital
Real estate and marketing fees
Overall, EPA has used more than two dozen different modeling parameters, although not all
project types encompass all of these parameters. Since the project location is not specified, national
estimates are used where possible. Participants in the NAHB focus group meetings in Chicago assisted
EPA with identifying ranges for a number of cost elements for the hypothetical residential construction
project, developing estimates for raw land costs, engineering costs, and construction costs, among others.
Some of the estimates proposed during the NAHB Chicago meetings are used in the model project,
especially where actual national-level data has not yet been identified, and may reflect market conditions
in that part of the country. Table 4-2 presents the assumptions used in the single-family residential
model, along with the data source(s) used. Appendix 4A contains a similar table outlining the data
parameters and sources for all four model project types. A more detailed discussion of selected
parameters and data sources used for the project models is contained in Appendix 4B.
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Table 4-2. Model Parameters and Data Sources
Model Parameter
1,3,7.5,25,
70, and 200
$40,000
0.33
2.67
$2,500
$25,000
6%
10%
10%
$15,000
7%
2,310
$53.80
65%
size of parcel, in acres
cost of raw land, per acre
size of lot, in acres
approximate density (number
of lots per acre)
due diligence costs, per acre
land development costs, per lot
engineering costs, as percent of
land development costs
overhead costs, as percent of
development costs
contingency, as percent of land
development costs (before
impact fees)
impact fees, per lot
real estate and marketing fees,
as percent of house sales price
average square footage of new
house
cost of house construction, per
square foot
percent of total land cost that a
developer can finance for land
acquisition
Source
EPA assumption
Estimate from NAHB Chicago focus groups, based on experience of the
Chicago-area participants. See Appendix 4B for further discussion.
Census Report C25 (Characteristics of New Housing, 1999) reports a
mean lot size for new single-family homes sold of 12,910 square feet,
which represents a density of close to 3 lots per acre (evenly distributed
with 1/3 acre lots). (The median lot size is 8,750 square feet, which
implies a density of almost 5 lots per acre.)
Calculated based on impervious surface ratios from "Chesapeake Bay
Watershed Impervious Cover Results by Land Use Polygons," to account
for impervious surface area. Total number of lots (density x site size) is
rounded to nearest whole number.
Based on $100,000 in total due diligence costs for a hypothetical 40-acre
development discussed by the NAHB Chicago focus group participants.
Participants considered the costs associated with all necessary
environmental and engineering assessments, usually done prior to land
acquisition. During these assessments the developer works to identify any
potential future problems or liabilities. See Appendix 4B for further
discussion.
Estimate from NAHB Chicago focus groups. This figure includes any
construction activities related to land development (e.g., infrastructure
costs).
Estimate from NAHB Chicago focus groups.
Estimate from NAHB Chicago focus groups.
Estimate from NAHB Chicago focus groups.
Estimate from NAHB Chicago focus groups. See Appendix 4B for further
discussion.
Estimate from NAHB Chicago focus groups.
From Census Report C25, the average size of new single-family homes
sold in 1999 and conventionally financed was 2,310 square feet
From NAHB's website, construction costs for a generic single-family
house are $124,276. $124,276 - 2,310 sq. ft. = $53.80 per sq. ft.
(NAHB 2001b). See Appendix 4B for further discussion.
Loan-to-value ratio as written in the Real Estate Lending Rules. See
Appendix 4B for further discussion.
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Table 4-2. Model Parameters and Data Sources
Model Parameter
75% percent of total development
costs that a developer can
finance for this stage
80% percent of total building
construction cost that a builder
can finance
7.5% loan interest rate for
builder/developer
3 term of land acquisition loan,
years
1 term of development loan,
years
1 term of construction loan, years
10% assumed baseline profit on land
development
10% assumed baseline pre-tax profit
on construction
Source
Loan-to-value ratio as written in the Real Estate Lending Rules. See
Appendix 4B for further discussion.
Loan-to-value ratio as written in the Real Estate Lending Rules. See
Appendix 4B for further discussion.
EPA estimate.
EPA assumption. Assumes that the land acquisition loan is paid off over
the life of the project, which in this case is 3 years.
EPA assumption. Assumes that the land development loan term is equal
to the length of the development phase of the project, which in this case is
1 year.
EPA assumption. Assumes that the construction loan term is equal to the
length of the construction phase of the project, which in this case is 1
year.
NAHB Chicago focus group estimated 12-14 percent; 10 percent is an
EPA assumption. See Appendix 4B for further discussion.
NAHB Chicago focus groups estimated 8 to 12 percent pre-tax at time of
sale. R.S. Means also uses 10 percent as a profit assumption in their Cost
Data series.
4.2.6 Model Project Analysis Approach
The model project defines the baseline financial performance of the residential subdivision
project prior to the promulgation of the proposed rule. The baseline case is assumed to incorporate the
costs of full compliance with the existing Phase I and future Phase IINPDES storm water regulations.
The model is set up to then assess the incremental impact of additional requirements imposed under the
proposed effluent guidelines.
4.2.6.1 Baseline Model Project Performance
Table 4-3 presents the model project analysis under baseline conditions, that is prior to adding in
compliance costs associated with the proposed regulatory requirements. The model estimates the final
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sales price per housing unit using the assumptions discussed above. The model incorporates built-in
targets for profit margins on both the development and construction portions of the project, as well as
other assumptions that affect the target sales price for each unit. As seen, using the assumptions
discussed here, the calculated sales price for each unit is $283,093. EPA notes that this is higher than the
national mean sales price for conventionally-financed new single-family housing units, which was
$234,900 in 2000 (FHFB 2001). EPA attributes the difference to assumptions in the model that may
reflect higher-priced housing markets. Despite this likely bias, EPA believes that the model is
sufficiently well-calibrated to allow comparison of the impacts of alternative storm water control costs on
the model project fmancials.
It is important to note that while the model recognizes that projects are developed over time, the
model does not fully account for the time value of money. Assumptions have been made regarding the
duration of each stage of development in order to determine the period for any loans taken on by the
developer, i.e., three years for land acquisition loan, one year for development loan, one year for
construction loan. These assumptions influence the debt carrying costs incurred by the developer. What
the model does not account for, however, is the fact that some costs are incurred in years two and three
(e.g., construction costs are incurred three years out) and therefore should be discounted back to the base
year, which is the year the project starts. The discount factors for costs incurred two and three years in
the future are 0.873 and 0.816, respectively, assuming a seven percent discount rate. This means that any
adjustments made to reflect the time value of money would reduce the overall project costs, but to a
fairly limited degree.10
4.2.6.2 Results of Model Project Analysis
The model incorporates the costs of incremental regulatory costs via the shaded line item shown
in Table 4-3. These engineering cost estimates are specific to both the type of project and project size.
As these costs are added to the other costs incurred during development, the financing requirements in
the development stage also increase. Table 4-4 shows the baseline project data and illustrates how the
10 These comments apply to the baseline costs incurred for project development, but do not apply to the
incremental regulatory costs. EPA has discounted all regulatory costs that wold be incurred in the future back to the
baseline year, in accordance with EPA and OMB guidance for conducting regulatory impact analysis.
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project fmancials change in response to the regulatory costs associated with Option 1 under the proposed
regulation.
As seen, the incremental controls for the option shown in the example, $483, would raise the
calculated sales price on each housing unit from $283,093 to $283,137, a difference of $44. This
represents 0.02 percent of the baseline sales price. When the $44 per lot cost passed on to the buyer is
compared with the contractor's per-lot cost of controls (i.e., $483 + 20 lots = $24.15), the calculated cost
"multiplier" for this model project is in the range of 1.814. The cost multiplier is determined by taking
the calculated increase in house sales price (over baseline) and dividing it by the actual per-lot cost of
storm water controls incurred by the builder. In this example, all costs are passed on to the buyer (100
percent CPT). In Chapter Five, EPA presents the results for all combinations or regulatory options under
both the 100 percent and zero CPT assumption. Under the zero CPT assumption, the builder would
absorb the $24.15 in compliance costs on each lot. The impact would be reflected in a decrease in the
builder profit, and the sales price of the housing unit would remain the same.
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Table 4-3.
Baseline Economic Model of Hypothetical 7.5 Acre Residential Development
Project Cost Element
Land Acquisition (7.5 acre parcel)
Raw land
Interest on land acquisition
Opportunity cost of capital
Land acquisition costs
Land development (7.5 acre parcel)
Engineering
Due diligence
Land development
ESC engineering costs
Contingency
Impact fees
Interest on development loan
Opportunity cost of capital
Overhead [a]
Land development costs
Land acquisition + land development costs
Profit on land acquisition and development
Total — Land acquisition and development
Construction Costs (per lot)
Finished lot cost
Construction cost
Interest on construction loan
Opportunity cost of capital
Builder overhead [a]
Total costs to builder
Marketing fees
Profit on construction costs
House sales price (calculated)
Incremental Regulatory Impacts
Change in sales price per lot
Costs as percent of sales price
Multiplier
Value
$300,000
$29,955
$16,129
$346,084
$30,000
$18,750
$500,000
$0
$50,000
$300,000
$50,555
$16,852
$78,079
$1, 044, 235
$1,390,319
$154,480
$1,544,799
$77,240
$124,276
$12,091
$3,023
$18,338
$234,968
$19,817
$28,309
$283,093
$0
0.00%
0.00
[a] Overhead in both the development and construction stages is calculated as total overhead (based on 10
percent of development or construction costs) less the opportunity cost of capital. This was done to avoid
double-counting the opportunity cost of capital.
Source: EPA estimates. See also Table 4-2 for model parameters and data sources.
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Table 4-4. Illustration of Impact of Incremental Storm Water Control Requirements on Model
Project Under Proposed Rule Option 1—100 Percent Cost Pass Through Scenario
Project Cost Element
Land Acquisition (7.5 acre parcel)
Raw land
Interest on land acquisition
Opportunity cost of capital
Land acquisition costs
Land Development (7.5 acre parcel)
Engineering
Due diligence
Land development
Baseline
$300,000
$29,955
$16,129
$346,084
$30,000
$18,750
$500,000
ESC engineering costs $0
Contingency
Impact fees
Interest on development loan
Opportunity cost of capital
Overhead [a]
Land development costs
Land acquisition + land development costs
Profit on land acquisition and development
Total — Land acquisition and development
Construction Costs (per lot)
Finished lot cost
Construction cost
Interest on construction loan
Opportunity cost of capital
Builder overhead [a]
Total costs to builder
Marketing fees
Profit
House sales price (calculated)
Incremental Regulatory Impacts
$50,000
$300,000
$50,555
$16,852
$78,079
$1,044,235
$1,390,319
$154,480
$1,544,799
$77,240
$124,276
$12,091
$3,023
$18,338
$234,968
$19,817
$28,309
$283,093
Change in sales price per lot $0
Costs per lot as % of baseline sales price
Multiplier [b]
0.00%
0.000
Option 1
$300,000
$29,955
$16,129
$346,084
$30,000
$18,750
$500,000
$483
$50,000
$300,000
$50,582
$16,861
$78,121
$1,044,796
$1,390,880
$154,542
$1,545,422
$77,271
$124,276
$12,093
$3,023
$18,341
$235,004
$19,820
$28,314
$283,137
$44
0.02%
1.814
[a] Overhead in both the development and construction stages is total overhead (based on 10 percent of
development or construction costs) minus the opportunity cost of capital. This was done to avoid double-
counting of the opportunity cost.
[b] [Incremental regulatory costs per lot x number of lots] H- [engineering costs]
Source: EPA estimates. See also Table 4-2 for model parameters and data sources.
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4.2.7 Model Nonbuilding Project Analysis
As noted in Section 4.2.2, nonbuilding construction such as roads, highways, bridges, etc. s a
sizeable activity but overall represents less than two percent of the total value of construction completed
each year. To assess the potential impacts of the proposed rule on such activities EPA has developed a
model highway construction project and used this model to assess the proposed rule's costs and impacts.
EPA believes the model captures and reflects the likely magnitude and significance of the impacts of the
proposed rule on the nonbuilding construction sector overall.
From the highway engineering literature, EPA assumed that the typical four-lane interstate
roadway is configured as follows: two travel lanes of 24 feet each, one 20-foot median between the travel
lanes, and 10 foot buffer on each side of the highway (Wright, 1996). EPA assumed that the combined
width of the road surface, median, and buffers, 88 feet, represents the typical disturbed area for new
highway construction. One mile of new highway would therefore represent 10.67 acres in disturbed
area.11
To develop representative baseline costs for the model highway project, EPA examined data
from the Federal Highway Administration's (FHWA's) Highway Statistics publication. Table FA-10
("Obligation of Federal-Aid Highway Funds for Highway Improvements") of the Highway Statistics
series shows the number of miles, federal funds obligated, and total cost for approved projects in a
number of highway improvement categories and roadway functional classifications. Improvement
categories include new construction, relocation, widening, and bridge work, among others. Roadway
functional classifications include arterials, collectors, and local roads, both rural and urban. Arterials are
further divided into interstate, other freeways and expressways, other principal arterials, and minor
arterials.
EPA aggregated the mileage and cost for the following improvement categories: new
construction, relocation, reconstruction with added capacity, and major widening. EPA further used only
data for urban interstates and other freeways and expressways, since other functional classifications may
11 The disturbed area is 88 feet or 0.0167 miles wide (88 H- 5,280 feet). One mile of roadway therefore
disturbs 0.0167 square miles, or 10.67 acres (0.0167 x 640 acres/square mile).
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include projects that do not closely match the model project characteristics. Since highway and road
funding can fluctuate from year to year, EPA estimated the average miles and average cost over the
period 1995-2000. Table 4-5 shows these data, with all dollar values expressed in 1997 dollars.12 Once
all dollar amounts were expressed in constant year dollars, EPA summed the number of miles, federal
funds, and total costs across the two functional classifications and four improvement types to generate an
overall estimate of total cost and miles affected. The total cost was then divided by the miles affected to
generate a weighted average cost per mile over all relevant improvement types and functional
classifications. Table 4-5 shows the weighted average cost is $5.4 million per mile.
Some caveats should be noted about the data from the "Highway Statistics" series, and as used in
EPA's impact model. First, the dollar amounts used represent obligated funds, rather than actual finished
project cost. Therefore, the final project cost (as well as the actual payment to private sector contractors
carrying out the work) may be different than the costs reported here (Benedict 2002).13 Second, the costs
reported in Table FA-10 of "Highway Statistics" are for multi-year projects (Benedict 2002). This does
not present a serious problem for the analysis because the costs provide consistent estimates of project-
level costs and affected miles with which to calculate a project-level cost per mile. The fact that project
completion may span multiple years is not particularly relevant for this analysis. These caveats aside,
this is the most complete and well-documented set of data available on the cost for highway construction
projects nationwide.14 The results of this analysis are presented in Sections 5.2 and 5.4.
12 Values were converted to 1997 equivalents using data from Table PT-1 of the Highway Statistics
publication, "Price Trends for Federal-Aid Highway Construction" (FHWA, 200la).
13 Actual costs may be higher due to unforeseen construction problems. However, to the extent this occurs,
it will lessen the impacts of the proposed rule as modeled. Higher costs per mile will decrease the average number
of miles constructed per year. Fewer miles constructed results in fewer acres disturbed, and therefore lower
compliance costs.
14 EPA previously has used an estimate of $24.61 million per mile as an estimate for highway project cost
(weighted rural and urban average; FHWA 2001b). This figure, from the FHWA Office of Program Administration,
may reflect many improvement types and other costs that EPA determined should not be included in this analysis. It
also contains significant costs for land acquisition, engineering, design, and other work that would not be paid to the
contractor for actual construction.
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Table 4-5. Obligation of Federal-Aid Highway Funds for Selected Highway Improvements
and Functional Classifications -1995 to 2000. (Thousands of 1997 dollars)
Type of
Improvement
New Construction
Number Of Miles
Federal Funds
Total Cost
Cost per Mile
Relocation
Number Of Miles
Federal Funds
Total Cost
Cost per Mile
Reconstruction-Added
Capacity
Number Of Miles
Federal Funds
Total Cost
Cost per Mile
Major Widening
Number Of Miles
Federal Funds
Total Cost
Cost per Mile
Total
Number Of Miles
Federal Funds
Total Cost
Cost per Mile
Urban
Interstate
175
$1,231,171
$1,393,799
$7,984
17
$243,936
$272,084
$16,062
536
$2,206,338
$2,680,896
$5,001
307
$1,086,999
$1,273,760
$4,152
1,034
$4,768,445
$5,620,539
$5,434
Other
Freeways and
Expressways
277
$1,226,600
$1,584,583
$5,714
46
$213,422
$270,509
$5,924
331
$1,330,439
$1,674,158
$5,062
192
$800,507
$1,041,609
$5,429
846
$3,570,968
$4,570,860
$5,406
Total
452
2,457,771
2,978,382
$6,591
63
457,358
542,593
$8,668
867
3,536,778
4,355,055
$5,024
499
1,887,507
2,315,369
$4,643
1,880
8,339,413
10,191,398
$5,421
Source: Based on FHWA 1996-2001, Highway Statistics 1995-2000, Table FA-10.
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4.3 IMPACTS ON MODEL ESTABLISHMENTS
In this section EPA presents the methodology used to analyze the establishment-level impacts of
the proposed rule. Section 4.3.1 outlines the impact analysis for a model establishment undertaking a
model project. Section 4.3.2 generalizes and extends this model establishment analysis to estimate the
industry-wide closure impacts and employment losses due to the proposed regulatory options. Finally,
Section 4.3.3 analyzes whether the proposed rule could present a barrier preventing new firms from
entering a market, thereby protecting existing firms from competition.
4.3.1 Model Establishment Analysis
This section presents the inputs to the model establishment analysis, discusses the development
of balance sheet and income statement information, and develops the methodology for assessing potential
regulatory impacts in terms of changes in model establishment financial ratios.
4.3.1.1 Inputs to the Model Establishment Analysis
EPA began by identifying data to characterize the typical financial conditions of model
businesses in the construction and development industry. This data is used to develop a financial model
of the firm, and to analyze the impacts of the regulatory options on firm financial conditions. The
sections below present the methodology used to analyze financial impacts on a model firm, and then
extend the methodology to project facility closures and employment losses.
The Bureau of the Census recently published a profile of the residential homebuilding industry
that allows analysts and others to examine data in ways that were not previously available (Rappaport
and Cole 2000). In particular, the study presents data by size of builder, where the builder's size is
defined in terms of the number of housing units completed (previously such breakdowns were available
only on the basis of employment size or revenue size). EPA used this profile to develop financial
snapshots of typical residential home builders.
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From the profile, EPA determined the average value of construction work (revenues) completed
by builders of various sizes based on the number of housing units started in 1997. EPA combined the
average construction revenue data for such builders with more detailed financial data on the
homebuilding industry from Dun and Bradstreet (2000) (D&B). The D&B data was then scaled to the
size of the builder in the Census profile, using the ratio of revenues to total assets.
4.3.1.2 Balance Sheet and Income Statement for Model Establishment
Table 4-6 presents the balance sheet and income statement for a model firm in the single-family
residential construction sector. EPA constructed the model firm financial statement using D&B's 1999 -
2000 Industry Norms and Key Business Ratios, and the Census special report on the homebuilding
industry. The basic approach was to calculate the ratio of key components of the balance sheet and
income statement to net sales, and then scale the value of these components to the size of the model firm.
The model firm financials shown in Table 4-6 are based on a firm with $1.99 million in revenues, which
is the average for homebuilders in the 10 to 24 home per year size class (one of the size classes defined in
the Census report).
For the single-family and multifamily residential construction sectors, EPA constructed a series
of model facilities, one for each housing unit starts class. A financial statement for each model firm was
generated from these revenue estimates using the method discussed above and illustrated in Table 4-6.
The Census special study covers the single-family and multifamily construction sectors, but does not
cover the commercial and industrial building construction sectors. To construct model facilities for these
sectors, EPA used 1997 Census of Construction data which is available by employment size class. First,
EPA determined the employment class in each sector corresponding to the median sized firm in terms of
revenues. This employment class became the basis for a single model facility for each sector. For both
the commercial and industrial sectors, median revenues were in the 50 to 99 employee class. Within that
employment class, EPA then calculated revenues, employment, and costs per establishment in order to
further characterize the model facility.
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For the four construction sectors analyzed, EPA used D&B's "typical" establishment balance
sheet data from the following four-digit SIC industries:15
• Single-family residential construction: SIC 1531
• Multifamily residential construction: SIC 1522
• Manufacturing and industrial building construction: SIC 1541
• Commercial and institutional building construction: SIC 1542
• Highway and street construction: SIC 1611
For the model establishment presented in Table 4-6, revenues were determined from Census
data. All other components are determined by the percentages taken from the D&B "typical" balance
sheet for SIC 1531. The ratio of revenues (net sales) to total assets is used to determine total assets (and
therefore total liabilities); the dollar value of the remaining components are derived using the percentages
in the right hand column.
15 Although most of the data used in this economic analysis is reported on an NAICS basis, the most recent
D&B report still uses the SIC system for reporting purposes. EPA believes the SIC-based data from D&B can be
applied to the corresponding NAICS industries, since there is a high degree of overlap in the industry definitions.
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Table 4-6.
Model Single-Family Residential Construction Firm Financial Data
Line Item
Assets
Liabilities
10
11
12
13
14
15
16
17
18
Cash
Accounts Receivable
Notes Receivable
Inventory
Other Current
Total Current Assets
Fixed Assets
Other Non-current
Total Assets
Accounts Payable
Bank Loans
Notes Payable
Other Current
Total Current Liabilities
Other Long Term
Deferred Credits
Net Worth
Total Liabilities & Net Worth
Dollars
$163,390
$122,199
$9,611
$417,399
$303,438
$1,016,037
$216,938
$140,049
$1,373,023
$112,588
$23,341
$201,834
$391,312
$729,075
$162,017
$10,984
$470,947
$1,373,023
Percent
11.9%
8.9%
0.7%
30.4%
22.1%
74.0%
15.8%
10.2%
100.0%
8.2%
1.7%
14.7%
28.5%
53.1%
11.8%
0.8%
34.3%
100.0%
Operating Income
19
20
21
22
Net Sales
Gross Profit
Net Profit After Tax
Working Capital
$1,987,009
$453,038
$23,844
$286,962
100.0%
22.8%
1.2%
Sources: D&B 2000; Census 2000c; CCH 1999.
4.3.1.3 Methodology for Analysis of Regulatory Impacts on Model Establishment
For each model firm, EPA examined the economic impacts of each regulatory option on four
different financial ratios: (1) Gross Profit, (2) Current, (3) Debt to Equity, and (4) Return on Net Worth.
Industry publications cite these financial ratios as particularly relevant to the construction industry
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(Kone, 2000; Benshoof, 2001). Two of the ratios examined are based on operating income (gross profit,
and return on net worth), and two are based on the balance sheet statement (current, and debt to equity).
Based on literature reviews, industry focus group input, and econometric evidence, EPA believes
the level of CPT to customers to be high in the construction industry. Complete, or 100 percent CPT
implies zero direct impacts on the construction industry. Complete CPT in the residential sector, for
example, essentially results in all compliance costs being capitalized into the cost of the house, which is
then assumed to be paid for over 30 years as part of the homebuyer's mortgage. In this analysis, EPA has
taken a conservative approach that results in a "worst-case" scenario, and is based on the opposite
extreme - zero CPT. That is, EPA assumed all compliance costs are borne by the developer-builder.
EPA also examined more realistic scenarios incorporating the effects of partial CPT on the
builder. EPA used a market model approach to estimate CPT (i.e., the ratio of the increase in market
price to incremental compliance costs) for each of the four construction sectors analyzed. EPA's
estimates of CPT range from a low of 85 percent for the manufacturing and industrial building sector to a
high of 92 percent for the multifamily residential housing sector. Assuming positive CPT, builders incur
compliance costs multiplied by one minus the CPT percentage; the remaining costs are passed through to
customers in the form of higher prices.16 Thus, for each compliance cost estimate, EPA examines
impacts two ways: first assuming zero CPT, second, assuming positive CPT.
EPA assumes that compliance costs affect each model firm's balance sheet in the following
manner. Construction costs are typically financed with a short term construction loan. The value of the
loan tends to run about 80 percent of the value of the project, with the developer providing the remainder
of the capital. The simplified balance sheet presented in Table 4-7 illustrates how a construction loan
equal to $Q affects the construction firm's balance sheet if the lending institution requires the builder to
finance 20 percent of the cost of the loan.
16 Assume, for example, that the market analysis shows that housing prices increase by $0.80 of every
dollar in increased construction costs per unit built, then CPT is 80 percent. If the proposed regulation adds $200 in
construction costs per house, the builder incurs impacts from $40 in increased costs not offset by increased revenues
[(1 - 0.8)*$200], while the house buyer pays an additional $160 (0.8*$200) for the house.
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The loan reduces current assets by the amount of capital the builder is required to pay but
increases noncurrent assets by the total value of the project; long term debt is increased by the amount of
the loan (0.80Q). The baseline balance sheet financial ratios for the model firm will be calculated on the
basis of the center column, while the post-regulatory financial ratios will be calculated on the basis of the
right hand column. The value of Q was set equal to the incremental capital compliance costs of the
proposed rule. EPA used the same framework for all four sectors analyzed.
Table 4-7.
Impact of Compliance Costs on Developer-Builder's Balance Sheet
Line item
Current Assets
Noncurrent assets
Total Assets
Baseline
$A
$B
$A + $B
Post Loan
$A - .20Q
$B + Q
$A + $B + .80Q
Current Liabilities
Long Term Debt
Net Worth
Debt plus Equity
$D
$E
$F
$D + $E + $F
$D
$E + .80Q
$F
$D + $E + $F + .80Q
Note: Q equals incremental compliance costs.
4.3.1.4 Analysis of Financial Ratios for Model Establishment
Few financial ratios have clearly defined critical values that indicate whether a firm is performing
well or poorly. Furthermore, analysts often find that a firm can perform well in one financial category
(debt management, for example), yet poorly in another (perhaps rate of return). Lacking such hard and
fast rules for interpreting financial ratios, analysts tend to emphasize trends over time, comparisons
among competitors, or comparisons between industries, rather than a single critical value for any
particular ratio. The sections below briefly describe the four ratios examined for this analysis.
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Gross Profit Ratio
The gross profit ratio measures the ratio of pretax operating profit to revenues:
gross profit ratio = gross Proflt = (net sales - operating costs)
net sales net sales
Gross profits are line item 20 on the model firm balance sheet and income statement (Table 4-6)
while net sales are line item 19. This ratio measures the decline in pretax operating income relative to the
firm's volume of business. Under the worst-case scenario (zero CPT), the post compliance gross profit
ratio for the model firm would be:
,,. ,• (net sales - operating costs - pre-tax compliance costs)
gross profit ratio = - -
net sales
An increase in compliance costs decreases the value of the gross profit ratio; the firm is relatively worse
off.
Return on Net Worth
Return on net worth measures the rate of return from the firm relative to the owner's investment:
^u net profit after tax
return on net worth =
net worth
Net profit after tax is line item 21 on the model firm balance sheet and income statement (Table
4-6) while net worth is line item 17. Should the rate of return on this line of business fall too much, then
investors have better opportunities for their capital; they would start investing their capital in other
industries instead of construction, and the construction industry would contract. Compliance costs
reduce net profit, and therefore reduce return on net worth:
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+ 4. ^u (net profit after tax - post-tax compliance costs)
return on net worth = - -
net worth
EPA multiplied compliance costs by one minus the effective tax rate to estimate post-tax
compliance costs. To determine the effective tax rate, EPA assumed taxable income was equal to gross
profit (line item 20 on Table 4-6); EPA used Federal corporate tax rates plus the average state corporate
tax rate (6.6 percent) for the specified level of taxable income. Note that return on net worth is a much
more sensitive ratio than the other ratios considered above because it is calculated on a post-tax basis.
As can be observed in line item 21, post-tax profits are a much smaller percent of net sales than gross
profit.
Current Ratio
The current ratio is defined as:
, .. current assets
current ratio =
current liabilities
Current assets are line item 6 on the model firm balance sheet and income statement (Table 4-6)
while current liabilities are line item 14. The current ratio is a liquidity ratio that measures the
availability of cash and near cash assets to meet short-term obligations. Clearly if current liabilities
exceed current assets (i.e., the current ratio is less than one), the firm cannot meet all its short-term
financial obligations. Although the current ratio has a well defined critical threshold, detrimental
financial impacts can occur before the ratio falls below one. Again, using EPA's conservative worst-case
assumption to estimate the impact of the proposed rule on the model firms's finances, the post-regulatory
current ratio is:
, .. (current assets - .20 x pre-tax compliance costs)
current ratio = -
current liabilities
An increase in compliance costs decreases the value of the current ratio; the firm is relatively worse off.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
Debt Management
The debt to equity ratio is a ratio that measures how much a firm's financing has been borrowed
from creditors:
debt to equity ratio = tOtal debt
owner equity
Total debt is the sum of line items 14 (current liabilities), 15 (other long term liabilities), and 16 (deferred
credits) on the model firm balance sheet and income statement (Table 4-6), while owner equity is line
item 17 (net worth). The debt to equity ratio presents amount of capital borrowed relative to that
supplied by the owners. If, for example, the debt to equity ratio is 1.9, then $1.90 has been borrowed for
every $1 of capital provided by the owners. If the debt to equity ratio becomes too high, creditors would
be reluctant to lend further capital unless the owners provide more equity. Incremental compliance costs
mean that the builder would increase long term debt by the amount of the loan (0.80 x capital cost). Thus
the post compliance debt to equity ratio is calculated as:
, ,. . .. .. (total debt + 0.80 x pre-tax compliance costs)
debt to equity ratio = -^ *- *- '-
net worth
An increase in compliance costs increases the value of the debt to equity ratio and the firm is relatively
worse off.
4.3.1.5 Compliance Cost Inputs into Financial Ratio Analysis
EPA estimated engineering compliance costs based on project size, climatic, geographical, and
other characteristics. To project economic impacts using these costs, EPA determined the costs incurred
by each model establishment, then converted these compliance costs to costs per establishment based on
the following formula:
costs per establishment = (costs per acre) x (acres per start) x (starts per establishment
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
EPA estimated average compliance costs per acre based on project size. These are a weighted average of
engineering costs by environmental region (see section 4.4.3 for details of the weighted average of
compliance costs per acre calculation, and section 4.6.2. for discussion of regional characteristics and
compliance costs).
For the single-family residential, commercial, and manufacturing construction sectors, the
estimated number of units started per establishment is essentially identical to the number of buildings
started. For the multifamily residential construction sector, however, Census reports the number of units
started, but each building contains a number of units. EPA therefore estimated the average number of
units per building to convert units started to buildings started.
Using data from 1999 and 2000, EPA examined the number of units built in various building
classes (e.g., 35,500 units in buildings containing 2 to 4 units, 48,000 units in buildings containing 5 to 9
units) to construct a weighted average (U.S. Census Bureau 2000b). Assuming the midpoint of each
building class interval represents the average number of units per building in each class (e.g., apartment
buildings in the 2 to 4 units per building class contain an average of 3 apartments per building), EPA
divided total units per class by the midpoint of the class to estimate the number of multi-unit buildings in
each class. EPA then calculated a weighted average of units per building using the class midpoints
weighted by the estimated number of buildings constructed in each class. Using this approach, EPA
estimated an overall average of 10.8 units per multi-family residential building nationwide.
EPA used a variety of sources to estimate average acres per start. For single-family residential
construction, EPA based its estimate of acres per start on the median lot size from the Census report
Characteristics of New Housing (U.S. Census Bureau, 2000a). For multifamily residential, commercial,
and industrial sectors, EPA combined data on the typical "building" footprint from R.S. Means (2000)
with the ratio of building footprint to site size from the Center for Watershed Protection (CWP, 2001) to
estimate average acres per start.
For the model highway and street construction contractor, EPA used data from Dun &
Bradstreet, the 1997 Census of Construction, and the 1995-2000 editions of the Federal Highway
Administration's (FHWA's) Highway Statistics publication. EPA used 1997 Census data to construct a
model highway and street construction establishment based on median revenues for establishments in
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
NAICS 234110. Using the same methodology EPA developed distributions of financial ratios for Dun &
Bradstreet data for SIC 1611 (highway and street construction). To estimate the number of acres
disturbed, and hence, total establishment compliance costs, ERG estimated miles of highway constructed
per year by dividing model establishment revenues by the estimated cost per mile constructed, $5.4
million, which was derived in Table 4-5.17
4.3.2 Extension of Model Facility Analysis to Project Industry Closures
EPA extended the model facility framework described here to project closures and employment
losses resulting from the proposed regulation. The primary analysis, based upon analysis of financial
ratios, is presented in Section 4.3.2.1. EPA also conducted a sensitivity analysis, comparing the results
of the primary analysis to an estimate of closures and employment losses using an alternative approach
based on cashflow changes. This alternative approach is outlined in Section 4.3.2.2. The results of the
primary analysis are in Section 5.5, while the sensitivity analysis is presented in Appendix 5B. Before
explaining these methodologies, however, EPA first presents information on how the number of affected
establishments and employees was determined for use in this analysis.
4.3.2.1 Estimation of Affected Establishments and Employment
The proposed rule contains three regulatory options, each of which would apply to sites of
varying sizes. Option 1 applies to sites of one acre or larger, Option 2 applies to sites of five acres or
larger, and Option 3 (no regulation option) applies to all sites. To accurately reflect the number of
entities affected under each option, EPA has adjusted the closure and employment loss methodology to
account for the number of establishments affected under each option. This section describes the process
used to make these adjustments.
EPA again used data from the Census special study of the home building industry (Rappaport
and Cole, 2000) to obtain the number of establishments by housing unit starts class. EPA concluded that
17 As described in Section 4.2.7, EPA estimated that one mile of highway will disturb 10.67 acres of land.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
this data provided the best source for estimating the number of establishments and employees potentially
affected under each option. Using the estimated density of 2.67 single-family housing units per acre (see
Table 4-2), establishments starting between one and four single-family housing units per year were
excluded under Option 1 because they are unlikely to disturb more than one acre on a given project.18
Establishments in both the 1-4 and 5-9 housing unit starts per year categories were similarly excluded
under Option 2, since the maximum number of housing units, nine, equates to only 3.3 acres.19 This
makes it unlikely many builders in these size classes disturb more than five acres on an individual project
basis. The Census report estimates that 50,661 single-family builders start between one and four housing
units per year, while another 12,708 builders start between five and nine units per year. EPA further
concluded that 1,904 multifamily builders starting between two and nine multifamily units per year are
unlikely to disturb more than five acres on a given project, and excluded these from the universe of
establishments potentially affected under Option 2. Affected employment is determined in the same
manner as affected establishments. The Census study reports the number of employees in each housing
unit start category, and this number is subtracted as above under each option.
The adjustments above were made for the residential construction industries only. There are two
reasons for this: (1) the Census special study only covers single-family and multifamily residential
construction establishments; and (2) EPA believes that commercial and industrial building establishments
are overall more likely to disturb five acres or more during the course of each project. Therefore, no
adjustments are made to the nonresidential building establishment and employment counts.
Table 4-8 shows the establishment count adjustment for each option, while Table 4-9 shows the
adjustment to employment.
18 Using the density of 2.67 units per acre, four housing units per year equates to a maximum of 1.5 acres.
This makes it unlikely a large percentage of establishments in the 1-4 housing units per year category disturb more
than one acre at a time on a regular basis.
19 Again, this would be the maximum land area disturbed in a year. The maximum disturbed on an
individual project could be even less.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 4-8. Number of Establishments in the Construction and Development Industry Adjusted for
Regulatory Option Coverage
Industry
Single-family
Multifamily
Commercial
Industrial
Potentially affected
establishments
Baseline [a]
84,731
4,603
39,810
7,742
136,886
Option 1
Adjustment for 1
acre exclusion
(50,661)
--
-
—
Adjusted
Number
34,070
4,603
39,810
7,742
86,225
Option 2
Adjustment for 5
acre exclusion
(12,708)
(1,904)
-
—
Adjusted
Number
21,362
2,699
39,810
7,742
71,613
[a] Previously adjusted for remodeling establishments and land development establishments. See Section 2.3.5
for discussion of this adjustment.
Figures may not add to totals due to rounding.
Source: Rappaport and Cole (2000) and EPA estimates.
Table 4-9. Employment in the Construction and Development Industry Adjusted for Regulatory
Option Coverage
Industry
Single-family
Multifamily
Commercial
Industrial
Potentially
affected employees
Baseline [a]
340,874
35,160
549,567
148,861
1,074,462
Option 1
Adjustment for 1
acre exclusion
(128,940)
-
-
—
Adjusted
Number
211,933
35,160
549,567
148,861
945,521
Option 2
Adjustment for 5
acre exclusion
(41,940)
(6,064)
—
—
Adjusted
Number
169,993
29,096
549,567
148,861
897,517
[a] Previously adjusted for remodeling establishments and land development establishments. See Section 2.3.5
for discussion of this adjustment.
Figures may not add to totals due to rounding.
Source: Rappaport and Cole (2000) and EPA estimates.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
4.3.2.2 Closure and Employment Impacts Based on Financial Ratio Analysis
To assess the impacts on firm closures, EPA first selected a criterion for determining when a
facility is considered "impacted" by the proposed rule. As discussed above, financial ratios rarely have
well-defined thresholds that correlate with financial health or distress. On previous effluent guidelines
(e.g., MP&M), EPA has defined the critical value for financial stress as that value of a financial ratio that
defines the poorest performing 25 percent of firms (i.e., the lowest quartile). EPA then assumes that a
facility is financially stressed if its pre-regulatory financial ratio lies above the lowest quartile for that
ratio, but its post-regulatory ratio falls in that lowest quartile range.20
To estimate the number of establishments in each industry that would be financially distressed by
the proposed regulation, EPA first approximated a cumulative distribution function for each financial
ratio based on D&B data. Figure 4-1 illustrates the current ratio cumulative distribution function for SIC
1531, used to analyze single-family residential construction. The baseline curve represents the pre-
regulatory cumulative distribution function. This curve indicates that 25 percent of establishments have a
current ratio below 1.1 (1.1 thus becoming the critical value for determining financial distress), 25
percent of establishments have a current ratio greater than 1.1 but less 1.4 (the median), 25 percent have
a current ratio greater than 1.4 but less than 2.9, and 25 percent have a current ratio greater than 2.9.21
20 For example, according to D&B, 25 percent of establishments in SIC 1531 have a current ratio less than
1.1, and 75 percent have a current ratio greater than 1.1. If an establishment's pre-regulatory current ratio is greater
than 1.1, but its post-regulatory current ratio is less than 1.1, EPA would classify the firm as financially distressed.
21 The minimum and maximum values for the current ratio are not provided by D&B. For completeness
EPA selected "reasonable" values to represent the end points of the curve. This has no effect on the analysis
because the lowest and highest ranges are not used in the analysis.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
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EPA then calculates the post-regulatory current ratio for the quartile values. This shifts the
cumulative distribution function for the current ratio to the left. Using the post-regulatory curve in this
example, approximately 40 percent of establishments now have current ratios less than or equal to the
critical value of 1.1. Thus, about 15 percent of establishments in this sector incur incremental financial
Figure 4-1
Pre- and Post-regulatory Cumulative Distribution Function for Current
Ratio
1.00 -,
0.90 -
0.80 -
0.70 -
0.60 -
"§ 0.50 -
1
0-
0.40 -
0.30 -
0.20 -
0.10 -
0.00 |
0.
SIC 1531: Operative Builders
-
-
-
-
-
/
/
iTT
'- I
I
/^
/
.
^
/
^
X^
^
• Baseline
• Postregulatory
Critical Value
30 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00
Current Ratio
distress due to compliance costs (i.e., 40 percent below 1.1 on the post regulatory curve minus 25 percent
below 1.1 in the baseline).
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
A firm that exhibits or experiences financial distress under a single measure of financial
performance would not necessarily always shut down. Therefore, EPA constructed similar cumulative
distribution functions for the debt to equity, and return on net worth ratios, then estimated the probability
of incremental financial distress under each measure.22 To assess the economic achievability of the
proposed rule, EPA assumes that the probability of establishment closure due to incremental compliance
costs is equal to the average probability of incremental financial distress under each of the three financial
ratios: current, debt to equity, and return on net worth. Multiplying this probability by the number of
establishments in the sector, EPA obtains an estimate of the number of establishments projected to close
due to the proposed regulation. Intuitively, EPA is making an implicit assumption that establishments
incurring financial distress under one ratio are also incurring distress under the other two ratios. If an
establishment is distressed under multiple measures of financial health, it is highly likely the
establishment will close.23 Employment losses are estimated by multiplying the number of
establishments projected to close by the average number of employees per establishment.
Finally, to project sector-wide impacts, EPA aggregated closure and employment impacts over all
combinations of model establishments and project sizes examined. Thus, closures for a single sector are
calculated as a weighted average where the weights are determined by: (1) the relative frequency of
establishments represented by each model in the sector, and (2) the relative frequency of a particular
project size among all projects performed by the sector. EPA also adjusted the universe of affected
establishments to reflect the regulatory coverage of each option. Thus, for Option 1 (which applies to
sites of one acre or greater) EPA excluded establishments in the 1-4 housing starts category on the
assumption that few of these small builders are likely to disturb more than one acre per project. Similarly,
where Option 2 would apply to sites of five acres or more, EPA excluded establishments in both the 1-4
22 D&B does not provide quartile values for the gross profit ratio.
23 A strict interpretation of this implicit assumption would result in EPA always selecting the smallest
probability of incremental financial distress from among the three measure. However, EPA determined this was not
analytically desirable because the results would always be determined by the least sensitive measure of distress.
Therefore, EPA selected an average of the three probabilities to measure closure rates. Note that in reality,
establishments may incur distress under one ratio, but not under another, thus being less likely to close. It is
possible that the set of establishments incurring distress under the current ratio, for example, is completely separate
from the set of establishments incurring distress under the debt to equity ratio. However, EPA has no information
on which to base an estimate of such joint probabilities. Assuming the sets of establishments incurring distress are
identical results in a more conservative estimate of closures.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
and 5-9 housing starts class. Assuming the national average of density of 2.67 houses per acre (see Table
4-2) a five acre site would support an average of 13.3 housing units.
4.3.2.3 Closure and Employment Impacts Based on Cashflow Analysis
As a check on the financial ratio-based approach to projecting establishment closure impacts,
EPA developed a cashflow model and constructed a statistical distribution of establishments around each
representative model. This allowed EPA to estimate the probability that establishments would have
insufficient cashflow to afford the estimated compliance costs.
Modern financial theory states that an investment should not be undertaken if cashflow is
expected to be negative after the investment is undertaken (Brealy and Myers, 1996; Brigham and
Gapenski, 1997). In the context of this proposed rule, if compliance costs exceed cashflow, then post-
regulatory cashflow would be negative. Under these circumstances EPA projects that the establishment
would close; EPA has used this standard for projecting establishment closures for a number of past
effluent guidelines (e.g., Transportation Equipment Cleaning, Industrial Laundries, Iron and Steel).
Basing the cashflow analysis on the model facilities only means that all establishments
represented by a particular model would be projected to remain open if the model establishment earns
cashflow exceeding compliance costs, and all would close if the model establishment's cashflow is less
than estimated compliance costs. In reality, the model establishment represents a family of
establishments, some with greater cashflow than the model, some with less cashflow than the model.
Thus, there is some probability that establishments would close due to compliance costs even if the
model establishment's cashflow exceeds compliance costs. By developing a probability distribution for
each model establishment's cashflow with known mean and variance, EPA can estimate this probability.
Multiplying the probability that compliance costs exceed cashflow (i.e., that post-regulatory cashflow is
negative) by the number of establishments represented by the model, EPA obtains the projected number
of closures for that option. To develop the cashflow distribution, EPA first estimated the mean and
variance of cashflow associated with each model establishment. EPA based its estimate of mean
cashflow on the 1997 Census of Construction. EPA calculated average revenues, payroll, material costs,
and work subcontracted out to others within each model class (starts class for single and multifamily
residential, employment class for commercial and manufacturing sectors) by dividing each Census value
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
by the number of establishments in the class. EPA then estimated taxable income per model
establishment as: revenues minus payroll, material costs, and work subcontracted out to others.
Adjusting taxable income for taxes and interest payments results in estimated model establishment
cashflow. EPA applied Federal corporate tax rates, plus the average state corporate tax rate to
establishment income. EPA assumed interest payments comprise 25 percent of taxable income.
EPA based its estimate of the variance of each model establishment's cashflow distribution on
the U.S. Small Business Administration's "births and deaths" database, a special tabulation prepared for
SBA by Census (SBA 1999). EPA calculated the ratio of establishment closures to total establishments
for the 1989 to 1998 time period at the four-digit SIC level from this database.24 Assuming these
establishments were closing because their cashflow was less than zero, EPA used the model mean and
the assumption of a normal distribution to estimate the variance for the distribution that would result in a
probability of zero cashflow (or less) equal to the closure rate estimated from the births and deaths
database.
With estimated mean, variance, and assumed distribution of cashflow for each model
establishment, it is a straightforward exercise to estimate the probability of closure due to the proposed
rule. Figure 4-2 illustrates how this analysis was conducted. The "estimated normal" curve represents
the distribution of a model establishment with mean cashflow of $1 million, and a variance set so that
the probability of cashflow less than zero is about 17 percent (as determined from SBA's "births and
deaths" database). The critical value is equal to estimated compliance costs — in this example set equal
to $400,000.25
Figure 4-2 shows that based on this distribution, about 27 percent of establishments earn
cashflow less than estimated compliance costs. However, 17 percent of establishments had negative
cashflow prior to incurring the compliance costs (i.e., the "baseline closures"). Therefore, about 10
percent of establishments in this example would be projected to close due to the regulation (e.g., 27
24 Note that the level of detail in the database was sufficient to allow EPA to estimate separately the closure
rates for small and large business establishments.
25 This large estimated compliance cost was selected only for the purposes of making the figure clear and
does not reflect actual anticipated compliance costs.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
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Figure 4-2
Baseline Distribution Function
1.00 -,
0.75 -
&
"§ 0.50 -
.e
2
0-
0.25 -
0.00 -
$
with Bounds for Facility Cashflow
;.
/
•7
* / /
/
/
/"
/=''
F"t' t H N 1
Critical Value
0 $1,000 $2,000 $3,000 $4,000
Cashflow (x$ 1,000)
percent with cashflow less than compliance costs minus the 17 percent with cashflow less than zero). If
150 establishments are in this model class, and the average employment per establishment is 20 workers
in this class, than EPA would project 15 establishments would close and 300 employees would lose their
jobs due to the regulation.
Because of the uncertainties inherent in estimating cashflow and variance for this analysis, EPA
estimated a range of closure and employment impacts. EPA created upper and lower bounds to its
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
estimated cashflow distribution by multiplying the distribution's variance by plus/minus 25 percent. This
creates the bands observed around the estimated normal distribution in Figure 4-2. Therefore, although
the methodology follows the logic outlined above, EPA reports an upper and lower bound for projected
closures based on bands around the actual estimated variance of cashflow. The results of this analysis
are presented in Appendix 5A.
4.3.3 Analysis of Barriers to Entry
Barriers to entry are typically assumed to occur if the cost of complying with a regulation
substantially increases the firm start-up costs. For example, if a rulemaking required that all facilities
invest substantially in a wastewater treatment system, then an entrepreneur might be discouraged from
starting an enterprise. The increased capital cost serves as a barrier to new entry to the industry.
The situation in the construction industry is somewhat different than that outlined above. In
terms of the capital expense needed to start a firm, the proposed rule has little direct impact. The
proposed rule does not require a firm to purchase and install any capital equipment, and thus the level of
capital expenditures required to start up a firm are not directly affected by the proposed rule.
Landis (1986; see section 2.4.1.4.2 for details) identifies two significant classes of barrier to
entry specific to the construction industry that are not related to capital equipment: (1) entry costs to
participate in a given market (e.g., local development fees or abnormally high land costs), and (2) input
cost differentials (e.g., the new entrant must pay a higher price for inputs than existing firms). These
barriers to entry, however, also appear unaffected by the proposed rule. To the extent that either of these
barriers already exist in any given market, they would not be differentially impacted by the proposed rule.
As the model establishment analysis shows, the proposed rule might increase borrowing to
finance building projects. This could affect a potential industry entrant indirectly in that it may need
marginally more start-up capital in order to obtain the somewhat larger short-term construction loan to
undertake a project. Once again, however, the new entrant would still face essentially the same
requirements that existing firms face to secure a loan. Thus, new entrants should not be differentially
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
affected by the proposed rule in such a way that they would be unable to compete effectively with
existing firms.
To examine the potential for barriers to entry, EPA calculated the ratio of estimated compliance
costs to each model establishment's current assets and total assets. If these ratios are small, then EPA
concludes that the proposed rule would have little effect on the ability of a new entrant to find financing
for a project. Note that in this analysis EPA compares total compliance costs to assets. This step
probably overestimates impacts. It is more likely that a new entrant would need to provide only 20
percent of the incremental compliance costs and would obtain the remaining 80 percent from
conventional construction loan financing sources (see Section 4.3.1.3) — as would an existing firm.
4.4 NATIONAL COMPLIANCE COSTS
As noted above, EPA developed engineering costs for four categories of land use (single-family
residential, multifamily residential, commercial, and industrial) and six project size categories (1, 3, 7.5,
25, 70, and 200 acres). Estimates of the national costs of the effluent guidelines regulations are obtained
by multiplying the per-acre costs developed for each land use and size class combination by the number
of acres of each type estimated to be developed each year; taking into account the applicability of each
option in terms of site size.
Estimates of the number of acres developed nationally per year are available from the U.S.
Department of Agriculture's (USDA's) National Resources Inventory (NRI). This source does not,
however, identify the type of development or subsequent nature of the land use, nor the distribution of
acreage by site size. The following sections describe the NRI estimates and EPA's approach to
distributing the developed acreage by type of development and site size.
4.4.1 National Estimates of Disturbed Acreage
The NRI, a program of the USDA's Natural Resources Conservation Service, is designed to track
changes in land cover and land use over time. The inventory, conducted every five years, covers all non-
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
Federal land in the United States (75 percent of the U.S. total). The program captures land use data from
some 800,000 statistically selected locations. From 1992 to 1997, an average of 2.24 million acres per
year was converted from nondeveloped to developed status (USDA, 2000). Table 4-10 shows the
allocation of this converted land area by type of land or land cover. As seen, land previously classified as
forest land accounted for 41.9 percent of the total, while land previously classified as cropland accounted
for 25.6 percent and land previously classified as pastureland accounted for 17.4 percent. No further
breakdown by type of converted land use is available.
EPA assumes that some of the 2.24 million acres converted from an undeveloped to developed
state each year would be exempt from the requirements of the proposed rule due to small-site or low-soil-
loss-potential waivers. Based on the engineering analysis of sites likely to be eligible for such waivers,
EPA has reduced the acreage subject to active construction controls to 2.18 million acres (U.S. EPA,
2002).
In the following section EPA develops estimates of the distribution of this acreage by type of
development and by project size. EPA also estimates the amount of acreage potentially excluded from
coverage under the site size exclusions specified for Option 1 and Option 2 (i.e., below one and below 5
acres, respectively). With the resulting estimates of acreage distributed by project type and size class,
EPA can then apply the appropriate per-acre engineering costs to obtain estimates of national costs.
4.4.2 Distribution of Acreage by Project Type
To allocate the NRI acreage, EPA has estimated the distribution of acres developed by type of
development in the following way. In the first step, EPA multiplied the number of building permits
issued annually by estimates of the average site size. Thus for single-family residential construction,
EPA multiplied the number of new single-family homes authorized by building permit by the average lot
size for new single-family construction. Estimates for other types of construction are based on
extrapolations from the Census permit data and EPA estimates of average project size. In the second
step, EPA adjusts the estimates of acres converted to reconcile any differences between the total number
of acres accounted for using this approach and the total acres developed estimated by the NRI. Finally,
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
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EPA allocates the total by type of construction, site size, and region and adjusts each regional value to an
integer to ensure that only whole sites are considered.
Table 4-10. Acres Converted from Undeveloped to Developed State3 (1992-1997)
Type of land
Cropland
Conservation Reserve Program land
Pastureland
Rangeland
Forest land
Other rural land
Water areas and federal land
Total
Acres Converted to Development
1992-1997 (000)
annual average
574.8
1.5
391.2
245.9
939
89.1
1.8
2,243.4
Percent contribution
by type of land
25.6%
0.1%
17.4%
11.0%
41.9%
4.0%
0.1%
100.0%
"NRI defines developed land as a combination of the following land cover/use categories large urban and built-up areas,
small built-up areas, and rural transportation land. These are defined as follows:
• Large urban and built-up areas. A land cover/use category composed of developed tracts of at least 10
acres—meeting the definition of urban and built-up areas.b
• Small built-up areas. A land cover/use category consisting of developed land units of 0.25 to 10 acres, which meet
the definition of urban and built-up areas.b
• Rural transportation land. A land cover/use category which consists of all highways, roads, railroads and associated
right-of-ways outside urban and built-up areas; also includes private roads to farmsteads or ranch headquarters,
logging roads, and other private roads (field lanes are not included).
b Urban and built up areas are in turn defined as:
• Urban and built-up areas. A land cover/use category consisting of residential, industrial, commercial, and
institutional land; construction sites; public administrative sites; railroad yards; cemeteries; airports; golf courses;
sanitary landfills; sewage treatment plants; water control structures and spillways; other land used for such purposes;
small parks (less than 10 acres) within urban and built-up areas; and highways, railroads , and other transportation
facilities if they are surrounded by urban areas. Also included are tracts of less than 10 acres that do not meet the
above definition but are completely surrounded by Urban and built-up land. Two size categories are recognized in
the NRI: areas of 0.25 acre to 10 acres, and areas of at least 10 acres.
Source: USDA, 2000.
Single-family residential
Census data indicate that in recent years the number of new single-family housing units
authorized has averaged just over 1.0 million units per year (see Table 4-11). As seen in Table 4-12, the
average lot size for new single-family housing units is 13,553 square feet, or 0.31 acres (1 acre = 43,560
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square feet). Using the average lot size, however, would underestimate the total acreage converted for
single-family residential projects because this acreage does not include common areas of developments
that are not counted as part of the owner's lot—streets, sidewalks, parking areas, storm water
management structures, and open spaces.
To account for this, EPA examined data obtained from a survey of municipalities conducted in
support of the Phase IINPDES storm water rule (EPA, 1999). This survey identified 14 communities
that consistently collected project type and size data as part of their construction permitting programs.26
EPA's review of permitting data from these communities covered 855 single-family developments
encompassing 18,134 housing units. The combined area of these developments was 11,460 acres. This
means that each housing unit accounted for 0.63 acres (11,460 acres -^ 18,134 units = 0.63 acres per
unit). This estimate, essentially double the average lot size, appears to more than account for the
common areas and undeveloped areas in a typical single-family residential development. For this reason,
EPA averaged the Census estimate of the national average lot size (0.31 acres) and the Phase II NPDES
storm water estimate of 0.63 acres per unit to arrive at an estimate of 0.47 acres per unit. This number
was multiplied by the average number of single-family housing units authorized by building permit, 1.04
million, to arrive at an estimate of 490,231 acres (see Table 4-15).
Table 4-11. New Single-Family and Multifamily Housing Units Authorized, 1995-1997
Year
1995
1996
1997
1995-1997 avg
All
Housing Units
1,332,549
1,425,616
1,441,136
1,399,767
Single-Family
Housing Units
997,268
1,069,472
1,062,396
1,043,045
Multifamily
Housing Units
335,281
356,144
378,740
356,722
Source: Census 2000b. Series C40 New Privately Owned Housing Units Authorized.
26 The communities were: Austin, TX; Baltimore County, MD; Gary, NC; Ft. Collins, CO; Lacey, WA;
Loudoun County, VA; New Britain, CT; Olympia, WA; Prince George's County, MD; Raleigh, NC; South Bend,
IN; Tallahassee, FL; Tuscon, AZ; and Waukesha, WI.
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Table 4-12. Average and Median Lot Size for New Single-Family Housing Units Sold, 1995-1997
Year
1995
1996
1997
1995-1997 avg
Average Lot Size
(Square Feet)
13,290
13,705
13,665
13,553
Median Lot Size
(Square Feet)
9,000
9,100
9,375
9,158
Source: Census 2000a. Series C25 Characteristics of New Housing:
Multifamily Residential
For residential construction other than single-family housing, EPA divided the average number of
units authorized over 1995-1997 (356,722, from Table 4-11) by the average number of units per new
multifamily building. The average number of units per building was obtained by examining the
distribution of units by unit size class in Census data (U.S. Census Bureau, 2000b). This report shows
the number of units by building size class (2 to 4 units, 5 to 9 units, 10 to 19 units, 20 or more units).27
EPA estimated the number of buildings in each size class (using data for 1999 and 2000) by dividing the
number of units in each class by the average number of units. The total number of units were then
divided into the estimated number of buildings to arrive at the average number of units across all building
size classes. When this was done, the average number of units was estimated to be 10.8.
EPA next examined data on the average site size for multifamily residential developments. The
Center for Watershed Protection reports estimates from one survey in which the footprint for multifamily
buildings occupied an average of 15.6 percent of the total site (CWP, 2001). EPA assumed that the
average-sized multifamily building (10.8 units) would have two floors and that each unit occupies the
national average of 1,095 square feet (NAHB, 2002). The total square footage accounted for by living
space is thus 11,826 square feet. Multiplying by a factor of 1.2 to account for common areas and other
non-living space (utility rooms, hallways, stairways), and dividing by 2 to reflect the assumption of a 2-
27 The average number of units was derived using data for 1999 and 2000, since data for prior years was not
available at this level of building size detail.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
story structure, EPA obtained a typical building footprint of 7,096 square feet (11,826 x 1.2 -^ 2 = 7,096).
Combining this with the CWP estimate of the building footprint share of total site size (15.6 percent), the
average site size was estimated to be 42,485 square feet (7,096 + 0.156 = 45,487), or just over one acre
(1.04 acres).
EPA compared the average site size obtained using this approach with data from the 14
community study referenced above. That study's review of permitting data identified 286 multifamily
developments covering a total of 3,476 acres. The average site size, 12.1 acres, is considerably higher
than that obtained above. EPA has no indication that the permits reviewed in these communities are for
projects of a larger than average size. For purposes of this analysis, EPA has taken the midpoint of the
estimates, 6.5 acres, as the average size of multifamily projects. This number was multiplied by the
average number of multifamily housing developments authorized by building permit, 35,672, to arrive at
an estimate of 231,868 acres (see Table 4-15).
Nonresidential construction
EPA lacked current data on the number of nonresidential construction and development projects
authorized annually because the Census Bureau ceased collecting data on the number of permits issued
for such projects in 1995. EPA therefore used regression analysis to forecast the number of
nonresidential building permits issued in 1997, based on the historical relationship between residential
and nonresidential construction activity (see Section 4.5.3). Using this approach, EPA estimates that a
total of 426,024 nonresidential permits were issued in 1997. These represent a variety of project types,
including commercial and industrial, institutional, recreational, as well as nonresidential, nonbuilding
projects such as parks and road and highway projects.
EPA first combined a number of nonresidential project types into a larger "commercial"
category, which included hotels and motels, retail and office projects, and religious, public works, and
educational projects.28 EPA's reasoning for including the latter categories under the commercial category
28 The commercial category included: hotels/motels, amusement, religious, parking garages, service
stations, hospitals, offices, public works, educational, stores, other nonresidential buildings.
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is based on engineering judgment that storm water management practices would be similar across each
project type. The total estimated number of commercial permits in 1997 was 254,566 (59.7 percent of
the nonresidential total). EPA retained the industrial category, which totaled 12,140 permits (2.8
percent), separately. Storm water management practices for such sites generally differ from those for
commercial or residential sites. The residual, 159,318 permits (37.4 percent), are nonbuilding,
nonresidential projects that include parks, bridges, roads, and highways. EPA accounts for these projects
in the steps described further below.
For the commercial and industrial categories, EPA reviewed the project size data collected from
the 14-community study referenced earlier (EPA, 1999). This study identified 817 commercial sites
occupying 5,514 acres and 115 industrial sites occupying 689 acres. The average site size is 6.75 and
5.99 acres, respectively.
EPA also reviewed estimates from CWP (2001) on the average percent of commercial and
industrial sites taken up by the building footprint. These percentages, 19.1 and 19.6 respectively, were
multiplied across the model project site sizes of 1, 3, 7.5, 25, 70, and 200 acres to estimate the size of
building on each site, assuming single-story buildings in each case. These estimates are shown in Table
4-13.
Table 4-13. Average Building Square Footage
Project Size
(Acres)
1
3
7.5
25
70
200
Commercial
8,320
24,960
62,400
207,999
582,397
1,663,992
Industrial
8,555
25,666
64,164
213,880
598,863
1,711,037
Estimates were obtained by multiplying the site size in square feet by the percentage of the site estimated to be
occupied by the building footprint, based on data from CWP (2001).
Source: EPA estimates.
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As seen in the table, the average building size corresponding to the 6- to 7- acre sites estimated
from the 14-community study are in the 60,000 square feet range. EPA next examined R.S. Means
(2000), which provides cost data for "typical" commercial and industrial buildings. As part of the cost
data, Means identifies the typical range of building sizes based on a database of actual projects. Table 4-
13 shows the typical size and size range for a variety of building types that would fall into either the
commercial or industrial categories. While some of the building types correspond with the estimated
average of 60,000 square feet, these appear high for other categories, such as low-rise office and
supermarkets, warehouses, and elementary schools. EPA believes generally that there are more small
projects than large ones. As a result, EPA inferred that this approach would suggest an average building
size of 25,000 square feet, which implies an average site size of 3 acres, based on Table 4-14.
Table 4-14. Typical Building Sizes and Size Ranges by Type of Building
Building Category/Type
Commercial - Supermarkets
Commercial - Department Store
Commercial - Low-Rise Office
Commercial - Mid-Rise Office
Commercial - Elementary3
Industrial - Warehouse
Typical Size
(Gross Square Feet)
20,000
90,000
8,600
52,000
41,000
25,000
Typical Range
(Gross Square Feet)
Low
12,000
44,000
4,700
31,300
24,500
8,000
High
30,000
122,000
19,000
83,100
55,000
72,000
a For purposes of this analysis EPA combines a number of building types, including educational, under the
commercial category.
Source: R.S. Means (2000).
To reconcile the estimates obtained from the two approaches, EPA has taken the midpoint of the
estimates. For commercial development, EPA assumes an average site size of 4.87 acres (the average of
6.75 and 3.0 acres) and for industrial development EPA assumes an average site size of 4.50 acres (the
average of 5.99 and 3.0 acres).
The resulting average project sizes were then multiplied by the estimated number of commercial
and industrial permits to obtain an estimate of the total acreage developed for these project categories.
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Table 4-15 shows the results of this "bottom-up" approach to estimating the number of acres of land
developed. The overall estimate of the amount of land developed is 2.01 million acres per year.
Residential single-family development accounts for 24.4 percent of the total, multifamily development
for 11.5 percent of the total, commercial for 61.4 percent, and industrial for 2.7 percent.
Table 4-15. National Estimates of Land Area Developed Per Year, Based on Building Permit Data
Type of Construction
Residential
Nonresidential
Single-family
Multifamily
Commercial11
Industrial
Total
Permits
Number
1,043,045
35,672
254,566
12,140
1,345,423
Pet. of
Total
77.5%
2.7%
18.9%
0.9%
100.0%
Average
Site Size3
0.47
6.5
4.9
4.5
-
Acres Disturbed
Number
490,231
231,868
1,234,645
54,630
2,011,374
Pet. of total
24.4%
11.5%
61.4%
2.7%
100.0%
a For single-family residential, this is the average of the average lot size for new construction in 1999 (Census
1999) and the average obtained in EPA (1999). For all other categories, the site sizes are EPA assumptions based
on representative project profiles contained in R.S. Means (2000) and the 14-community survey conducted in
support of the Phase II NPDES storm water rule (EPA 1999). See also Tables 4-7 and 4-8.
b A number of project types were grouped together to form the "commercial" category, including: hotels/motels,
amusement, religious, parking garages, service stations, hospitals, offices, public works, educational, stores, other
nonresidential buildings.
The estimate of total acreage developed, 2.01 million acres, can be compared with the estimate
provided by the NRI. From Table 4-10, NRI estimates that a total of 2.24 million acres are converted
from undeveloped to developed status each year. As noted above, some acreage would not be covered by
the proposed rule or site size limitations due to waivers. The estimated acreage subject to the proposed
rule 2.18 million acres.29
EPA considers the estimate of 2.01 million acres (Table 4-15) to be close to the estimates
obtained from NRI. Areas not accounted for in EPA's estimates include those converted as a result of
29 This is technically the acreage covered under Option 1, which affects sites of one acre or more in size.
Estimates of the acreage covered under Option 2, which affects sites of five acres or more, are made in Section
4.4.4.
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road, highway, bridge, park, monument, and other nonbuilding construction projects.30 EPA has not
developed engineering costs applicable to these types of projects, but assumes that the builders and
developers of these areas would face compliance costs, i.e., the acres should not be excluded from the
analysis. For the purpose of developing national compliance costs, therefore, EPA has allocated the
entire NRI acreage, adjusted for waivers, according to the distribution shown in the final column of Table
4-16.31
Table 4-16. National Estimates of Land Area Disturbed Based on National Resources Inventory Totals
Type of Construction
Residential
Nonresidential
Single-family
Multifamily
Commercial0
Industrial
Total
Acres Based on Permits Data
Number"
490,231
231,868
1,234,645
54,630
2,011,374
Pet. of Total
24.4%
11.5%
61.4%
2.7%
100.0%
Adjusted NRI
Acreage1"
533,878
252,182
1,332,476
57,523
2,176,058
"From Table 4-15.
b This column distributes the total acreage estimated in NRI to be converted on an annual basis (adjusted for waivers)
according to the distribution by type of development estimated through analysis of permits data. See also Tables 4-11 through
4-14.
c A number of project types were grouped together to form the "commercial" category, including: hotels/motels, amusement,
religious, parking garages, service stations, hospitals, offices, public works, educational, stores, other nonresidential buildings.
4.4.3 Distribution of Acreage by Project Size
The next step in the national compliance cost analysis is to allocate the number of acres in each
of the four land use categories according to project size. The project size distribution is based on the
survey of municipalities conducted in support of the Phase IINPDES storm water rule (EPA, 1999).
This survey identified 14 communities that consistently collect project type and size data as part of their
30 As noted above, EPA estimates there are approximately 159,000 such projects permitted each year.
31 This distribution implies that the acres not accounted for from the NRI (see Table 4-10) will be costed at
the weighted average cost across the single-family residential, multifamily residential, commercial, and industrial
categories.
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construction permitting programs. Table 4-17 shows the distribution by project size for each land use
category.
Following allocation to project size class, EPA also allocated the acreage to one of 19 eco-
regions, based on geographical information system (GIS) modeling. Non-linearity of installation costs
made it inaccurate to consider partial sites. So, these totals were adjusted to ensure that only whole sites
would be considered for each category of type, site size, and region. Further detail on this step in the
analysis can be found in the Development Document (U.S. EPA, 2002).
The final step in the national compliance cost analysis is to multiply the number of acres in each
eco-region, size class, and land use category by the applicable cost per acre. These costs are shown in
Chapter Five.
4.4.4 Estimates of Acreage Covered by Option 2
Table 4-16 above shows the distribution of acreage affected under Option 1 of the proposed rule,
which would apply to sites of one acre or larger. The additional acreage excluded under the site size
limitations of Option 2 (five acres) was obtained by estimating the acreage in sites above one acre and
below five acres in size. The 3-acre size class represents projects greater than 1 acre and less than 5
acres. This category was subtracted from the matrix of acreage by region, type, and size class as
allocated by the GIS. As shown in Table 4-17, the 14-community study (EPA, 1999) found that 6.0
percent of acreage developed for single-family housing was assigned to sites in the 3-acre size class.
EPA estimated that, after rounding, roughly 6.1 percent of acreage converted to single-family housing
units would be excluded under Option 2. EPA made similar estimates of the acreage converted to multi-
family, commercial, and industrial uses that would be excluded under Option 2. Table 4-18 shows the
distribution of acreage affected under Option 2 of the proposed rule.
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Table 4-17. Distribution of Permits by Site Size
Site Size (Acres)
No. of Permits
Acres by Size
Pet. Acres by Size
Single-Family Residential
1
3
7.5
25
70
200
Total
266
228
138
175
30
15
852
266
684
1.035
4.375
2.100
3.000
11.460
2.3%
6.0%
9.0%
38.2%
18.3%
26.2%
100.0%
Multifamily Residential
1
3
7.5
25
70
200
Total
43
100
61
71
10
1
286
43
300
458
1.775
700
200
3.476
1 .2%
8.6%
13.2%
51.1%
20.1%
5.8%
100.0%
Commercial
1
3
7.5
25
70
200
Total
266
356
86
91
16
0
815
266
1.068
645
2.275
1.260
0
5.514
4.8%
19.4%
11.7%
41.3%
22.9%
0.0%
100.0%
Industrial
1
3
7.5
25
70
200
Total
39
55
10
8
3
0
115
39
165
75
200
210
0
689
5.7%
23.9%
10.9%
29.0%
30.5%
0.0%
1 00 0%
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Table 4-17. Distribution of Permits by Site Size
Site Size (Acres)
No. of Permits
Acres by Size
Pet. Acres by Size
Total
1
3
7.5
25
70
200
Total
614
739
295
345
59
16
2.068
614
2.217
2.213
8.625
4.270
3.200
21.139
2.9%
10.5%
10.5%
40.8%
20.2%
15.1%
100.0%
Based on permitting data from the following municipalities or counties: Austin, TX; Baltimore County, MD; Gary, NC; Ft.
Collins, CO; Lacey, WA; Loudoun County, VA; New Britain, CT; Olympia, WA; Prince George's County, MD; Raleigh, NC;
South Bend, IN; Tallahassee, FL; Tuscon, AZ; and Waukesha, WI (EPA, 1999).
Source: EPA estimates.
Table 4-18. Estimates of Acreage Affected Under Proposed Rule Option 2
Type of Construction
Residential
Nonresidential
Single-family
Multifamily
Commercial0
Industrial
Total
Acreage Affected
Under Option la
533,878
252,182
1,332,476
57,523
2,176,058
Percent
Excluded Under
Option 2b
6.1%
8.8%
20.4%
25.7%
-
Acreage Affected
Under Option 2
501,100
229,958
1,061,108
42,733
1,834,898
a From Table 4-15.
b Based on analysis of site size distributions found in EPA (1999).
0 A number of project types were grouped together to form the "commercial" category, including: hotels/motels,
amusement, religious, parking garages, service stations, hospitals, offices, public works, educational, stores, other
nonresidential buildings.
Source: EPA estimates.
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4.4.5 Operation and Maintenance Costs
For any incremental ESC requirements triggered under Option 2, EPA estimated the percentage
of capital costs of each technology that would be required annually to operate and maintain the facilities.
Those facilities with a limited useful life were assigned percentages sufficient to replace them at the
appropriate time. These were converted to costs per acre for each option. The O&M costs are assumed to
be incurred for a one-year period during the active phase of construction.
4.5 IMPACTS ON THE NATIONAL HOUSING MARKET
4.5.1 Description of National Housing Market Model
EPA takes three complementary approaches to estimating the market impacts of the proposed
rule. Two treat the nation as a single market; the third treats each city as a distinct housing market. The
first approach assumes all of the costs of compliance with the regulation are passed through to the home
buyer. If the home is more costly, fewer households would be able to qualify for a mortgage to purchase
it. This change in market size is an indicator of the impact of the proposed regulation. In the second
approach, the costs of compliance shift the national housing supply curve in a linear partial equilibrium
model. A portion of the increased costs raises the price of new housing while the balance is absorbed by
the builder. Higher prices and lower quantities change the welfare of participants in the housing market.
The third approach estimates a linear partial equilibrium model, like the national model, for 215
metropolitan statistical areas (MSAs) based on local measures of residential construction activity. This
approach measures changes in affordability in terms of the Housing Opportunity Index (HOI), a well
publicized measure of housing availability. The following sections explain each model in detail.
4.5.1.1 Complete Cost Pass Through and Housing Affordability
Landis' (1986) and Luger and Temkin's (2000) surveys suggest that all of the additional costs of
compliance with new storm water regulations would be passed through to new home buyers in the form
of higher prices for a unit of a given quality. The quantity of new housing built would not change
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because demand is driven by demographics more than marginal price considerations, i.e., demand is
inelastic, and competition in supply is limited because of oligopolistic markets in many areas and
infinitely elastic supply in others. An increase in the price of a home increases the income necessary to
qualify for a home mortgage to purchase the home, and so reduces the number of households able to
afford it. One measure of the impact of the regulation is the change in the number of households that can
afford the new home.
EPA developed its market model parameters from the previously described model projects,
Census data, and the housing economics literature. Simple assumptions about expected proportionate
profit margins, borrowing, and contingencies discussed in Section 4.2 indicate that added incremental
compliance costs are multiplied by a factor of 1.5 to 1.8 in the final consumer price. Luger and Temkin
(2000) report a compliance cost multiplier of 2 to 6 times actual compliance costs. The higher multiplier
may reflect a tight housing market in high growth regions. The median house price, from the industry
profile, is taken as the baseline price. The median price, P0, with the additional compliance costs, C,
multiplied by a factor for added time and borrowing, m, equals the new price, PN, which is the starting
point for calculating the effect of the proposed regulation on affordability, welfare measures, and other
market model results:
where:
PN = New Price with ESC Compliance Costs
P0 = Median New Home Price
m = Cost Multiplier
C = ESC Compliance Costs
The monthly payment for principal, interest, taxes, and insurance (PITI) for the new home is based on the
new price:
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PI = ±— (2)
1-(1+_L)-360
12
p
T = t^^- (3)
1,000
1,000
PITI = PI + T+I (5)
where:
PI = Monthly Principal and Interest
F = Proportion of New Home Cost that is financed
r = Annual Mortgage Interest Rate
T = Monthly Tax Payment
t = Monthly Tax Rate per Thousand Dollars Value
I = Monthly Insurance Premium
s = Monthly Insurance Rate per Thousand Dollars Value
PITI = Principal, Interest, Taxes, and Insurance
Fannie Mae guidelines limit borrowers' PITI payments to no more than 28 percent of their gross income.
The value for F, 0.774, and r, 0.0752, the mortgage terms, are national averages for the typical 30-year
fixed rate, private mortgage in the base period (FHFB, 2001). Values for t, $!/$!,000 value, and s,
$0.257$ 1,000 value, are from a recent study of housing affordability (Savage, 1999). The gross income
necessary to qualify for the mortgage at the new price, under this criterion, Y, is given by:
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Y =
12 pin
0.28
(6)
Table 4-19 illustrates the calculations using Option 2 costs. In Chapter Five, EPA uses this approach to
estimate the number of households priced out of the new housing market as a result of each regulatory
option or combination of options.
Table 4-19. Change in Housing Affordability—Sample Calculation
Data element
Average per lot cost difference from baseline
Difference in cost per lot times multiplier
Home price
Principal and interest
Real estate taxes
Homeowner's insurance
Total principal, interest, taxes, and insurance
Income necessary to qualify for mortgage
Change in income necessary
Number of households shifted (thousands)
Percent change in number of qualified households
Baseline
$0
$0
$288,397
$1,564
$288
$72
$1,924
$82,472
$0
0
0.0%
Option 2
$111
$201
$288,598
$1,565
$289
$72
$1,926
$82,529
$58
-29
-0.15%
Source: EPA estimates.
The change in the number of households who qualify for a mortgage to finance the baseline
home price but cannot afford the home with the added compliance costs is imputed from Census Bureau
statistics of household income. The Census Bureau, Current Population Survey, reports the money
income of households in 21 income classes from zero to over $100,000 (U.S. Census Bureau 2000d).
Table 4-20 shows the Census distribution. Each income class, except the top one, spans $5,000 in annual
income. If households are evenly distributed within each class, then a change of $1,000 from the
baseline income necessary to qualify to the new income necessary excludes one fifth of the members of
the income class from qualifying for the new mortgage level. Since the incremental costs of compliance
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are relatively small, the new price usually falls within the same income class as the baseline price and the
number of households per $1,000 change in price is adequate to find the change in number of qualifying
households. If the qualifying income for the baseline price is in a different income class than the
qualifying income for the new price, the number of households per $1,000 change in price in each class
is calculated and the number of households disqualified calculated in parts.
Table 4-20. Household Information for Imputing Changes in Ownership Possibilities
Current Population Survey
Annual Household
Income
($1,000)
<5
5-9
10-14
15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69
70-74
75-79
80-84
85-89
90-94
95-99
100>
Total
Households
(1,000)
3,010
6,646
7,661
7,482
7,238
6,890
6,381
6,016
5,565
4,958
4,789
4,064
4,112
3,380
2,927
2,903
2,526
2,023
1,736
1,568
12,832
104,707
Households
That Own
Home3
(1,000)
1,456
3,051
3,906
3,935
3,946
4,000
3,891
3,794
3,875
3,452
3,674
3,118
3,360
2,762
2,392
2,372
2,227
1,784
1,531
1,383
11,674
70,071
American Housing Survey
Percent Owned for
Income Class
48.4%
45.9%
51.0%
52.6%
54.5%
58.1%
61.0%
63.1%
69.6%
69.6%
76.7%
76.7%
81.7%
81.7%
81.7%
81.7%
88.2%
88.2%
88.2%
88.2%
91.0%
66.9%
Total Housing
Units
(1,000)
5,839
6,728
7,780
7,037
7,369
6,867
7,469
5,951
9,778
"
8,184
"
11,985
"
"
"
6,548
"
"
"
11,267
102,802
Owner-
Occupied Units
(1,000)
2,824
3,089
3,967
3,701
4,017
3,987
4,555
3,753
6,808
"
6,278
"
9,793
"
"
"
5,774
"
"
"
10,250
68,796
a Calculated from proportion of owner-occupied to total housing units multiplied by number of households in
income class.
Source: Household Income: U.S. Census Bureau, Current Population Reports, P60-209, Money Income in the
United States: 1999, U.S. GPO: Washington, 2000; Housing: U.S. Census Bureau, American Housing Survey for
the United States: 1999, Table 2-12 Income Characteristics of Occupied Units,
http ://www. census. gov/hhes/www/housing/ahs/ahs99/tab212 .html
The proportion of households in the marginal income class that already own their home indicates
the size of the market possibly affected. According to the Census Bureau's American Housing Survey, in
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1999, 48.4 percent of households with less than $5,000 income owned their own home while 91 percent
of those with income over $100,000 annually own their home. Overall, 66.9 percent of households own
their home.32 The rate of home ownership for the larger income classes from the housing survey was
applied to all of the income classes of the population survey within the same range (indicated by the ditto
marks in Table 4-20). The total number of households with income greater than that required to qualify
for the baseline home is the total number of households that could afford the baseline home. Since this is
the group that may be in the market for a new home, substantial changes in the proportion of this group
that can afford it may represent large changes in the size of the market for new homes attributable to the
construction and development regulation.
4.5.1.2 National Partial Equilibrium Modeling
Another approach to evaluating the impact of the proposed regulation on housing markets is
based on a household production function partial equilibrium model. Empirical studies find a highly
elastic supply and a somewhat inelastic demand for new housing (DiPasquale, 1999). These estimated
elasticities and the assumption that compliance costs of new environmental regulations result in only
marginal changes in prices and quantities allow the market to be modeled with a simple linear partial
equilibrium market model similar to the ones used in other recent EPA regulations (U.S. EPA, 2001b).
The modeling situation is similar to that used by Montgomery (1996) to forecast wood product
demand. The linear partial equilibrium model can be viewed as a reduced form of a more complex
structural model. We can assume, for example, that all of the instrumental variables are the same in both
the baseline and alternatives, i.e., the regulation does not change U.S. population growth, carpenters'
wages, wood product prices, and so forth. Montgomery's (1996) modeling equation (equation 12 in the
paper) is simply a linear supply curve and equations 6, 8, and 10 reduce to a linear demand curve. The
simpler model will provide the same results as the more complex structural model given small marginal
changes in costs and unchanging long run assumptions.
' The American Housing Survey uses fewer income groups than the Current Population Survey.
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National statistics of residential housing starts from the Census of Construction establish the
baseline quantity for the model. The baseline price is the median new home price derived from the
project cost model. This combination is the baseline market equilibrium where supply equals demand.
To indicate highly elastic supply, EPA assumes a price elasticity of supply of 4.0. DiPasquale (1999)
cites studies with estimates for new housing supply elasticity from 0.5 to infinity but the majority of the
long run estimates are in the 3 to 13 range. Housing demand elasticity is equally controversial. EPA
assumes a price elasticity of demand of -0.7 to indicate a somewhat inelastic demand function.
Sensitivity tests of these assumptions are shown in Appendix 5B.
Given a baseline equilibrium point (P0, Q0) and these elasticities, EPA identified a linear supply
curve.
Q = a + PP (7)
Where:
Q = Number of residential building permits issued
P = Price of new home
a = Intercept calibrated from baseline equilibrium
= Qo ~ PPO
/3 = Coefficient on price
Qn
= EX^-
s P
ro
Es = Supply elasticity of new homes > 0
A linear demand curve was derived similarly.
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Q = a + yP (8)
Where:
o = Intercept calibrated from baseline equilibrium
= Qo - rpo
y = Coefficient on price
,va
d p
ro
Ed = Demand elasticity of new homes < 0
EPA assumes the baseline condition is in equilibrium so these two equations are equal. The
increased costs of compliance raise builders' costs and shift the supply curve upward to the left. The
change in prices and quantities depends on the relative slopes of the supply and demand curves. EPA
chose to model the increased costs as a slope-preserving change in the supply curve intercept, a, rather
than an elasticity-preserving change in slope. The new intercept is calculated as:
as = Shocked intercept
(9)
= Q0 -P(P0+ESQ
where ESC is the per unit costs of compliance with the proposed regulation. The new price is given by:
a<, - a
Equilibrium prices and quantities are then recalculated using the new price and shocked intercept.
Unlike the complete cost pass through method described above, some of the costs of compliance
in the partial equilibrium model may be absorbed by the builder. The proportions flowing to consumers
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and builders depends on the relative elasticities of supply and demand. The literature suggests cost pass
through rates are very high in this industry (DiPasquale, 1999). With the supply and demand elasticities
selected as representative of the literature, Es=4 and Ed=-0.7, the cost pass through is 85 percent. Thus,
the industry absorbs 15 percent of the costs of compliance and passes the remainder on to home buyers
as a price increase.
The partial equilibrium model has a number of implications for the welfare of society. When the
supply curve shifts following introduction of incremental compliance costs, consumers lose some of their
benefits from the product in absorbing those compliance costs. This results in a loss of consumer
surplus. How the consumer surplus is lost is irrelevant from a welfare economics perspective.
Consumers may choose cheaper options in the construction of their new homes such as lower quality
carpets or cabinets. They may accept less expensive, smaller homes. Or, they may just pay the higher
price and forego other spending. In any case, the home would provide less utility than it might have
without the ESC costs. Different choices would affect which industries feel the impact in the regional
economy. Changes in housing options would impact builders and suppliers. Decreased overall spending
would impact a wide range of consumer goods industries. For simplicity, EPA assumed that consumers
would reduce other spending in response to the price change. The reduction in home sales volume and
consumer spending in other sectors reduces employment in construction and all other parts of the
economy. Indirect effects of the regulation on the whole economy are estimated using Regional Input-
Output Modeling System (RIMS) multipliers published by the U. S. Department of Commerce. The
multiplier analysis indicates the ultimate changes in gross domestic output and employment attributable
to the new regulation.
4.5.1.3 Regional Partial Equilibrium Modeling and the Housing Opportunity Index
Each of the approaches described above treats housing as a national market with the same
demand elasticities applying across the country. In reality, however, market conditions can vary widely
from region to region, state to state, and city to city. Markets vary both in the level of activity and the
structure of the industry. Costs of compliance would undoubtedly be easier to pass through to consumers
in a hot housing market than in a depressed market. EPA's third modeling approach captures such
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regional variation by setting up a partial equilibrium model for each Metropolitan Statistical Area (MSA)
and using statistics of the level of activity in the MSA to select the parameters of the model.
The Census Bureau collects information about housing starts as well as the size of the existing
housing stock at the MSA level. EPA infers that where housing built during the 1990s represents a large
proportion of the total current housing stock, the new housing market is active and demand would be
expected to be less elastic than in areas with slower growth. As discussed above, the long run supply of
new housing is assumed to be quite elastic overall. These facts provide the basis for selecting elasticities
to represent housing markets at the MSA level.
EPA developed separate partial equilibrium models for each MSA. Like the national models
described above, EPA used building permit and median new home price data to establish the baseline
equilibrium point for each MSA. Demand elasticities were estimated based on the ratio of new housing
units authorized to housing stock over the period 1990 to 1996 (Census, 1998). EPA mapped regions
where this ratio is lowest to the most elastic estimates of demand found in the literature and those where
the ratio is highest to the least elastic demand elasticity estimates. EPA believes this approach captures
the relative differences in demand elasticity between active and depressed housing markets around the
country.
Each MSA model is shocked with the estimated compliance costs for the median new home in
the region. The model then estimates changes in prices, quantities, and welfare measures for each MSA.
As there are more than 200 MSAs, it is not practical to report all of the individual results. Instead, all of
the MSAs in a Census division are averaged together to give a sense of the effect of compliance costs on
each region of the nation.
Affordability is a significant concern for some stakeholders. The National Association of Home
Builders (NAHB) publishes the Housing Opportunity Index (HOI) for 180 MSAs. HOI measures the
proportion of the housing stock a family with the median income can afford. NAHB compares the
median family income to the actual distribution of home prices in the MSA. EPA does not have access to
such detailed price information. Instead, EPA assumes home prices are normally distributed about the
median with standard deviation of 1. Thus, our rough HOI (RHOI) is the cumulative probability of
homes with prices less than the maximum PITI that the median income can afford.
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Algebraically:
'30
f30 (Median Income x 0.28)ertdt
Jo \
Median Sales Price
The numerator represents the present value of the maximum PITI payment that the median income can
afford at the prevailing mortgage rate, r, over a typical 30-year fixed rate loan. The denominator is
simply the median sales price. When this ratio is equal to one, the median income family can afford the
median sales price home or, equivalently, half the families can afford the median sales price home. The
normal cumulative density function with mean of one and variance of one, is represented by Z(1 ^(-).
Thus, if the median income family can afford more than the median sales price home, the ratio will be
greater than one, and the Z(u)(-) function will indicate the proportion of homes the family can afford.
For MSAs with HOIs reported by NAHB, EPA adjusts the variance of the normal curve so that
RHOI yields the NAHB baseline HOI index (NAHBHOI). The variance scaling factor is:
Z(0ll}(RHOI)
V -
, , (12)
Z^NAHBHOI)
where Z(0^ is the inverse of the standard normal cumulative distribution. Changing the variance of Z(u)
from one to V causes RHOI to equal NAHBHOI at the observed median family income. In those MSAs
where NAHB does not calculate HOI, unadjusted RHOI is reported. 33 To assess the impact of the
regulation, the adjusted HOI is calculated with the new sales price from the market model. The percent
change in adjusted HOI is an indicator of the added stress of compliance costs on the housing market.
Like the full pass through model discussed above, the MSA HOI model shows how changes in
costs affect home buyers. This approach has the advantage of recognizing local market differences and
33 In 13 MSAs, the distribution of home prices is so different from normal that RHOI cannot approximate
NAHBHOI with the variance adjustment. These MSAs were deleted from the results.
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applying them within the model. Average HOI among MSAs in Census divisions before and after
compliance costs are reported in Chapter Five.
4.5.2 Inputs to the National Housing Market Model
The analysis uses the average price of the model home worked out in Section 4.2, $284,632, as a
starting point. Buyers in 2000 financed an average of 77.4 percent of the home purchase price at an
interest rate of 7.52 percent (FHFB, 2001). EPA assumes a 30-year conventional fixed rate mortgage for
ease of calculation. EPA also assumes a monthly real estate tax rate of $ 1 per $ 1,000 of home value and
insurance payment of $0.25 per $1,000 of home value (Savage 1999). These assumptions are applied to
the revised home price to derive an estimate of the monthly principal, interest, taxes, and insurance (PIT!)
payment generally required to purchase a new home.
In Chapter Five EPA uses this approach to estimate the number of households priced out of the
new housing market as a result of each regulatory option.
4.5.3 Multifamily and Non-Residential Construction Market Models
EPA developed three market models of the multifamily and non-residential construction industry.
All three are similar to the residential regional partial equilibrium model. They treat each state as a
separate market with adjusted demand elasticities. Each model produces estimates of changes in prices,
quantities, and welfare measures.
The commercial market is highly disaggregated into regional markets. Office rents for similar
buildings (Class A space) range from $17/square foot/year in Wichita to more than $60/square foot/year
in San Francisco (Grubb & Ellis 2001). This disparity shows that arbitrage among markets is not
possible and space in each area should be considered a different commodity. Many real estate companies
maintain data on conditions in regional markets. Typically, activity in the market is measured in terms of
the vacancy rate and asking rents. EPA developed a market model for office space similar to the regional
partial equilibrium models developed for residential construction to indicate the effects on commercial
construction.
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The Census Bureau discontinued collection of non-residential building permit information in
1994. To estimate non-residential building permits issued in later years, EPA regressed non-residential
building permits on residential building permits, the value of non-residential buildings put in place (VPIP),
and a time trend. Since the relationship among these variables differs from state-to-state, regressions were
estimated at the state level. Three different regressions were estimated. Several states showed a distinct
shift in building permits data when the Census sample changed from 17,000 permit-granting jurisdictions
to 19,000 jurisdictions in 1983. In states where this difference was apparent, only observations after 1983
were used in the final projection. In addition some states had strong trends which were correlated with
residential building permits. Since this multicollinearity reduced the influence of residential building
permit data in later projection years, a regression was also estimated without the trend variable. The three
regressions are:
1980-1994 data;
1983-1994 data; and
1980-1994 data estimated without the trend variable.
Each regression was also estimated using only data through 1993 to test their ability to forecast the
next year outside of the sample, i.e., 1994. The regression which gave the best out of sample projection to
1994 and/or had the highest correlation coefficient for the state was selected to be used for that state's
projection. Thus, each state projection uses the model that best predicts its pattern of non-residential
development. EPA allocates the number of non-residential building permits estimated for each state to
commercial, industrial, and other projects based on the number of permits issued for each type of project in
the 1994 building permit data. The commercial category is a catch-all which includes public buildings,
hotels, amusements, and educational buildings, in addition to office and retail buildings. EPA implicitly
assumes that these projects would employ best management practices that are similar to those required for
office or retail space. A separate category for industrial projects and a third category for non-building
permits are also allocated from the 1994 data.
In the partial equilibrium model, the quantity of construction in each category is measured by the
number of building permits issued. Rental rates, in dollars per square foot per year, are closely watched
indicators of demand for commercial space and serve as our price. Rents and activity reports for 35 retail
space markets around the country from a recent real estate marketing firm report (Grubb and Ellis, 2001)
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provide the baseline information for the market model. Like the ratio of new building permits to housing
stock in the residential model, EPA used the activity reports to create a scale of demand intensity which
was then used to map to each market an appropriate demand elasticity from a range of possible market
elasticities.
Demand for office and retail space is relatively insensitive to small changes in price. Since non-
residential construction activity tends to be driven by interest rates, job growth, and locational factors
rather than building costs, cost pass through is very high. Huffman (1988), for example, found that
impact fees were largely passed on to end users in the long run. EPA therefore applies a range of
elasticities from -0.01 to -0.80 to represent relatively inelastic demand for commercial space. In regions
with many vacancies, lessees can be more sensitive to price so a more elastic demand curve is used. In
regions with tight markets, lessees have fewer options and generally have little choice but to pay the
asking price, so demand is less elastic. Builders can pass on a higher proportion of their costs in tight
markets than in soft markets. Even in the softest market, however, 83 percent of costs are passed
through to consumers with these assumptions.
The number of non-residential building permits was projected at the state level while the Grubb
and Ellis commercial data is from 35 selected cities. Since there is insufficient building permit data to
model each city, EPA models each state as a separate market with the average rent and activity rate for
the cities within the state representing the state market. The assumption is reasonable where state office
and retail markets are concentrated in one city, or one city is representative of general statewide market
conditions. The assumption is less defensible in large states with many population centers, since market
conditions may vary from city to city within such states. Almost half of the states were not represented
by cities in the Grubb and Ellis data. For these states, the average rent and activity values for cities
within the Census division containing the state were used to indicate state market conditions.
The industrial space market model is similar to the commercial model. It uses the vacancy rate
for industrial space as an indicator of market activity and the rental rate for warehouse space as the price.
Industrial space users are considerably more mobile and price sensitive than commercial or residential
space consumers so demand for industrial space is more elastic. The range used in this analysis is -0.2 to
-1.5.
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The multifamily housing market model uses the same format as the non-residential models. The
activity measure is the proportion of the housing stock built in the 1990 to 1996 time period. Separate
price series or rental rates for multifamily housing are not reported so the single-family housing prices
were taken as a near substitute. EPA assumed that elasticities of demand are also similar to those for
single-family housing.
The multifamily and non-residential models apply equations 7 through 10 above to estimate
supply and demand curves. Compliance costs are converted to the same units as the rental rates, given
the model project. The increase in cost shifts the supply curve to the left and upward. Market results
may be reported in terms of changes in rents and building permits, as well as changes in consumer and
producer surplus, and can be converted to changes in indirect employment using the RIMS II multiplier.
4.6 NET ECONOMIC IMPACTS
Environmental regulations, while imposing costs on the regulated industry, may also provide a
stimulus to firms that make or install environmental controls, or provide other services related to
reglatory compliance. The output and jobs created by new spending in the environmental industry
offsets, to some extent, the loss of output in the affected industry. In the case of C&D, the same firms
that now do much of the site preparation work would also be charged with implementing ESCs, and
likely, conducting ESC certification and inspection. Contractors would be hired to build sedimentation
ponds, improve grades, and construct any incremental ESCs triggered by the proposed regulation. Thus,
while the regulation is costly in one sense, much of that cost flows directly back into the industry,
stimulating more activity, output, and employment.
4.6.1 Welfare Effects
In terms of the welfare effects discussed in Section 4.5.1, both the consumer and producer
surpluses are converted to costs of production. Consumer surplus represents income that would have
been used by consumers to purchase other products or for enjoyment. Producer surplus would have
flowed to the owners of the firm and probably to consumption or investment in other industries. Both
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quantities thus flow out of the construction sector. Only to the extent that the compliance costs that
would be absorbed are greater than the sum of production loss plus the consumer surplus lost would the
regulation result in a net increase in activity in the construction sector.
Both the loss and the gain in employment are estimated by applying RIMS II multipliers to the
changes in output derived from the market models. Construction activity generates approximately 37.8
jobs per million dollars of output while general consumer spending generates only 27.3 jobs per million
dollars of spending. Shifting spending from consumers to construction would increase overall
employment. As some readers may be interested in both the losses and gains in construction
employment, both aspects are shown in Chapter Five, as well as the loss in employment from lost
consumer spending.
4.6.2 Regional Impacts
For this analysis, EPA examines the potential impacts to specific regions by assessing whether
the proposed C&D regulations could have community or regional level impacts. Such impacts could
alter the competitive position of the C&D industry across the nation or lead to growth or reductions in
C&D activity (in- or out-migration) in different regions and communities. Traditionally, the distribution
of C&D establishments has echoed the general regional distribution of U.S. population, with some parts
of the industry responding to short or long term shifts in population distribution.
EPA does not expect that the proposed C&D regulations would have a significant impact on
where construction and development takes place, or the regional distribution of construction and
development activity. On the one hand, regulatory costs would be lower in regions with lower rainfall
and reduced soil credibility. This would tend to favor projects being developed in such regions. At the
same time, however, a project located in a low rainfall region would rarely be a perfect substitute for the
same project in a high rainfall region. So many factors go into a locational decision that few
homeowners, companies, or industrial firms are likely to make their decision on where to build based
solely upon the relative costs of storm water controls. Thus, EPA does not expect the proposed C&D
regulations to significantly influence the prevailing pattern of construction and development activity.
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EPA's market model accounts for regional market influences by creating state and MSA level
partial equilibrium models for each sector. These models are used to quantify the regional impacts in
terms of output and employment. Like the national employment effects, state employment changes are
calculated using RIMS II multipliers. Regional multipliers were not available for this analysis so the
national multipliers were used. The results, therefore, overstate the employment impacts within the
region but indicate the effect of changes within the region on the nation as a whole. Tables summarizing
state impacts are included in Chapter Five.
4.6.3 International Trade
As part of its economic analysis, EPA has evaluated the potential for changes in U.S. trade
(imports, exports) of construction and development related goods and services. A significant component
of the U.S. construction and development industry operates internationally, and in addition numerous
foreign firms operate in the U.S. EPA judged, however, that the potential for U.S. construction and
development firms to be differentially affected by the proposed rule is negligible. The proposed rule
would be implemented at the project level, not the firm level, and would affect only projects within the
U.S. All firms undertaking such projects, domestic or foreign, would be subject to the proposed rules.
U.S. firms doing business outside the U.S. would not be differentially impacted compared to foreign
firms, nor would foreign firms doing business in the U.S.
The proposed rule may stimulate or depress demand for some construction-related goods. To the
extent that the proposed rule acts to depress the overall construction market, demand for conventional
construction-related products may decline. This decline may be offset by purchase of goods and services
related to storm water management. Overall, EPA does not anticipate that any shifts in demand for such
goods and services resulting from the proposed regulation would have significant implications for U.S.
and foreign trade.
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4.7 GOVERNMENT IMPACTS
4.7.1 Administrative Costs
EPA has analyzed the administrative costs to governments associated with the proposed rule.
EPA assumes that the majority of construction-related regulatory costs would be associated with
processing general permits. As noted previously, EPA assumes that the majority of NPDES Phase I and
Phase II NPDES storm water permit programs are fully implemented, and that any new regulatory
requirements would be superimposed upon these programs.
Under Option 1, EPA assumes that no incremental costs would be imposed on governmental
units. Under Option 2, EPA estimates that each state would incur costs to revise existing regulations to
reflect the shift of regulatory coverage from Part 122 to Part 450. Based on the assumption that all states
would change their storm water programs to include certification of sedimentation basins and other
aspects of the proposed rule, EPA estimated the costs of establishing such a program. The costs are
based on assumptions about the number of labor hours states would allocate to amending such programs,
and the applicable labor rate. Further details on these assumptions and costs can be found in the
Development Document (EPA, 2002).
4.7.2 Compliance Costs
EPA estimates that government entities (federal, state, and local) commission as much as one
quarter of the total value of construction work completed in the U.S. each year. As final owner of a
substantial amount of the industry output, governments would bear some of the compliance costs
associated with the proposed rule, assuming these costs are passed on from developers and builders. In
Chapter Five, Section 5.8, EPA allocates the government share of compliance costs based on the
government share of industry output. Further details about government costs can also be found in
Chapter Ten.
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4.8 REFERENCES
Benshoof, M. 2001. An Inside Look at Builders'Books. Housing Economics. National Association of
Home Builders, May.
Brealy, Richard A., and Stewart C. Myers. 1996. Principles of Corporate Finance (5th ed.). New York:
The McGraw-Hill Companies, Inc.
Brigham, Eugene F., and Louis C. Gapenski. 1997. Financial Management: Theory and Practice (8th
ed.). Fort Worth: The Dryden Press, pp. 428-431.
Brown, Dirk S. G 2002. User Fee-Based Financing in the 2000s. Stormwater. 3(1): 50-54.
Busco, Dana, and Greg Lindsey. 2001. Designing Stormwater User Fees: Issues & Options.
Stormwater. 2(7): 42-44
CCH. 1999. 2000 U.S. Master Tax Guide. Chicago: CCH Incorporated.
CWP. 2001. Impervious Cover and Land Use in the Chesapeake Bay Watershed. Ellicott City, MD:
Center for Watershed Protection, January. Additional data table, "Chesapeake Bay Watershed
Impervious Cover Results by Land Use Polygon," received via a facsimile from Tetra Tech, Inc.,
September 20, 2001.
Dun & Bradstreet. 2000. 1999-2000 Industry Norms and Key Business Ratios.
ERG. 2001. Distribution of Acreage Disturbed Estimates. Memo from ERG, Inc. to the U.S.
Environmental Protection Agency, October 25, 2001.
ERG. 1999. Real Estate Development Financing. Memo from ERG, Inc. to the U.S. Environmental
Protection Agency, December 28, 1999.
Fannie Mae. 2001. Glossary: Qualifying Guidelines. Available at:
http://www.homepath.com/cgi-binAVebObjects-4/HomePath WOF.woa/8/wa/Glossary?topic=Glo
ssary&title=Qualifying%20Guidelines&wosid=IL1000D5300pz500E&oid=3684. Accessed on:
July 18,2001.
FASU. 1997. Florida Association of Storm water Utilities: 1997 Storm water Utilities Survey. Available
at: http://www.fasu.org/publications/survevs/. Accessed on January 31, 2002.
FHFB (Federal Housing Finance Board). 2001. Monthly Interest Rate Survey (MIRS) Periodic
Summary Tables. Available at: http://www.fhfb.gov/MIRS/mirs.htm.. Accessed on:
FHWA. 2001. Federal Highway Administration. Typical Interstate System Cost per Mile. Fax from C.
Duran, FHWA Office of Program Administration, to D. Metivier, ERG, Inc. September 19,
2001.
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Grubb & Ellis. 2001. Office Market Trends: A Survey of the Nation's Office Markets. Summer.
Available at: www.grubb-ellis.com. Accessed on September 11, 2001.
Hirsch, Albert A. 1994. Residential Construction from a Long-Run Perspective. Survey of Current
Business. June: 30-41.
Keller, Brant D. 2001. Buddy, Can You Spare a Dime? Stormwater. 2(2): 38-42.
Kone, D. L. 2000. Land Development 9th ed. Home Builder Press of the National Association of Home
Builders. Washington, DC.
Luger, M.I. and K. Temkin. 2000. Red Tape and Housing Costs. New Brunswick, New Jersey: CUPR
Press.
NAHB (National Association of Home Builders). 2002. Characteristics of New Multifamily Buildings
1987-1999. Available at: http://www.nahb.com/multifamily/characteristics.htm. Accessed on
May 29, 2001.
NAHB 2001a. Housing at the Millennium: Facts, Figures, and Trends. Washington, D.C.: The National
Association of Home Builders. Available at: http://www.nahb.com/housing_issues/facts.htm.
NAHB. 2001b. Building a Balance: Cost Breakdown of A Single family Home. Available at:
http://www.nahb.com/housing_issues/balance_2.htm.
Rappaport, B.A., and T.A. Cole. 2000. 1997 Economic Census-Construction Sector Special Study:
Housing Starts Statistics-A Profile of the Homebuilding Industry. U.S. Census Bureau, July.
Ross, D. and S. Thorpe. 1992. "Impact Fees: Practical Guide for Calculation and Implementation."
Available at: http://www.revenuecost.com/imp_fees.html. Accessed on July 11, 2001.
R.S. Means. 2001. Heavy Construction Cost Data 15th Annual Edition. Kingston, Massachusetts: R.S.
Means Co.
R.S. Means. 2000. Building Construction Cost Data 58th Annual Edition. Kingston, Massachusetts: R.S.
Means Co.
Savage, H. A. 1999. Who Could Afford to Buy a House in 1995? Washington: U.S. Census Bureau.
Supplemental material is available at:
http://www.census.gov/hhes/www/housing/hsgaffrd/afford95/aff95src.html.
Sierra Club. 2000. Sprawl Costs Us All: How Your Taxes Fuel Suburban Sprawl. Available at:
http://www.sierraclub.org. Accessed on September 20, 2000.
Tetra Tech, Inc. 2001. SWV2.xls. Microsoft Excel Spreadsheet. Received October 9, 2001.
ULI. 2000. Urban Land Institute. Market Profiles 2000: North America.
4-1
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
U.S. Census Bureau. 2000a. Current Construction Report C25: Characteristics of New Housing, 1999.
Issued July 2000.
U.S. Census Bureau. 2000b. Current Construction Report C40: New Privately Owned Housing Units
Authorized, 1999. Issued July 2000.
U.S. Census Bureau. 2000c. 1997 Economic Census: Construction: Subject Series. January. 2000.
U.S. Census Bureau. 2000d. Current Population Reports, P60-209, Money Income in the United States:
1999. Washington, D.C.: U.S. GPO.
U.S. Census Bureau. 1999. American Housing Survey for the United States: 1999. Available at:
http://www.census.gov/hhes/www/housing/ahs/ahs99/tab212.html.
U.S. Census Bureau. 1998. State and Metropolitan Area Data Book 1997-98 (5th Edition). Washington,
D.C.:U.S. GPO.
U.S. Department of Agriculture. 2000. 1997 Natural Resources Inventory Summary Report. Table 8.
Changes in land cover/use between 1992 and 1997.
http://www.nhq.nrcs.usda.gov/NRI/1997/summary _report/original/table8.html
U.S. EPA. 2002. Development Document for the Effluent Guidelines for the Construction and
Development Point Source Category. EPA-821-R-02-007.
U.S. EPA. 2001a. Estimation of Capital Costs for Technology Options. Draft dated July 12, 2001.
U.S. EPA. 2001b. Economic Analysis of the Proposed Revisions to the National Pollutant Discharge
Elimination System Regulation and the Effluent Guidelines for Concentrated Animal Feeding
Operations. EPA-821-R-01-001. January.
U.S. EPA 2001c. Summary of Focus Group Meetings with the National Association of Home
Builders. Chicago, IL. March 13.
U.S. EPA 2001d. Summary of Focus Group Meetings with the National Association of Home Builders.
Dallas, TX. March 20.
U.S. EPA. 1999. Economic Analysis of the Final Phase II Storm Water Rule. Office of Wastewater
Management.
U.S. Small Business Administration, 1999. Employer Firm Births and Deaths by Employment Size of
Firm, 1989-1998. Available at: http://www.sba.gov/advo/stats/dyn_b_d8998.pdf.
Wright, 1996. Paul H. Wright. Highway Engineering, 6th edition. New York: John Wiley & Sons.
1996.
4-78
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APPENDIX 4A
Data and Modeling Assumptions for Model Project Analysis
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 4A-1. Model Parameters and Data Sources
Parameters
Size of parcel
Cost of raw land
Average Lot Size
Approximate Density
(number of lots per
acre)
Single-family Residential
Value
1,3,7.5,
25, 70, and
200 acres
$40,000
per acre
0.33 acres
2.67
Data Source
EPA assumption
NAHB Chicago focus
groups, based on
experience of the
Chicago- area
participants. See
Appendix B for further
discussion.
Census Report C25
(Characteristics of New
Housing, 1999) reports
an average lot size for
new single-family homes
sold of 12,910 square
feet, which represents a
density of close to 3 lots
per acre. (The median
lot size is 8,750 square
feet, which implies a
density of almost 5 lots
per acre).
Calculated based on
impervious surface ratios
from "Chesapeake Bay
Watershed Impervious
Cover Results by Land
Use Polygons," to
account for impervious
surfaces not associated
with individual lots.
Total number of lots is
rounded to nearest whole
number.
Multifamily Residential
Value
1, 3, 7.5,
25, 70, and
200 acres
$40,000
per acre
N/A
N/A
Data Source
EPA assumption
NAHB Chicago focus
groups, based on
experience of the
Chicago-area
participants. See
Appendix A for further
discussion.
Small Commercial (Shopping Center)
Value
1, 3, 7.5,
25, 70, and
200 acres
$297,545
per acre
N/A
N/A
Data Source
EPA assumption
Urban Land Institute
(ULI) Market Profiles
2000: North America.
Median land cost for
nonregional shopping
centers (cost ranges for
individual MS As were
averaged before taking
the median)
Industrial Building
Value
1,3,7.5,
25, 70, and
200 acres
$137,500
per acre
N/A
N/A
Data Source
EPA assumption
Urban Land Institute
(ULI) Market Profiles
2000: North America.
Median land cost for
industrial parks (cost
ranges for individual
MSAs were averaged
before taking the
median).
4A-1
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 4A-1. Model Parameters and Data Sources
Parameters
Due diligence
Land development
costs
Engineering costs, as
percent of land
development costs
Overhead costs, as
percent of
development costs
Contingency, as
percent of land
development costs
prior to impact fees
Impact fees
Single-family Residential
Value
$2,500
per acre
$25,000
per lot
6%
10%
10%
$15,000
per lot
Data Source
Based on $100,000 for a
hypothetical 40-acre
development discussed
by the NAHB Chicago
focus group participants.
See Appendix B for
further discussion.
Estimate from NAHB
Chicago focus groups .
This figure includes any
construction activities
related to land
development (e.g.
infrastructure costs).
Estimate from NAHB
Chicago focus groups .
Estimate from NAHB
Chicago focus groups .
Estimate from NAHB
Chicago focus groups .
Estimate from NAHB
Chicago focus groups.
See Appendix B for
further discussion.
Multifamily Residential
Value
$2,500 per
acre
$75,000
per acre
6%
10%
10%
$45,000
per acre
Data Source
See Single-family
Residential Data Source
for details.
Scaled estimate based on
$25,000 per lot from
NAHB Chicago focus
groups. This figure
includes any construction
activities related to land
development (e.g.
infrastructure costs).
Estimate from NAHB
Chicago focus groups.
Estimate from NAHB
Chicago focus groups.
Estimate from NAHB
Chicago focus groups.
Scaled estimate based on
$15,000 per residential
lot from NAHB Chicago
focus groups. See
Appendix A for further
discussion.
Small Commercial (Shopping Center)
Value
$2,500 per
acre
$75,000
per acre
6%
10%
10%
$45,000
per acre
Data Source
See Single-family
Residential Data Source
for details.
Scaled estimate based on
$25,000 per lot from
NAHB Chicago focus
groups. This figure
includes any construction
activities related to land
development (e.g.
infrastructure costs).
Estimate from NAHB
Chicago focus groups.
Estimate from NAHB
Chicago focus groups.
Estimate from NAHB
Chicago focus groups.
See Multifamily Data
Source for details.
Industrial Building
Value
$2,500
per acre
$75,000
per acre
6%
10%
10%
$45,000
per acre
Data Source
See Single-family
Residential Data Source
for details .
See Small Commercial
Data Source for details.
Estimate from NAHB
Chicago focus groups .
Estimate from NAHB
Chicago focus groups .
Estimate from NAHB
Chicago focus groups .
See Multifamily Data
Source for details.
4A-2
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 4A-1. Model Parameters and Data Sources
Parameters
Real estate and
marketing fees, as
percent of sales price
of building
Average size of
building
Cost of building
construction
Total Paved Surface
Area (Parking,
Driveways, and
Roads)
Paving Cost
(Parking, Driveways,
and Roads)
Total Sidewalk Area
Single-family Residential
Value
7%
2,310
square feet
$53.80 per
sq.ft.
N/A
N/A
N/A
Data Source
Estimate from NAHB
Chicago focus groups.
From Census Report
C25, the average size of
new single-family homes
sold in 1999 and
conventionally financed
was 2,310 square feet.
From NAHB's website,
construction costs for a
generic single-family
house are $124,276.
$124,276^2,310 =
$53.80. See Appendix B
for further discussion.
Multifamily Residential
Value
7%
Varies
$54.05 per
sq. ft.
Varies
$1.44 per
sq. ft.
Varies
Data Source
Estimate from NAHB
Chicago focus groups.
Scaled to site size based
on impervious surface
ratios from "Chesapeake
Bay Watershed
Impervious Cover
Results by Land Use
Polygon."
R.S. Means Building
Construction Cost Data
median construction cost
per square foot for a
"typical" low-rise (1-3
stories) apartment
building.
Scaled to site size based
on impervious surface
ratios from "Chesapeake
Bay Watershed
Impervious Cover
Results by Land Use
Polygon."
R.S. Means Heavy
Construction Cost Data
Scaled to site size based
on impervious surface
ratios from "Chesapeake
Bay Watershed
Impervious Cover
Results by Land Use
Polygon."
Small Commercial (Shopping Center)
Value
7%
Varies
$53.85
per sq.ft.
Varies
$1.44 per
sq. ft.
Varies
Data Source
Estimate from NAHB
Chicago focus groups.
Scaled to site size based
on impervious surface
ratios from "Chesapeake
Bay Watershed
Impervious Cover
Results by Land Use
Polygon."
R.S. Means Building
Construction Cost Data
median construction cost
per square foot for a
"typical" supermarket
Scaled to site size based
on impervious surface
ratios from "Chesapeake
Bay Watershed
Impervious Cover
Results by Land Use
Polygon."
R.S. Means Heavy
Construction Cost Data
Scaled to site size based
on impervious surface
ratios from "Chesapeake
Bay Watershed
Impervious Cover
Results by Land Use
Polygon."
Industrial Building
Value
7%
Varies
$36.15
Varies
$1.44 per
sq.ft.
Varies
Data Source
Estimate from NAHB
Chicago focus groups.
Scaled to site size based
on impervious surface
ratios from "Chesapeake
Bay Watershed
Impervious Cover
Results by Land Use
Polygon."
R.S. Means Building
Construction Cost Data
median construction
cost per square foot for
a "typical" industrial
warehouse.
Scaled to site size based
on impervious surface
ratios from "Chesapeake
Bay Watershed
Impervious Cover
Results by Land Use
Polygon."
R.S. Means Heavy
Construction Cost Data
Scaled to site size based
on impervious surface
ratios from "Chesapeake
Bay Watershed
Impervious Cover
Results by Land Use
Polygon."
4A-3
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 4A-1. Model Parameters and Data Sources
Parameters
Sidewalk
Construction Cost
Percent of total land
cost that a developer
can finance for land
acquisition
Percent of total land
cost that a developer
can finance for land
development
Percent of total
building construction
cost that a builder
can finance
Loan interest rate for
builder/developer
Term of land
acquisition loan,
years
Term of land
development loan,
years
Single-family Residential
Value
N/A
65%
70%
80%
7.5%
3
1
Data Source
Loan-to-value ratio as
written in the Real Estate
Lending Rules . See
Appendix B for further
discussion.
Loan-to-value ratio as
written in the Real Estate
Lending Rules. See
Appendix B for further
discussion.
Loan-to-value ratio as
written in the Real Estate
Lending Rules . See
Appendix B for further
discussion.
EPA estimate.
EPA assumption.
Assumes that the land
acquisition loan is paid
off over the life of the
project, which in this
case is 3 years.
EPA assumption.
Assumes that the land
development loan term is
equal to the length of the
development phase of the
project, which in this
case is 1 year.
Multifamily Residential
Value
$4.66 per
sq. ft.
65%
70%
80%
7.5%
1
Data Source
R.S. Means Heavy
Construction Cost Data
See Single-family
Residential Data Source
for details.
See Single-family
Residential Data Source
for details.
See Single-family
Residential Data Source
for details.
EPA estimate.
See Single-family
Residential Data Source
for details.
See Single-family
Residential Data Source
for details.
Small Commercial (Shopping Center)
Value
$4.66 per
sq. ft.
65%
70%
80%
7.5%
1
Data Source
R.S. Means Heavy
Construction Cost Data
See Single-family
Residential Data Source
for details.
See Single-family
Residential Data Source
for details.
See Single-family
Residential Data Source
for details.
EPA estimate.
See Single-family
Residential Data Source
for details.
See Single-family
Residential Data Source
for details.
Industrial Building
Value
$4.66 per
sq.ft.
65%
70%
80%
7.5%
1
Data Source
R.S. Means Heavy
Construction Cost Data
See Single-family
Residential Data Source
for details.
See Single-family
Residential Data Source
for details .
See Single-family
Residential Data Source
for details.
EPA estimate.
See Single-family
Residential Data Source
for details .
See Single-family
Residential Data Source
for details.
4A-4
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 4A-1. Model Parameters and Data Sources
Parameters
Term of building
construction loan,
years
Assumed pre-tax
profit on land
development
Assumed pre-tax
profit on
construction
Single-family Residential
Value
1
10%
10%
Data Source
EPA assumption.
Assumes that the
construction loan term is
equal to the length of the
construction phase of the
project, which in this
case is 1 year.
NAHB Chicago focus
group estimated 12-14
percent; 1 0 percent is an
EPA assumption. See
Appendix B for further
discussion.
NAHB Chicago focus
groups estimated 8 to 12
percent pre-tax at time of
sale. R.S. Means uses 10
percent as a profit
assumption in their Cost
Data book series.
Multifamily Residential
Value
1
10%
10%
Data Source
See Single-family
Residential Data Source
for details.
See Single-family
Residential Data Source
for details.
See Single-family
Residential Data Source
for details.
Small Commercial (Shopping Center)
Value
1
10%
10%
Data Source
See Single-family
Residential Data Source
for details.
See Single-family
Residential Data Source
for details.
See Single-family
Residential Data Source
for details.
Industrial Building
Value
1
10%
10%
Data Source
See Single-family
Residential Data Source
for details .
See Single-family
Residential Data Source
for details.
See Single-family
Residential Data Source
for details .
4A-5
-------
APPENDIX 4B
Detailed Description of Model Parameters and Assumptions
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
Cost of Raw Land
Land prices tend to vary by region of the country, and even within particular regions, depending
on the exact location of the parcel (e.g., urban proximity). For this generic single-family project cost
model, a value of $40,000 per acre is used based on the estimate provided by participants in the Chicago
NAHB focus group morning session. The participants in the NAHB Dallas focus group meetings
confirmed that even within one state lot prices can range dramatically. Prices per lot were reported to
range from near $10,000 in El Paso, TX, to nearly $1 million in Austin (for lake-front property). (Note,
these costs cited were per lot, not per acre). The single-family development land cost estimate was also
used in the multifamily residential project model due to lack of other data.
Land prices for the commercial and industrial models were taken from the Urban Land Institute's
(ULI) Market Profiles 2000: North America, which lists average land costs for shopping centers and
industrial parks for selected Metropolitan Statistical Areas (MSAs) depending on data availability. The
median land cost for each project type was calculated from a list of MSA average land costs and used in
the models as a national estimate proxy.
Due Diligence
As described previously, due diligence refers to the work done by the developer prior to taking
ownership of a parcel. During this time the developer conducts a variety of environmental and
engineering assessments to identify any potential obstacles to the successful completion of the proposed
development. At this time the only estimates for due diligence costs are based on a $100,000 estimate
provided by the Chicago NAHB focus group participants for a 40-acre project. This figure was
converted to $2,500 per acre on the assumption that these costs would fluctuate depending on the size of
the project.
Impact Fees
The NAHB's Chicago focus group estimated the impact fees on new residential construction to
average $15,000 per lot. This figure was converted to $45,000 per acre for use in the multifamily,
commercial, and industrial project models.
4B-1
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
This is one of many estimates that may be found in the literature. In their book Red Tape and
Housing Costs, Michael Luger and Kenneth Temkin interviewed numerous builders and developers in
New Jersey and North Carolina, and received several estimates for impact fees in North Carolina.
Estimates ranged from approximately $2,800 to $6,547 per unit in Gary, NC, and from $1,300 to $2,765
in Durham, NC. Even the highest estimate in these ranges is significantly lower than the estimate from
the focus group meeting. These fees represent approximately 1 to 2 percent of the final sale price of a
house in the area.
In a cost breakdown of a single-family home provided by NAHB on their website,34 impact fees
were estimated at $1,182 per unit (approximately 1 percent of total construction cost). A study by the
Sierra Club (Sierra Club 2000) estimates that impact fees range from under $1,000 per unit to
approximately $6,140 per single-family unit. These figures are based on local observations. Finally,
Ross and Thorpe (1992) report that a survey conducted in 1990 in Orange County, California (one of the
most expensive housing markets in the country), found at least three cities in that county with impact fees
exceeding $20,000 per unit. This estimate is closest to the assumption currently in the models.
At this time, EPA is unaware of any single national estimate for the average impact fee imposed
on developers and builders and has chosen to use the NAHB estimate for this analysis.
Building Construction Costs
The approach used in the model project for estimating average building construction costs for the
single-family project is to take total construction costs for a new single-family house, provided by NAHB
on their website ($124,276) (NAHB 2001b), and divide that figure by the average square footage of a
new, conventionally financed, house as reported by Census (2,310 square feet; Characteristics of New
Housing). This calculation yields an average construction cost of $53.80 per square foot. NAHB focus
group participants estimated that building construction costs ranged from $50 to $75 per square foot, at
least in the Chicago area. The national estimate is within the range provided by NAHB members at the
focus group meeting.
34 http://www.nahb.com/housing_issues/balance_2.htm
4B-2
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
Building construction costs for the remaining projects - multifamily, commercial, and industrial
- were taken from R.S. Means Building Construction Cost Data. The costs used were median costs for
the "typical" sized building for each project type, based on the projects detailed in the R.S. Means project
database. While the building costs may fluctuate some with overall building size, the median cost was
used as a proxy for national-level building costs and was used regardless of site or building size.
Building size for these three project types was assumed to fluctuate with site size. Size estimates for each
site size were determined using the building to site area ratio from the Center for Watershed Protection.
Multiplying this ratio by each site size (1, 3, 7.5, etc. acres) gave EPA an estimate of building footprint.
Since multifamily building construction costs were based on low-rise apartment buildings 1 to 3 stories
in height, an average of 2 stories per apartment building was used to calculate total building square
footage from the footprint. Commercial and industrial buildings were assumed to be 1 story; therefore
the building footprint equaled total building area.
Impervious Surface Estimates
Estimates for impervious surface area and construction costs were calculated for the multifamily,
commercial, and industrial model projects. The impervious surface area for roads, driveways, parking,
and sidewalks was calculated by multiplying the impervious surface area to site size ratio (CWP 2001) by
the site size. R.S. Means cost estimates for paving and sidewalk construction were used to estimate
impervious surface construction costs. The paving cost estimate ($1.44 per square foot) was multiplied
by the combined surface area for roads, driveways, and parking while the sidewalk cost estimate ($4.66
per square foot) could be directly multiplied to the sidewalk surface area estimate.
Financing Requirements
A December 28, 1999, memo from ERG to EPA ("Real Estate Development Financing") cites
the typical land acquisition loan duration is 2 years, whereas the models currently use a duration of 3
years. It is not clear if the 2 year loan term includes the same activities as assumed for the model
projects. Similarly, the duration for the land development loan is cited as approximately 2 years
(comparable to that for the land acquisition loan). The average duration of the construction loan is not
cited in the memo, although it may be assumed that the duration of the loan would vary with project size.
4B-3
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
Loan-to-value ratios under the Real Estate Lending Rules declined from approximately 80 percent
for all phases of project development to the following breakdown after the Savings and Loan Crisis:
• 65 percent for land acquisition
• 75 percent for land development
• 80 percent for construction
The memo also states that the typical land acquisition loan rate is 1-4 points above the prime rate.
No further detail for the remaining project stages is given, but they are assumed to be within the same
range. The models currently use a loan rate of 7.5 percent.
Profit Assumptions
Profit on both land development and building construction are assumed to be 10 percent, based on
conversations with NAHB and reality-checked against the assumptions used in the R.S. Means Cost Data
series. Note that there would not be a separate profit for the land development phase of the project because
the developer-builder would retain ownership of the project through building construction (land
development profit is only realized when a developer sells finished lots to individual builders). The profit
rate with 100 percent CPT is based on the assumption that any additional costs incurred by the developer-
builder (i.e., additional storm water control costs) would be passed through to the consumer, and that none
of the additional costs would be borne by the developer-builder as decreased profit. The profit rate with
zero CPT depends on the level of costs.
Overhead Assumptions
EPA assumes that developers apply an overhead charge to all costs incurred during the land
development phase, and that a further overhead charge is levied by the builder on all costs incurred during
the building phase, including the cost of lot acquisition. These overhead charges represent, in part,
payment to the owner for capital tied up to secure development and construction loans as well as
compensation for managing and overseeing the work of subcontractors and other professionals (engineers,
architects, designers).
4B-4
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
The estimated overhead rate of 10 percent at the development stage and 10 percent at the building phase
was based on input from NAHB. EPA has separately calculated the "opportunity cost of capital" based
on actual financing needs, loan conditions, and loan terms. In the model projects, therefore, the actual
percentage applied as an overhead factor has been adjusted downwards.
4B-5
-------
APPENDIX 4C
Characteristics of Model Establishments
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 4C-1. Model Establishment Characteristics Based on Census Data[1]
Single
Family
Multifamily
Commercial
Industrial
Class
1-4
5-9
10-24
25-99
100-499
500+
2-9
10-24
25-99
100-499
500+
50-99
50-99
Number of
Establishments
17,107
7,589
6,262
3,018
833
122
486
398
383
593
39
41,356
8,042
Average
Starts
2.3
6.4
14.6
41.9
191.7
864.5
4.3
16.5
55.1
191.7
959.0
13.2
9.5
Average
Revenue
$492.2
$1,088.6
$1,987.0
$4,923.5
$24,030.7
$109,032.6
$644.8
$1,381.6
$3,499.7
$7,410.0
$43,844.4
$23,799
$18,470
Average
Employment
2.5
3.3
4.3
8.6
32.1
160.0
3.2
5.1
8.0
13.5
64.7
67.5
67.7
Cashflow
$46.3
$104.9
$177.3
$4,229.0
$2,187.6
$9,192.5
$29.4
$99.6
$320.1
$566.6
$938.8
$927.5
$627.3
[1] Dollar values in thousands
4C-1
-------
Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 4C-2 Model Establishment Characteristics Based on Dun And Bradstreet Data
Single Family (SIC 153D
line Item Scaled Value [1] Percent
Cash
Accounts Receivable
Notes Receivable
Inventory
Other Current
Fixed Assets
Other Non-current
Total Assets
Accounts Payable
Bank Loans
Notes Payable
Other Current
Total Current Liabilities
Other Long Term
Deferred Credits
Net Worth
Total Liabilities & Net Worth
Net Sales
Gross Profit
Net Profit After Tax
Working Capital
Gross Profit Ratio
Return on Net Worth Ratio
Current Ratio
Debt to Equity Ratio
$82,229
$61,499
$4,837
$210,064
$152,711
$5 1 1 340
$109,178
$70,482
$691,000
$56,662
$11,747
$101,577
$196,935
$366,921
$81,538
$5,528
$237,013
$691,000
$1,000,000
$228,000
$12,000
$144,419
11.9%
8.9%
0.7%
30.4%
22.1%
74 0%
15.8%
10.2%
100.0%
8.2%
1.7%
14.7%
28.5%
53.1%
11.8%
0.8%
34.3%
100.0%
100.0%
22.8%
1.2%
--
0.228
0.051
1.394
1.915
Multifamilv (SIC 1522)
Scaled Value [1] Percent
$55,752
$81,204
$3,939
$12,726
$67,569
$221 190
$58,176
$23,634
$303,000
$73,023
$2,424
$18,483
$102,414
$196,344
$29,997
$1,212
$75,447
$303,000
$1,000,000
$190,000
$35,000
$24,846
18.4%
26.8%
1.3%
4.2%
22.3%
73 0%
19.2%
7.8%
100.0%
24.1%
0.8%
6.1%
33.8%
64.8%
9.9%
0.4%
24.9%
100.0%
100.0%
19.0%
3.5%
--
0.190
0.464
1.127
3.016
Commercial (SIC 1542)
S caled Value [1 ] Percent
$61,705
$101,598
$2,009
$5,740
$60,270
S 23 1 322
$41,041
$14,637
$287,000
$87,248
$1,435
$6,888
$52,521
$148,092
$15,498
$574
$122,836
$287,000
$1,000,000
$159,000
$30,000
$83,230
21.5%
35.4%
0.7%
2.0%
21.0%
80 6%
14.3%
5.1%
100.0%
30.4%
0.5%
2.4%
18.3%
51.6%
5.4%
0.2%
42.8%
100.0%
100.0%
15.9%
3.0%
--
0.159
0.244
1.562
1.336
Industrial (SIC
Scaled Value [1]
$57,682
$108,116
$2,718
$4,530
$58,588
S 23 1 634
$52,246
$18,120
$302,000
$79,124
$604
$7,248
$57,984
$144,960
$22,348
$302
$134,390
$302,000
$1,000,000
$184,000
$34,000
$86,674
1541)
Perceni
19.1%
35.8%
0.9%
1.5%
19.4%
76 7%
17.3%
6.0%
100.0%
26.2%
0.2%
2.4%
19.2%
48.0%
7.4%
0.1%
44.5%
100.0%
100.0%
18.4%
3.4%
--
0.184
0.253
1.598
1.247
[1 ] Values scaled according to $1,000,000 net sales for comparative purposes
4C-2
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 4C-3 Financial Ratio Data by Quartile
S e ctor
Single Family
Multifamily
Commercial
Industrial
Ratio
Current
Debt to Equity
Return on Net Worth
Current
Debt to Equity
Return on Net W orth
Current
Debt to Equity
Return on Net Worth
Current
Debt to Equity
Return on Net W orth
Upper
Qua r tile
2.900
0.724
0.335
2.500
0.595
0.589
2.200
0.660
0.369
2.500
0.527
0.386
Median
1.400
1.796
0.168
1.500
1.280
0.227
1.500
1.456
0.164
1.600
1.300
0.151
Lower
Qua r tile
1.100
4.928
0.066
1.100
3.179
0.061
1.200
2.823
0.055
1.200
2.723
0.055
4C-3
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
CHAPTER FIVE
ECONOMIC IMPACT ANALYSIS RESULTS
5.1 OVERVIEW OF ECONOMIC IMPACT ANALYSIS METHODOLOGY
This chapter presents the projected economic impacts of the regulatory options discussed in
Chapter Three on the construction and development (C&D) industry. In this chapter, EPA evaluates the
impacts of these costs using the methodology, models, data, and approaches described in Chapter Four.
The economic impact methodology uses several methods to assess economic impacts on the
industry. These include models that analyze impacts at the level of the individual construction project,
individual firm, national construction market, and the economy as a whole. The analysis considers
impacts on C&D firms that would be complying with the regulations. It also considers the impacts on
those who purchase the output of the C&D industry, including prospective new home buyers; owners of
new multifamily, commercial, and industrial properties; and public entities responsible for building
roads, schools, and other public facilities.
The chapter is organized as follows:
Section 5.2 presents EPA's analysis of the economic impacts of the proposed
rule on model C&D projects. These results are based on the financial analyses
developed for representative projects in Chapter Four.
Section 5.3 presents EPA's estimates of the national costs of the proposed rule.
EPA determined those costs by multiplying the per-acre compliance costs by
estimates of the number of acres subject to the proposed effluent guidelines
annually.
Section 5.4 presents the results of EPA's analysis of the impacts of the proposed
rule on model C&D establishments. This section examines the impact of the
incremental compliance requirements on the financial condition of representative
establishments, using data on their present financial condition as a starting point.
Section 5.5 presents EPA's analysis of closures and employment losses. These
impacts are based on the model establishment described in Section 5.4.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
Section 5.6 presents EPA's analysis of the proposed rule's impacts on barriers to
entry—that is, how the incremental costs of the proposed rule could affect the
ability of new businesses to enter the market.
Section 5.7 presents EPA's market model analysis. This section considers the
impact of the incremental compliance requirements on national construction
markets and the economy as a whole.
Section 5.8 presents EPA's analysis of potential impacts on government units.
This section considers the various costs to government associated with the
proposed rule.
Section 5.9 presents EPA's analysis of additional impacts of the proposed rule.
This section discusses regional impacts, social costs, and unfunded mandates.
5.2 ANALYSIS OF IMPACTS ON MODEL PROJECTS
Chapter Four defines a series of model projects. In this section, EPA uses those models to
analyze the impact of the proposed rule on two alternative targets: the developer-builder (assuming that
they absorb the incremental costs) and the consumer (assuming that the same costs are passed on to the
buyer). EPA has developed model projects for each of the following:
• A residential development of single-family homes
• A residential development of multifamily housing units
• A commercial development (enclosed shopping center)
• An industrial development (industrial park)
For each type of model project, EPA has analyzed costs and impacts for a range of project sizes:
1, 3, 7.5, 25, 70, and 200 acres. The model projects incorporate all of the baseline costs associated with
developing a site and completing construction of all housing units or buildings on the site. Accordingly, it
is assumed that the baseline costs include the costs of complying with existing Phase I and Phase II
NPDES storm water regulations as they would apply to the site. The model then allows EPA to assess
the incremental impact of additional requirements imposed under the proposed rule. Chapter Four
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
provides a detailed description of the model project characteristics, assumptions, and data sources,
including an itemized listing of project cost elements.
5.2.1 Cost Pass Through Considerations
The model projects are calibrated to allow analysis under varying assumptions about the degree
of cost pass through (CPT) from the builder-developer to the buyer.1 Costs for the models have been
estimated under two extreme assumptions, 100 percent CPT and zero CPT. Under 100 percent CPT, all
incremental regulatory costs resulting from the proposed rule are passed through to end consumers.
Under this approach, the costs are also assumed to be marked up to the same degree as any other project
costs.2 Consumers feel the impact of the regulations in the form of a higher price for each new building
or housing unit. With zero CPT, the incremental regulatory costs are assumed to accrue entirely to the
builder-developer, and appear as a reduction in profits. EPA determines this reduction by fixing the final
sales price of the housing units and calculating the builder's profit once the regulatory costs are absorbed.
Existing literature and industry information suggests that, in the important single-family home
market, at least, pass through of regulatory costs in the new housing market is close to 100 percent (e.g.,
Luger and Temkin, 2000), but the actual incidence of regulatory costs would depend closely on local
market conditions. To illustrate the range of possible impacts, EPA has calculated its models under the
extreme conditions of 100 percent and zero percent CPT. Accordingly, for each sector modeled there are
two sets of results reported below.
5.2.2 Model Project Baseline Performance
Under the baseline assumptions and conditions, the sales price for each housing unit (or model
commercial or industrial building) is calculated, and the baseline builder-developer profit level is
1 Cost pass-back to the landowner is possible, but it occurs infrequently. See Section 4.1.2. Since EPA
lacks data on the actual incidence and extent of cost pass-back, it is not analyzed in detail.
2 The cost markup assumptions are built into the model and are explained in Chapter Four.
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determined based on the sales price. Builder-developer pre-tax profit is assumed to be approximately 10
percent of the building sales price. Table 5-1 shows the baseline sales price and profit for each model
project type and each project size. Data and assumptions underlying these estimates are derived in
Chapter Four. The model results presented later in this section show changes from these baseline values
under each regulatory option.
Table 5-1. Baseline Sales Price and Profit Conditions for the Model Projects
Project Type and Size (acres)
Calculated Building Sales Price
Builder-Developer Pre-tax Profit
Single-Family Residential
1 acre
3 acres
7.5 acres
25 acres
70 acres
200 acres
$279,903
$283,093
$283,093
$282,951
$283,042
$283,058
$27,990
$24,251
$28,309
$28,295
$28,304
$28,306
Multifamily Residential
1 acre
3 acres
7.5 acres
25 acres
70 acres
200 acres
$1,375,074
$4,125,374
$10,313,438
$34,378,235
$96,259,030
$275,025,887
$137,507
$412,537
$1,031,344
$3,437,823
$9,625,903
$27,502,589
Commercial
1 acre
3 acres
7.5 acres
25 acres
70 acres
200 acres
$1,498,800
$4,496,399
$11,240,999
$37,469,920
$104,915,760
$299,759,358
$149,880
$449,640
$1,124,100
$3,746,992
$10,491,576
$29,975,936
Industrial
1 acre
3 acres
7.5 acres
25 acres
70 acres
200 acres
$950,949
$2,852,899
$7,132,197
$23,773,989
$66,567,119
$190,191,761
$95,095
$285,290
$713,220
$2,377,399
$6,656,712
$19,019,176
Source: EPA estimates based on the methodologies presented in Chapter Four.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
5.2.3 Results of Model Project Analyses
Table 5-2a contains the results under the 100 percent CPT assumption, while Table 5-2b contains
identical results under the assumption of zero CPT. In Table 5-2a (100 percent CPT), the impacts of the
regulatory options are shown as the percentage increase in the sales price of each model project unit. In
Table 5-2b (zero CPT), the impacts of the regulatory options are shown as the percentage decrease in
builder profits.
100 Percent Cost Pass-Through
Under the 100 percent CPT assumption, the impacts range from aminimum of 0.00 percent (i.e.,
there is no incremental impact on sales price) for all project types to a range of maximum impact values
(where the percent listed indicates an increase in sales price of that amount): 0.09 percent for single-family
residential, 0.05 percent for multifamily residential, 0.05 percent for commercial, and 0.07 percent for
industrial. All of the maximum impacts occur under Option 2.
Zero Cost Pass-Through
Under the zero CPT assumption, the impacts range from a minimum of 0.00 percent for all project
types under various option combinations (indicating no impact to builder profit) to a range of maximum
impact values, all under one percent. Maximum impacts all occur with Option 2 as shown below:
• Single-family residential: -0.80 percent
• Multifamily residential: -0.45 percent
• Commercial: -0.41 percent
• Industrial: -0.64 percent
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
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Table 5-2a. Impact of Regulatory Options on Model Project Financials—100 Percent Cost Pass
Through, All Project Sizes
Option
1
2
3
Percent Change in Project Price to Buyer
Single-Family
Min
0.00%
0.00%
0.00%
Max
0.04%
0.09%
0.00%
Multifamily
Min
0.00%
0.00%
0.00%
Max
0.02%
0.05%
0.00%
Commercial
Min
0.00%
0.00%
0.00%
Max
0.02%
0.05%
0.00%
Industrial
Min
0.00%
0.00%
0.00%
Max
0.03%
0.07%
0.00%
Source: EPA estimates based on the methodologies presented in Chapter Four.
Table 5-2b. Impact of Regulatory Options on Model Project Financials—Zero Percent Cost Pass
Through, All Project Sizes
Option
1
2
3
Percent Change in Builder-Developer Profit
Single-Family
Min
0.00%
0.00%
0.00%
Max
-0.37%
-0.80%
0.00%
Multifamily
Min
0.00%
0.00%
0.00%
Max
-0.19%
-0.45%
0.00%
Commercial
Min
0.00%
0.00%
0.00%
Max
-0.17%
-0.41%
0.00%
Industrial
Min
0.00%
0.00%
0.00%
Max
-0.27%
-0.64%
0.00%
Source: EPA estimates based on the methodologies presented in Chapter Four.
5.2.4 Nonbuilding Project Analysis Results
This section presents the results of the model nonbuilding project analysis described in Section
4.2.7. As indicated in that section, EPA has not developed actual engineering costs for projects such as
roads and highways. As a result, EPA has simulated the impact of the proposed rule on such projects
using worst-case (i.e., highest) estimates of the per-acre engineering costs estimated for building projects.
Due to the lack of engineering costs for this project type, EPA used a "worst-case" assumption of
$378 per acre in compliance costs. This figure is based on the highest per-acre compliance cost
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
estimated for a 7.5-acre building project. EPA elected to use the compliance costs for a 7.5-acre project
because the model one-mile new highway construction project encompasses 10.67 acres. EPA estimates
that the baseline costs of construction for one mile of typical road or highway is $5.4 million (see Section
4.2.7). Using $378 per acre, the worst-case estimate of compliance costs associated with one mile of
new road or highway construction (10.67 acres) is $4,033. This equates to less than 0.1 percent of
baseline costs, indicating even under worst-case assumptions regarding compliance costs, the proposed
rule is unlikely to have a significant impact on representative nonbuilding construction projects.
5.3 ANALYSIS OF NATIONAL COMPLIANCE COSTS
EPA has calculated the national compliance costs associated with the proposed rule by
multiplying the compliance costs per acre (by project type and size) by estimates of the number of acres
developed per year. EPA used data from the USDA National Resources Inventory (NRI) to estimate the
number of acres developed per year. According to this source, approximately 2.2 million acres of
undeveloped land are converted to a developed state every year. EPA has adjusted this total to account
for waivers and differences in regulatory coverage between Option 1 and Option 2.3 As described in
Chapter Four, both the 14-Community Study (conducted in support of the Phase IINPDES storm water
rule development) and building permits data from Census were used to allocate the developed acreage by
project type and size.
Table 5-3 contains EPA's estimates of the national costs of the regulatory options. The national
costs of the proposed rule range from $0.00 for each project type (Option 3) to a maximum of $121.5
million for single-family residential construction, $59.4 million for multifamily residential construction,
$277.3 million for commercial construction, and $11.0 million for industrial construction (all Option 2).
The combined national compliance costs across all sectors are shown in the final rows of Table
5-3a. The national compliance costs under Option 1 are $118.1 million while the national compliance
costs under Option 2 are $469.2 million.
3 Option 1 applies to sites of one acre or more in size while Option 2 applies to sites of five acres or more
in size.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
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Table 5-3a. Estimated National Cost of Storm Water Control Options
(All Dollar Amounts in Constant, Pre-tax, 1997 Dollars)
Option
Compliance Costs per Acre($)
Estimated National Costs ($ Millions)
Single-Family Residential
Option 1
Option 2
Option 3
$57.0
$305.0
$0.0
$24.1
$121.5
$0.0
Multifamily Residential
Option 1
Option 2
Option 3
$59.0
$319.0
$0.0
$11.9
$59.4
$0.0
Commercial
Option 1
Option 2
Option 3
$74.0
$312.0
$0.0
$78.4
$277.3
$0.0
Industrial
Option 1
Option 2
Option 3
Total
Option 1
Option 2
Option 3
$81.0
$303.0
$0.0
-
-
-
$3.7
$11.0
$0.0
$118.1
$469.2
$0.0
NOTE: Compliance costs per acre are weighted national averages for each option over all site size classes.
Source: EPA estimates based on the methodologies presented in Chapter Four.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
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Table 5-3b. Calculation of Total Cost per Unit
(All Dollar Amounts Are in Constant, Pre-tax, 1997 Dollars)
Single
Multi-Family
Commercial
Industrial
Total
Option 1
Total Costs
Total Acres
Cost per Acre
Units per Acre
Cost per Unit
$24,099,340
533,878
$45.14
2.67
$16.91/house
$11,892,936
252,182
$47.16
13,591
$0.003/sq ft
$78,415,033
1,332,476
$58.85
8,320
$0.007/sq ft
$3,733,824
57,523
$64.91
8,555
$0.008/sq ft
$118,141,133
2,176,058
Option 2
Total Costs
Total Acres
Cost per Acre
Units per Acre
Cost per Unit
$121,470,785
501,100
$242.41
2.67
$90.79/house
$59,391,699
229,958
$258.27
13,591
$0.019/sqft
$277,280,636
1,061,108
$261.31
8,320
$0.031/sqft
$11,016,368
42,733
$257.80
8,555
$0.030/sq ft
$469,159,488
1,834,898
Source: EPA estimates based on the methodologies presented in Chapter Four.
Table 5-3b shows the calculation of cost per unit for Options 1 and 2. Units are "dollars per
house" for single-family residential construction and "dollars per square foot" for all other categories.
Total costs are the estimated national costs as shown in Table 5-3a. Option 2 applies only to sites
disturbing 5 acres or more, so this option encompasses less acreage than Option 1. In addition, several
states have enacted regulations equivalent to the proposed standards and so would not incur incremental
costs from the proposed rule. These equivalent states are included in the storm water control costs per
acre in Table 5-3a but removed in the estimated national costs in the same table. Table 5-3b recalculates
the cost per acre with the costs attributable to states with equivalent programs removed. With this
adjustment, the cost per unit is calculated by dividing by the number of houses per acre, or number of
rentable square feet per acre, which is derived from Census and R. S. Means data.
The cost to build a new single-family home increases by $17 under Option 1 and $91 under
Option 2. Costs per square foot increase by less than 1 cent for Option 1 and 2 to 3 cents for Option 2.
The impacts of these cost increases on the markets for new construction are explored in Section 5.7.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
5.4 ANALYSIS OF IMPACTS ON MODEL ESTABLISHMENTS
As described in Chapter Four, EPA developed a set of representative model projects as one basis
for analyzing the impacts of the proposed rule on the construction industry. EPA has examined the
impacts of the compliance costs associated with these model projects on a series of model establishments
that characterize the financial conditions of "typical" businesses in each of the four major industry sectors
(single-family residential, multifamily residential, commercial, and industrial; see Section 4.3).
The model firm analysis simulates the impact of the incremental compliance costs on the balance
sheet and cash flow of the model establishments, and expresses the impacts in terms of changes in
meaningful business financial ratios. The ratios used in the analysis include:
• Gross profit ratio
• Return on net worth
• Current ratio
• Debt to equity ratio
These ratios are reviewed in Chapter Four, which also presents a discussion of their significance as
indicators of financial performance.
5.4.1 Building Construction
This section presents the results of simulations of firm performance under the regulatory options
being considered by EPA. As indicated in Chapter Four, the simulations have been run under two CPT
scenarios: (1) zero CPT from the developer-builder to the consumer and (2) an estimated actual CPT,
where a "realistic" share of the compliance costs are passed though to consumers in the form of higher
prices. EPA has estimated a separate CPT factor for each market sector individually. The zero CPT
results presented in this section represents the "worst case" scenario; impacts under the more realistic CPT
assumption are much smaller than those shown below.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
Table 5-4 shows sample results for a firm in the single-family residential construction industry
(SIC 1531) completing between 10 and 24 housing starts per year, based on costs for 7.5-acre projects.
Impacts are most severe on the return on net worth ratio, a recurring outcome throughout EPA's model
firm analysis. Return on net worth is the most sensitive ratio because it is based on net profit after taxes,
which makes up 1.2 percent of revenues for the "typical" establishment in SIC 1531 according to D&B
data. Impacts are much less severe under the other financial ratio measures.
Table 5-5a provides a summary of the results for each sector by regulatory option, over all
project sizes and under the zero CPT scenario. The results are broadly similar to the detailed example
presented in Table 5-4 for the single-family residential sector. Table 5-5b provides the same summary of
financial ratios under the estimated actual cost pass through scenario. In both scenarios the most severe
impacts are observed when measured by impact on return on net worth, followed by the gross profit, debt
to equity, and current ratios. The largest impact over both scenarios is a 5.85 percent decline in the
return on net worth ratio for the single-family residential sector under Option 2 with zero CPT. With the
exception of return on net worth, the remainder of the results under zero CPT are at or below 1.0 percent
for all project types. The results under the estimated actual CPT scenario indicate impacts of less than
1.0 percent for all financial ratios and all four project types, with most of the impacts being less than 0.10
percent (with the exception of return on net worth).
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
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Table 5-4 Impact of Regulatory Options on Financial Performance for Model Firm
Single-family Residential Construction, 10-24 Housing Units Starts Class
Impact
Regulatory Option
Option 1
Option 2
Option 3
Cost Impact
Incremental Costs per Acre Per Year
Incremental Costs per Establishment Per Year
$64
$354
$371
$2,034
$0
$0
Impact on Financial Performance
Gross Profit Ratio
Percent change from baseline
Return on Net Worth
Percent change from baseline
Current Ratio
Percent change from baseline
Debt to Equity Ratio
Percent change from baseline
0.2278%
-0.0780%
0.0502%
-0.8810%
1.3935%
-0.0070%
1.9161%
0.0310%
0.2270%
-0.4490%
0.0481%
-5.0680%
1.3930%
-0.0400%
1.9189%
0.1800%
0.2280%
0.0506%
1.3936%
1.9155%
Source: EPA estimates based on the methodologies presented in Chapter Four.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
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Table 5-5a. Impact of Regulatory Options on Model Firm Financial Performance
Zero Cost Pass Through
Construction Industry
and Regulatory Option
Percent Change in Financial Ratios, From Baseline"
Gross Profit
Min.
Max.
Return on Net
Worth
Min.
Max.
Current Ratio
Min.
Max.
Debt to Equity
Min.
Max.
Single-family residential
Option 1
Option 2
Option 3
0.000%
0.000%
0.000%
-0.230%
-0.520%
0.000%
0.000%
0.000%
0.000%
-2.540%
-5.850%
0.000%
0.000%
0.000%
0.000%
-0.020%
-0.050%
0.000%
0.000%
0.000%
0.000%
0.900%
0.210%
0.000%
Multifamify residential
Option 1
Option 2
Option 3
0.000%
0.000%
0.000%
-0.310%
-0.950%
0.000%
0.000%
0.000%
0.000%
-0.990%
-3.070%
0.000%
0.000%
0.000%
0.000%
-0.050%
-0.160%
0.000%
0.000%
0.000%
0.000%
0.200%
0.640%
0.000%
Commercial
Option 1
Option 2
Option 3
0.000%
0.000%
0.000%
-0.170%
-0.400%
0.000%
0.000%
0.000%
0.000%
-0.530%
-1.250%
0.000%
0.000%
0.000%
0.000%
-0.020%
-0.050%
0.000%
0.000%
0.000%
0.000%
0.130%
0.310%
0.000%
Industrial
Option 1
Option 2
Option 3
0.000%
0.000%
0.000%
-0.140%
-0.320%
0.000%
0.000%
0.000%
0.000%
-0.430%
-1.020%
0.000%
0.000%
0.000%
0.000%
-0.020%
-0.050%
0.000%
0.000%
0.000%
0.000%
0.120%
0.280%
0.000%
1 Ranges (minimum and maximum) reflect results across model firms of varying sizes.
Source: EPA estimates based on the methodologies presented in Chapter Four.
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Table 5-5b. Impact of Regulatory Options on Model Firm Financial Performance
Estimated Actual Cost Pass Through
Construction Industry
and Regulatory Option
Percent Change in Financial Ratios, From Baseline"
Gross Profit
Min.
Max.
Return on Net
Worth
Min.
Max.
Current Ratio
Min.
Max.
Debt to Equity
Min.
Max.
Single-family residential
Option 1
Option 2
Option 3
0.000%
0.000%
0.000%
-0.034%
-0.077%
0.000%
0.000%
0.000%
0.000%
-0.379%
-0.872%
0.000%
0.000%
0.000%
0.000%
-0.003%
-0.007%
0.000%
0.000%
0.000%
0.000%
0.013%
0.031%
0.000%
Multifamify residential
Option 1
Option 2
Option 3
0.000%
0.000%
0.000%
-0.026%
-0.080%
0.000%
0.000%
0.000%
0.000%
-0.083%
-0.259%
0.000%
0.000%
0.000%
0.000%
-0.004%
-0.014%
0.000%
0.000%
0.000%
0.000%
0.017%
0.054%
0.000%
Commercial
Option 1
Option 2
Option 3
0.000%
0.000%
0.000%
-0.017%
-0.040%
0.000%
0.000%
0.000%
0.000%
-0.054%
-0.126%
0.000%
0.000%
0.000%
0.000%
-0.002%
-0.006%
0.000%
0.000%
0.000%
0.000%
0.013%
0.031%
0.000%
Industrial
Option 1
Option 2
Option 3
0.000%
0.000%
0.000%
-0.021%
-0.048%
0.000%
0.000%
0.000%
0.000%
-0.066%
-0.155%
0.000%
0.000%
0.000%
0.000%
-0.003%
-0.008%
0.000%
0.000%
0.000%
0.000%
0.018%
0.042%
0.000%
1 EPA applied the following estimated cost pass through factors: Single-family residential, 85.10%; Multifamily residential,
91.55%; Commercial, 89.87%; Industrial, 84.75%.
b Ranges (minimum and maximum) reflect results across model firms of varying sizes.
Source: EPA estimates based on the methodologies presented in Chapter Four.
5.4.2 Nonbuilding Construction
EPA has analyzed the potential impacts of the proposed rule on nonbuilding construction
establishments based on Census data and the cost data presented in Section 5.2.4. As previously
discussed, this analysis focuses on highway and street construction contractors (NAICS 23411) due to
the lack of financial data for other segments of the heavy construction industry group (NAICS 234).
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
The model establishment analysis for heavy construction, although somewhat simplified, follows
the basic methodology outlined in Section 4.3 for establishments in the commercial and industrial
construction industries. EPA has determined that the median highway construction establishment
(NAICS 23411), based on revenues, is in the 50 to 99 employee size classification category as defined by
Census (U.S. Census 2000). Within this employment size class, EPA calculated average establishment
revenues, employment, and costs as discussed in Section 4.3.1.2.
For the model establishment, EPA examined the economic impacts of the worst-case compliance
cost impacts on the same four financial ratios analyzed above for the residential, commercial, and
industrial construction industries. Due to the lack of actual engineering cost estimates for highway
construction, the compliance costs used in this analysis do not correspond to a particular regulatory
option or combination of options. Compliance costs for 7.5-acre projects were chosen for this analysis
because they are closest in size to the model highway construction project assumed to be undertaken by
the model establishment, which encompasses 10.67 acres.
Table 5-6 shows the results of this analysis for the model highway construction firm (50-99
employment size class). Overall, the impacts are not large, with only one estimate above one-quarter of
one percent. As with the model establishments in the building construction industries, the impacts are
largest for the return on net worth ratio.
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Table 5-6. Impact of Proposed Rule on Model Firm Financial* - Highway Construction
Cost Pass
Through
Assumption
Gross Profit
Ratio
Percent
Change
from
Baseline
Return on Net
Worth
Ratio
Percent
Change
from
Baseline
Current
Ratio
Percent
Change
from
Baseline
Debt to Equity
Ratio
Percent
Change
from
Baseline
Zero Cost Pass Through
Baseline
Worst-Case
0.223000
0.222256
-
-0.33%
0.198344
0.196307
-
-1.03%
1.629629
1.628681
-
-0.06%
1.061856
1.064601
-
0.26%
90 Percent Cost Pass Through
Baseline
Worst-Case
0.223000
0.222926
-
-0.03%
0.198344
0.198141
-
-0.10%
1.629629
1.629534
-
-0.01%
1.061856
1.062131
-
0.03%
Source: EPA estimates based on the methodologies presented in Chapter Four.
Under a zero cost pass through (CPT) assumption, the largest impact is on return on net worth,
which declines by just over 1.0 percent. Impacts under an estimated CPT value of 90 percent are all at or
below 0.10 percent.
5.5
ANALYSIS OF IMPACTS ON CLOSURES AND EMPLOYMENT LOSSES
As discussed in Chapter Four, EPA used two approaches to estimate potential facility closures
and employment losses resulting from the proposed rule. The primary approach was to analyze changes
in key financial ratios that occur as firms' costs increase in response to the proposed rule. To estimate
closures, EPA examined a weighted average of changes in the current ratio, debt to equity ratio, and
return on net worth ratios. EPA then constructed a cumulative distribution function for each ratio to
estimate the percent of establishments that would likely fall below "critical" values after incurring
compliance costs. That percent falling below this critical value, multiplied by the number of facilities
represented by the model under evaluation, resulted in a projected number of closures. Employment
losses were calculated by multiplying the number of establishments projected to close by employment
estimates for the model facility representing those closures.
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EPA's alternative approach, which analyzed estimated model facility cash flow, was used as a
check on the financial ratio analysis described above. Results from this analysis are contained in
Appendix 5-A.
5.5.1 Facility Closures
Table 5-7a shows closure analysis results using the financial ratio method under a zero CPT
assumption — the worst case scenario. Results under a calculated CPT assumption are presented in
Table 5-7b. The largest number of establishment closures is projected to occur in the commercial sector
(43 projected closures), followed by the single-family residential sector (13 closures). Facility closures
as a percent of total facilities are less than one percent under all proposed options and for all industry
sectors. As seen in Table 5-7b, closure impacts are even smaller when CPT is accounted for.
Table 5-7a. Estimated Facility Closures
Zero Cost Pass Through
Option
1
2
3
Single-Family
Number
4
13
0
Pet. of Total
0.005%
0.015%
0.000%
Multifamily
Number
1
3
0
Pet. of Total
0.022%
0.065%
0.000%
Commercial
Number
11
43
0
Pet. of Total
0.028%
0.108%
0.000%
Option
1
2
3
Indus trial
Number
2
7
0
Pet. of Total
0.026%
0.090%
0.000%
Heavy
Number
0
26
0
Pet. of Total
0.000%
0.230%
0.000%
TOTAL
Number
18
92
0
Pet. of Total
0.012%
0.063%
0.000%
Source: EPA estimates based on the methodologies presented in Chapter Four.
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Table 5-7b. Estimated Facility Closures
Estimated Cost Pass Through
Option
1
2
3
Single-Family
Number
1
2
0
Pet. of Total
0.001%
0.002%
0.000%
Multifamily
Number
0
0
0
Pet. of Total
0.000%
0.000%
0.000%
Commercial
Number
1
4
0
Pet. of Total
0.003%
0.010%
0.000%
Option
1
2
3
Indus trial
Number
0
1
0
Pet. of Total
0.000%
0.013%
0.000%
Heavy
Number
0
3
0
Pet. of Total
0.000%
0.027%
0.000%
TOTAL
Number
2
10
0
Pet. of Total
0.001%
0.007%
0.000%
Source: EPA estimates based on the methodologies presented in Chapter Four.
5.5.2 Employment Losses
Table 5-8a presents employment loss analysis results for the financial ratio method under a zero
CPT assumption to show the worst case scenario. Results under a calculated CPT assumption are
presented in Table 5-8b.
Employment impacts as a percent of each sector's total employment are roughly the same as
closure impacts. This is to be expected, because EPA estimated employment impacts by multiplying
projected closures by the number of employees per establishment. Note that in the multifamily sector,
the percentage of employment losses is slightly larger than the percentage of closures. This is because
the model establishments most affected by the proposed rule account for a disproportionately high
percentage of sector employment.
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Table 5-8a. Estimated Employment Losses
Zero Cost Pass Through
Option
1
2
3
Single-Family
Number
34
145
0
Pet. of Total
0.016%
0.067%
0.000%
Multifamily
Number
12
61
0
Pet. of Total
0.034%
0.173%
0.000%
Commercial
Number
162
603
0
Pet. of Total
0.029%
0.110%
0.000%
Option
1
2
3
Industrial
Number
43
133
0
Pet. of Total
0.029%
0.089%
0.000%
Heavy
Number
0
647
0
Pet. of Total
0.000%
0.233%
0.000%
TOTAL
Number
251
1,589
0
Pet. of Total
0.021%
0.130%
0.000%
Source: EPA estimates based on the methodologies presented in Chapter Four.
Table 5-8b. Estimated Employment Losses
Estimated Cost Pass Through
Option
1
2
3
Single-Family
Number
5
22
0
Pet. of Total
0.001%
0.006%
0.000%
Multifamily
Number
1
5
0
Pet. of Total
0.003%
0.014%
0.000%
Commercial
Number
16
61
0
Pet. of Total
0.003%
0.011%
0.000%
Option
1
2
3
Inil us trial
Number
7
20
0
Pet. of Total
0.005%
0.013%
0.000%
Heavy
Number
0
65
0
Pet. of Total
0.000%
0.023%
0.000%
TOTAL
Number
29
173
0
Pet. of Total
Source: EPA estimates based on the methodologies presented in Chapter Four.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
5.6 ANALYSIS OF BARRIER TO ENTRY
This section presents the results of EPA's barrier to entry analysis. As discussed in Section
4.3.3, EPA examined the ratio of compliance costs to current and total assets to determine if new market
entrants would find it more difficult to obtain construction loans to start a project than would existing
firms. As discussed in more detail in that section, this methodology is conservative by design because it
does not account for the fact that a firm would typically be expected to finance 20 percent of the
incremental compliance costs to obtain the loan— not the full amount as assumed here.
5.6.1 Building Construction
As shown in Table 5-9a, compliance costs represent a maximum of 0.82 percent of a model
establishment's current assets (0.60 percent of total assets) across all options and project types. These
maximum projected impacts occur in the multifamily sector. For the industrial and commercial sectors,
compliance costs are less than 0.30 percent of current assets, while in the single-family sector, costs are
less than 0.25 percent of current assets. Table 5-9b shows the barrier to entry analysis results under an
estimated CPT scenario. As shown, the impacts are smaller than under the zero CPT scenario, with the
maximum impact on both current assets and total assets at less than 0.10 percent.
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Table 5-9a. Barrier to Entry Analysis—Zero Cost Pass Through
Option
Compliance Costs Divided by:
Current Assets
Min
Max
Total Assets
Min
Max
Single-Family Residential
1
2
3
0.000%
0.000%
0.000%
0.100%
0.230%
0.000%
0.000%
0.000%
0.000%
0.070%
0.170%
0.000%
Multifamily Residential
1
2
3
0.000%
0.000%
0.000%
0.260%
0.820%
0.000%
0.000%
0.000%
0.000%
0.190%
0.600%
0.000%
Commercial
1
2
3
0.000%
0.000%
0.000%
0.120%
0.270%
0.000%
0.000%
0.000%
0.000%
0.090%
0.220%
0.000%
Industrial
1
2
0.000%
0.000%
0.000%
0.110%
0.250%
0.000%
0.000%
0.000%
0.000%
0.080%
0.190%
0.000%
Source: EPA estimates based on the methodologies presented in Chapter Four.
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Table 5-9b. Barrier to Entry Analysis—Cost Pass Through
Option
Compliance Costs Divided by:
Current Assets
Min
Max
Total Assets
Min
Max
Single-Family Residential
1
2
3
0.000%
0.000%
0.000%
0.015%
0.034%
0.000%
0.000%
0.000%
0.000%
0.011%
0.025%
0.000%
MuUifamily Residential
1
2
3
0.000%
0.000%
0.000%
0.022%
0.069%
0.000%
0.000%
0.000%
0.000%
0.016%
0.050%
0.000%
Commercial
1
2
3
0.000%
0.000%
0.000%
0.012%
0.028%
0.000%
0.000%
0.000%
0.000%
0.009%
0.022%
0.000%
Industrial
1
2
3
0.000%
0.000%
0.000%
0.016%
0.038%
0.000%
0.000%
0.000%
0.000%
0.013%
0.029%
0.000%
Source: EPA estimates based on the methodologies presented in Chapter Four.
5.6.2 Nonbuilding Construction
The barrier to entry analysis also produced results in line with the results previously reported for
the other four industries. Table 5-10 shows the results of this analysis. Under a zero CPT assumption,
compliance costs are less than one percent of both current and total assets using the best estimate
compliance cost. Using the worst-case estimate, compliance costs are slightly above 2.5 percent of
current assets and nearly 1.5 percent of total assets. With cost pass through, these impacts are
significantly lower.
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Table 5-10. Barrier to Entry Analysis - Highway Construction
Compliance Cost Assumption
Compliance Costs Divided By:
Current Assets
Total Assets
Zero Cost Pass Through
Baseline
Worst-Case
0.00%
0.29%
0.00%
0.17%
With 90 Percent Cost Pass Through
Baseline
Worst-Case
0.00%
0.03%
0.00%
0.02%
Source: EPA estimates based on the methodologies presented in Chapter Four.
5.7
ANALYSIS OF IMPACTS ON NATIONAL CONSTRUCTION MARKETS
EPA used three approaches to estimate the potential impacts of the regulatory options on the
national single-family housing construction market. This section presents the results of these analyses.
In the first approach, EPA analyzed the impacts of the proposed rule on consumers under the
assumption that developers and builders pass on 100 percent of the costs to the new single-family home
buyer. To assess these impacts, EPA developed a model that estimates the change in income needed to
qualify for financing to purchase the (higher priced) housing unit, and then estimates the change in the
number of households that would meet the higher income criteria. In theory, this provides an estimate of
the change in new housing demand that could arise as a result of the proposed regulations.
EPA's second approach applies a partial equilibrium model to 220 metropolitan housing markets
to estimate how compliance costs change the proportion of homes in the market that the median income
household can afford, termed the Housing Opportunity Index (HOI). HOI is published quarterly by the
NAHB. This index offers a similar estimate of the change in housing demand that may arise from the
effluent guideline in terms of a familiar, widely publicized, indicator.
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The third approach is a single national partial equilibrium model. Changes in prices and
quantities from this model are used to derive the impacts on employment and social welfare.
EPA's methodology for these models is discussed more fully in Section 4.5.
5.7.1 Residential Construction Markets
5.7.1.1 Housing Affordability
Table 5-11 shows that the incremental costs of the proposed rule add a maximum of $58 to the
$82,472 in income that is required to purchase the baseline model home. After this income change,
between 5,200 and 29,000 households (0.03 percent to 0.15 percent of total qualifying households)
would fail to qualify for a mortgage.
Table 5-11. Impact of Erosion and Sediment Control Costs on Housing Affordability
(All Dollar Amounts are in Constant, Pre-tax, 1997 Dollars)
Option
1
2
3
ESC
Costs
($/Unit)
$20
$111
$0
Total
Change in
Costs
($/Unit)
$36
$201
$0
Income
Needed To
Qualify
($)
$82,482
$82,529
$82,472
Change in
Income
Needed
($)
$10
$58
Number of
Households
Shifted
(Thousands)
-5.2
-29.1
Percent of
Households
Shifted That
Could Afford
Baseline
(Percent)
-0.03%
-0.15%
Source: EPA estimates based on the methodologies presented in Chapter Four.
5.7.7.2 Housing Opportunity Index
The HOI is an alternative measure of housing affordability. EPA estimated the change in HOI
from its baseline value for 220 regional housing markets. Table 5-12 summarizes these results in terms
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May 2002
of the average change calculated across each Census Bureau division. Since the HOI encompasses both
existing and new housing, the results show the net effect for the entire housing market. The value of the
HOI varies considerably by region. In the Pacific region, high real estate prices result in only one third of
households having sufficient income to purchase the median-priced home. In the central regions,
however, three-quarters of households can afford the median-priced home.
The proposed regulation has little effect on regional HOI. Table 5-13 shows the percentage
change in HOI by Census division. Option 1 changes HOI by less than two-hundredths of one percent in
all regions. Option 2 changes HOI by less than 0.2 percent. The largest changes occur in the South
Atlantic region. These changes are much smaller in scale than annual changes that result from normal
shifts in real estate market conditions and demography of the market areas.
Table 5-12.
Single-Family Residential Average HOI by Census Division
Option
1
2
3
Census Division
1
New
England
54.24
54.23
54.24
2
Middle
Atlantic
62.36
62.31
62.37
3
East North
Central
72.66
72.59
72.67
4
West North
Central
78.81
78.74
78.82
5
South
Atlantic
70.30
70.24
70.31
6
East South
Central
69.69
69.65
69.70
7
West South
Central
64.73
64.69
64.73
8
Mountain
44.57
44.55
44.58
9
Pacific
32.62
32.61
32.63
HOI indicates the percent of households in each region that can afford the median-priced house.
Source: EPA estimates based on the methodologies presented in Chapter Four.
Table 5-13.
Single-Family Residential Percentage Change in HOI by Census Division
Option
1
2
3
Census Division
1
New
England
0.00%
-0.02%
0.00%
2
Middle
Atlantic
-0.02%
-0.10%
0.00%
3
East
North
Central
-0.02%
-0.10%
0.00%
4
West
North
Central
-0.02%
-0.10%
0.00%
5
South
Atlantic
-0.02%
-0.11%
0.00%
6
East South
Central
-0.01%
-0.08%
0.00%
7
West
South
Central
-0.01%
-0.07%
0.00%
8
Mountain
-0.01%
-0.07%
0.00%
9
Pacific
-0.01%
-0.04%
0.00%
HOI indicates the percent of households in each region that can afford the median-priced house.
Source EPA estimates based on the methodologies presented in Chapter Four.
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5.7.1.3 Single-Family Housing Prices and Quantities
Table 5-14 shows the results of EPA's analysis using the market model approach. The table
shows the estimated changes in median single-family home prices from all combinations of the proposed
options. The changes in costs range from $0 to $111. The market model recognizes that market
conditions control how much of these costs can be passed through to consumers. Thus, the price
increase is somewhat smaller than the related cost increase, reflecting the fact some costs would be borne
by the builder-developer. The largest increase in price reduces the quantity that can be sold by about
two-hundredths of one percent. The total loss in output to the construction industry ranges from $0 to
$72 million.
Table 5-14. Single-Family Residential—Changes in Price and Quantity From the Baseline
(All Dollar Values Are in Constant, Pre-tax, 1997 Dollars)
Option
1
2
3
Change in
Cost
($/Unit)
$20
$111
$0
New Price
($/Unit)
$288,414
$288,492
$288,397
Price Change
($/Unit)
$17
$95
$0
Quantity
Change
(Units)
(44)
(248)
0
Quantity
Change
(Percent)
-0.00%
-0.02%
-0.00%
Loss of
Output
($ Million)
-$12.8
-$71.6
0
Source: EPA estimates based on the methodologies presented in Chapter Four.
5.7.1.4 Multifamily Housing Prices and Quantities
Table 5-15 shows the estimated changes in median price of a unit in a multifamily building from
the proposed options. The changes in costs range from $0 to $40 per unit. Multifamily housing disturbs
a smaller area per unit, so any ESC-related costs are spread over more units. The market model suggests
a higher share of compliance costs in multifamily housing would be passed through to consumers,
compared to single-family homes, so price changes are closer to the actual change in builder costs. The
price changes passed through to consumers range from $0 to $40 per unit.
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Table 5-15. Multifamily Residential—Changes in Price and Quantity From the Baseline
(All Dollar Values Are in Constant, Pre-tax, 1997 Dollars)
Option
1
2
3
Change in
Cost
($/Unit)
$7
$40
$0
New Price
($ 1,000/Unit)
$132.53
$132.57
$132.53
Price
Change
($/Unit)
$7
$40
$0
Quantity
Change
(Units)
-7
-41
0
Quantity
Change
(Percent)
0.00%
0.01%
0.00%
Loss of
Output
($ Million)
-$0.9
-$5.2
-$0.0
Source: EPA estimates based on the methodologies presented in Chapter Four.
5.7.2 Non-Residential Construction Markets
5.7.2.1 Commercial Space
Rental prices for commercial space are typically quoted in dollars per square foot per year. Table
5-16 shows the estimated changes in median rental rate of a square foot of commercial space from the
proposed options. The changes in costs range from $0 to $0.02 per square foot. Tenants of commercial
space are considerably more price sensitive than residential buyers, so less of the change in costs can be
passed through to tenants. The change in average price per square foot reflects this absorption of
compliance costs by builders and building owners.
Price changes range from $0 to $0.02 per square foot. Quantity reductions are estimated to reach
seven-hundredths of one percent for the most costly option. The total loss in output to the construction
industry ranges from $0 to $67.1 million.
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Table 5-16. Commercial—Changes in Price and Quantity From the Baseline
(All Dollar Values Are in Constant, Pre-tax, 1997 Dollars)
Option
1
2
3
Change in
Cost
($/Sq. Ft.)
$0.01
$0.02
$0.00
New Price
($/Sq. Ft.)
$14.67
$14.69
$14.66
Price Change
($/Sq. Ft.)
$0.00
$0.02
$0.00
Quantity
Change
(Units)
-36
-163
0
Quantity
Change
(Percent)
-0.01%
-0.07%
-0.00%
Loss of Output
($ Million)
-$14.7
-$67.1
$0.0
Source: EPA estimates based on the methodologies presented in Chapter Four.
5.7.2.2 Industrial Space
Only 12,100 industrial projects are estimated to start in the base year. Rental prices for industrial
space are typically quoted in dollars per square foot per year. Table 5-17 shows the estimated changes in
median rental rate of a square foot of industrial/warehouse space from the proposed options. The
changes in costs range from $0 to $0.02 per square foot. Buyers of industrial space are considerably
more price sensitive than homeowners, so less of the change in costs can be passed through to the end-
users. The change in average price per square foot reflects this absorption of compliance costs by
builders and developers.
Price changes range from $0 to $0.02 per square foot. Quantity reductions are estimated to reach
0.3 percent for the most costly option, albeit on a small number of projects in the baseline. The total loss
in output to the construction industry ranges from $0 to $17.8 million.
Table 5-17. Industrial—Changes in Price and Quantity From the Baseline
(All Dollar Values Are in Constant, Pre-tax, 1997 Dollars)
Option
1
2
3
Change in
Cost
($/Sq. Ft.)
$0.01
$0.02
$0.00
New Price
($/Sq. Ft.)
$5.17
$5.18
$5.16
Price Change
($/Sq. Ft.)
$0.00
$0.02
$0.00
Quantity
Change
(Units)
-11
-46
0
Quantity
Change
(Percent)
-0.08%
-0.32%
0.00%
Loss of
Output
($ Million)
-$4.4
-$17.8
$0.0
Source: EPA estimates based on the methodologies presented in Chapter Four.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
5.7.3 Output and Employment
As discussed in Section 4.5, additional compliance costs reduce the output of the construction
industry as the increased price reduces sales. The estimate of this effect is shown in the "Loss of Output"
column of Table 5-18. Most of the losses are in the large single-family residential and catch-all
commercial construction sectors. These losses are offset, however, by increases in output and
employment in those industries associated with compliance, i.e., design, installation, and inspection of
ESCs. The estimate of the amount of new work generated in these activities is shown in the "Stimulus
from Added Work" column. The next two columns show the changes in jobs related to the loss in
construction spending and (offsetting) increase in regulatory compliance spending. Under both options,
the stimulus adds more jobs than the loss of output takes away, with the result that net employment
change from construction impacts is a positive number. In the single-family sector, for example, under
Option 1 there is a loss $12.8 million of output but an offsetting stimulus of $21.5 million. The loss
represents 475 jobs, but the stimulus generates 797 jobs; the net result is that 322 more jobs are
generated. Note that these job estimates apply to the entire economy, not just the construction sectors.
They represent all of the impacts that result as changes in the construction industry ripple through other
sectors.
The stimulus to the construction industry comes at the expense of consumer spending, as home
buyers and other consumers devote more of their income to housing. EPA assumes that this loss of
consumer surplus takes the form of reduced spending for other products, though it might also take the
form of reduced amenities in housing construction. Removing this spending from the national economy
reduces the employment that arises in response to consumer spending. The "Change in Employment
From Consumer Spending" column shows this reduction in jobs, which offsets the stimulus to
construction. When this effect is factored in, the net change in total employment is negative.
Total employment losses range from 0 to 1,400 jobs. These estimates do not consider how long
individuals may be out of work, nor do they consider individuals' alternative opportunities. Because of
this, such input-output analysis results are usually considered an over-estimate of the hardship initiated
by the change to the economy.
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Table 5-18.
Changes in Output and Total Employment From the Baseline
(All dollar Values Are in Constant, Pre-tax, 1997 Dollars)
Option
Loss of
Output
($ Million)
Stimulus
From
Added
Work
($ Million)
Change in
Employment
From Lost
Output
(Jobs)
Change in
Employment
From
Stimulus
(Jobs)
Net Change in
Employment
From
Construction
Impacts
(Jobs)
Change in
Employment
From
Consumer
Spending
(Jobs)
Net Change in
Total
Employment
(Jobs)
Single-Family Residential
1
2
3
($12.8)
($71.6)
$0.0
$21.5
$120.2
$0.0
(475)
(2,662)
0
797
4,467
0
322
1,805
0
(498)
(2,792)
0
(176)
(986)
0
Mukifamily Residential
1
2
3
($0.9)
($5.2)
$0.0
$2.5
$13.7
$0.0
(34)
(192)
91
509
0
57
317
0
(67)
(374)
0
(10)
(56)
0
Commercial
1
2
3
($14.7)
($67.1)
$0.0
$42.6
$194.7
$0.0
(546)
(2,494)
0
1,583
7,234
0
1,037
4,740
0
(1,062)
(4,857)
0
(25)
(116)
0
Industrial
1
2
3
($4.4)
($17.8)
$0.0
$6.7
$26.9
$0.0
(164)
(662)
0
248
1,001
0
84
338
0
(152)
(616)
0
(68)
(277)
0
Total
1
2
3
($32.8)
($161.7)
$0.0
$73.2
$355.5
$0.0
(1,219)
(6,010)
0
2,719
13,212
0
1,501
7,201
0
(1,780)
(8,638)
0
(279)
(1,436)
0
Source: EPA estimates based on the methodologies presented in Chapter Four.
5.7.4 Changes in Welfare Measures
As discussed in Section 4.6, the proposed regulation shifts the supply curves for new
construction in each sector. This shift alters the balance between consumers and producers. Each group
contributes to the costs of complying with the regulation. As Table 5-19 indicates, consumers may lose
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
from $0 to $316.6 million, depending on the option selected. Producers lose from $0 to $40.4 million.
Almost all of this loss is shifted from consumers and construction firm owners to construction firms to
pay the costs of complying with the regulation. As shown in the last section, the net effect on
construction may be a stimulus. However, a small portion is utterly lost to society. This portion, termed
the "deadweight loss," ranges from $0 to $200,000.
Table 5-19. Changes in Social Welfare Measures—All Sectors Combined
(All Dollar Values Are in Constant, Pre-tax, 1997 Dollars)
Option
1
2
3
Total Deadweight Loss
($ Million)
$0.0
$0.2
$0.0
Total Consumer Surplus
Loss
($ Million)
$65.2
$316.6
$0.0
Total Producer Surplus Loss
($ Million)
$8.2
$40.4
$0.0
Source: EPA estimates based on the methodologies presented in Chapter Four.
5.7.5 Regional Effects
The multifamily housing and non-residential market models estimate impacts at the state level
based on information about local real estate markets. The single-family housing market model estimates
market effects at the MSA level, which can then be aggregated to the state level. Table 5-20 shows the
loss in output to the construction industry, by state, from compliance with the more expensive Option 2.
Loss of output largely follows the expected pattern of population and growth. Several states show zero
loss for some categories because there is so little activity in that state that the effect could not be
measured. For example, multifamily housing in Vermont. California, Pennsylvania, and several other
states (indicated with an e) show no effect as current State regulations were deemed equivalent to the
proposed regulations and so there was no incremental impact on firms operating in those states.
Although the totals would be lower for Option 1, the pattern of losses would be similar.
Table 5-21 provides a similar state-by-state breakdown of the net change in employment as a
result of compliance with the proposed regulation. In several states, multifamily housing, commercial,
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
and industrial stimulus effects are greater than the losses, and the regulation causes a small net positive
change in employment within those categories.
Table 5-20. Loss of Output to the Construction Industry by State and Use Category ($ Millions) (All Dollar Values Are in
Constant, Pre-tax, 1997 Dollars), Option 2
State
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
Single-Family
(1.2)
(0.2)
e
(0.4)
e
(3.6)
e
(0.3)
(4.8)
(7.4)
(0.9)
(0.4)
e
e
(3.6)
(0.7)
(0.5)
(1.1)
(1.8)
0.0
(2.1)
e
(5.9)
(3.5)
(0.7)
(3.1)
0.0
(0.6)
4.0
e
(3.9)
e
(13.4)
Multifamily
0.0
0.0
e
0.0
e
(0.3)
e
0.0
(0.2)
(1.0)
(0.5)
0.0
e
e
(0.1)
0.0
0.0
0.0
0.0
0.0
0.0
e
(0.1)
(0.1)
0.0
(0.1)
0.0
(0.1)
(0.3)
e
(0.1)
e
(0.7)
(0.4)
Commercial
(0.9)
0.0
e
(0.7)
e
(1.2)
e
(0.5)
0.0
(15.3)
(4.1)
0.0
e
e
(1.6)
(0.7)
(0.9)
(1.3)
(1.8)
(2.4)
(2.1)
e
(2.9)
(2.4)
(0.7)
(2.0)
(0.3)
(0.8)
(2.8)
e
0.0
e
(6.9)
(3.3)
Industrial
(0.4)
0.0
e
(0.2)
e
(0.5)
e
0.0
0.0
(0.9)
(1.6)
0.0
e
e
(1.5)
(1.0)
(0.5)
(0.8)
(0.2)
(0.1)
(0.3)
e
(1.1)
(1.0)
(0.2)
(0.6)
(0.1)
(0.2)
(0.3)
e
(0.1)
e
(0.6)
(1.5)
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
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Table 5-20. Loss of Output to the Construction Industry by State and Use Category ($ Millions) (All Dollar Values Are in
Constant, Pre-tax, 1997 Dollars), Option 2
State
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Single-Family
(0.1)
(6.8)
e
(1.0)
e
(0.7)
e
e
e
e
e
(0.1)
e
(1.9)
e
(1.8)
0.0
Multifamily
0.0
(0.2)
e
(0.1)
e
0.0
e
e
e
e
e
0.0
e
(0.3)
e
(0.2)
0.0
(5.2)
Commercial
(0.3)
(1.1)
e
(2.2)
e
(1.2)
e
e
e
e
e
(1.2)
e
(4.1)
e
(1.2)
(0.2)
(67.1)
Industrial
(0.3)
(1.2)
e
(0.8)
e
0.0
e
e
e
e
e
(0.1)
e
(0.5)
e
(1.3)
0.0
(17.8)
Note: e indicates state has regulations equivalent to the proposed options.
Source: EPA estimates based on the methodologies presented in Chapter Four.
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Table 5-21.
Net Change in Total Employment by State and Use Category (Jobs) Under Proposed Rule Option 2
State
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Single-Family
(17)
(3)
e
(5)
e
(50)
e
(4)
(66)
(102)
(12)
(5)
e
e
(50)
(10)
(7)
(16)
(24)
0
(28)
e
(81)
(49)
(10)
(43)
0
(8)
55
e
(54)
e
(184)
(44)
(1)
(93)
e
Multifamily
0
0
e
0
e
(3)
e
0
(3)
(16)
(9)
0
e
e
(1)
0
0
(1)
0
0
0
e
0
(1)
0
(1)
0
(1)
(7)
e
0
e
5
(7)
0
(1)
e
(2)
Commercial
(3)
0
e
(8)
e
(4)
e
(2)
0
(15)
(28)
0
e
e
49
(-3)
(3)
(5)
(21)
(37)
(7)
e
57
(8)
(3)
(7)
(3)
(3)
(44)
e
24
e
56
(12)
(1)
34
e
(28)
Industrial
(5)
0
e
(3)
e
(4)
e
0
0
(15)
(28)
0
e
e
(30)
(23)
(8)
(13)
(3)
0
(4)
e
(9)
(17)
(3)
(9)
(1)
(3)
(4)
e
1
e
(2)
(29)
(5)
(21)
e
(ii)
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 5-21.
Net Change in Total Employment by State and Use Category (Jobs) Under Proposed Rule Option 2
State
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Single-Family
e
(9)
e
e
e
e
e
(2)
e
(26)
e
(25)
0
United States Total (986)
Multifamily
e
0
e
e
e
e
e
0
e
(4)
e
(3)
0
(56)
Commercial
e
(19)
e
e
e
e
e
(18)
e
(64)
e
37
(3)
(116)
Industrial
e
0
e
e
e
e
e
0
e
(5)
e
(20)
(1)
(277)
Total
e
(28)
e
e
e
e
e
(21)
e
(99)
e
(10)
(3)
(1,436)
Source: EPA estimates based on the methodologies presented in Chapter Four.
5.8
IMPACTS ON GOVERNMENTAL UNITS
As Section 4.8 discusses, EPA estimates that the proposed rule would impose some costs on
governmental units involved in "codifying" the construction general permit. This section examines the
costs imposed on governmental units associated with the proposed Option 2.
5.8.1 Construction Program Administration
EPA has analyzed the costs to governments under the assumption that the majority of
construction-related regulatory costs would be associated with processing general permits. As noted
previously, EPA assumes that the majority of NPDES Phase I and Phase IINPDES storm water permit
programs are fully implemented, and that any new regulatory requirements would be superimposed upon
these programs.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
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Based on the assumption that all states would change their storm water programs to include
certification of sedimentation basins and other aspects of the proposed rule, EPA estimated the annual
costs of establishing such a program. These costs are presented in Table 5-22. EPA estimates that states
would experience $0.26 million in costs staying current with federal guidance, state guidance, and
evolving industry practice (U.S. EPA 2002).
Table 5-22. Costs To Establish Construction Programs ($1997)
Element
Labor hours to review EPA regulation and modify
state practices
Labor cost
State Cost per year
Number of States
Totals
Value
200
$26.02
$5,203
50
$260,150
Units
Hours/Year
$/Hour/State
$/Year/State
States
$/Year
Source: U.S. EPA. 2002.
In evaluating the annual costs, EPA assumed that the current trend — states taking the lead in
implementing the regulation of construction activities — will continue in the future. EPA elected not to
evaluate how to distribute its total estimated implementation cost between state and municipal agencies,
and instead has attributed all costs to states.
5.8.2 Government Construction Costs
Government entities commission nearly a quarter of the value of construction put in place
(Census, 2000). Government projects would need to comply with the proposed regulation so their costs
would increase, just as private projects' would. Roughly one-half of government projects are
maintenance or reconstruction of existing structures which does not entail new ground disturbance. EPA
estimates that approximately 25 percent of total impacts would fall on government projects resulting in a
$29.2 million additional cost to government entities under proposed Option 1 or a $115.9 million
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
additional cost under proposed Option 2.4 This effect is discussed in detail in the Unfunded Mandates
Reform Act (UMRA) analysis in Chapter Ten.
5.9 OTHER IMPACTS
This section addresses Executive Order (EO) 12866, which directs federal agencies to assess the
costs and benefits of each significant rule they propose or promulgate, as well as issues of environmental
justice and children's health. Chapter Ten addresses the Unfunded Mandates Reform Act (UMRA).
Section 5.9.1 describes the administrative requirements of EO 12866. Sections 5.9.2 and 5.9.3 describe
EPA's analysis of environmental justice and children's health issues for the proposed rule. Another
piece of legislation —the Unfunded Mandates Reform Act, or UMRA —also has requirements relevant to
EPA's plans. Chapter Ten addresses UMRA.
Much of the information provided in this section is summarized from other documents that
support this proposed rulemaking, as well as other sections of this report.
5.9.1 Requirements of Executive Order 12866
Under EO 12866 (58 FR 51735, October 4, 1993), the Agency is to determine whether a
regulatory action is "significant" and therefore subject to OMB review and the directives of the EO. The
Order defines a "significant regulatory action" as one that is likely to result in a rule that may:
(1) Have an annual effect on the economy of $100 million or more or adversely affect in a
material way the economy, a sector of the economy, productivity, competition, jobs, the
environment, public health or safety, or state, local, or tribal governments or
communities;
(2) Create a serious inconsistency or otherwise interfere with an action taken or planned by
another agency;
4 Additional cost to government entities under the proposed ESC options includes costs potentially incurred
by Federal, State, and local government entities.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
(3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs
or the rights and obligations of recipients thereof; or
(4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities,
or the principles set forth in the Executive Order.
EPA has determined that the proposed C&D rulemaking is a "significant regulatory action" under
the terms of EO 12866, because the total costs of the proposed rule are estimated to exceed $100 million
annually. As such, this action was submitted to OMB for review. Changes made in response to OMB
suggestions or recommendations will be documented in the public record.
In addition to submission of the action to OMB, the principal directives of the EO are that the
Agency perform an analysis comparing the benefits of the regulation to the costs that the regulation
imposes, that the Agency analyze alternative approaches to the proposed rule, and that the reason for the
proposed rule be identified. Wherever possible, the costs and benefits of the proposed rule are to be
expressed in monetary terms. To address these directives, the following section describes the reasons why
EPA is revising the existing regulations, and Chapters Eight and Nine present the estimated social costs,
pollutant reductions, and monetary benefits of the proposed C&D regulations. Section 5.8 addresses the
impacts of the proposed regulations on governmental units. An in-depth profile of the potentially affected
industry sectors is presented in Chapter Two of this report.
Reason for the Regulation
Executive Order 12866 directs the Agency to identify the reason for the regulations being
proposed. The reasons for proposing the C&D regulations are stated throughout this report (Chapters One
and Six) and are presented in the preamble of the proposed rulemaking. These reasons are summarized
briefly below:
In spite of existing regulatory controls, there is continued runoff of sediment from
construction sites and newly developed areas. Sediment entering public waterways
imposes costs on water users in the form of additional demand for pre-treatment of water
withdrawn and diminished value for in-stream uses. Users cannot identify and seek
compensation from the construction sites causing the problem. So there is a market
failure in terms of the environmental externality of sediment emissions. The proposed
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
regulations are expected to address the impairment of many U.S. waterways and the
associated human health and ecological risks.
• The existing regulation appears to be insufficient to protect or restore water quality. There
exists an information asymmetry between builders and enforcement officials in which
builders know their level of care with regard to erosion and sediment controls while
officials may or may not know. The certification and inspection provisions of the
proposed rule increase the level of information available to officials. The revisions would
make the regulations apply more uniformly throughout the country and "raise the bar" for
storm water control, in general.
Both UMRA and EO 12866 require the statutory authority for the rule to be cited. A detailed
discussion of the objectives and legal basis for the proposed C&D regulations is presented in the preamble.
A discussion of the UMRA is presented in Chapter Ten of this report.
5.9.2 Environmental Justice
According to EO 12898, Federal Actions To Address EnvironmentalJustice in Minority
Populations and Low-Income Populations, federal agencies are to address potential environmental justice
issues that may be triggered by proposed actions. Based on guidance in EPA's Guidelines for Preparing
Economic Analyses, the potential effects of the proposed regulation on minority and low-income
populations have been considered (U.S. EPA 2000). EPA has determined that the proposed rule would not
have a disproportionately large effect on minority or low-income populations, nor would it have
disproportionately high human health or environmental effects. Thus no further analysis on environmental
justice issues has been conducted for this proposal.
5.9.3 Children's Health
Pursuant to EO 13045, Protection of Children From Environmental Health Risks and Safety
Risks, EPA has considered whether this proposed rule would have any significant effects on children's
health or safety (U.S. EPA 2000). EPA has determined, based on the information provided throughout
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
this report, that the proposed rule would not have any significant effects on children's health or safety,
and no further analysis has been conducted for this proposal.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
5.10 REFERENCES
Tetra Tech. 2002. Personal Communication from J. Swanson, Terra Tech, Inc., to J. Cantin, ERG, Inc.
January 29.
U.S. Census Bureau 2000.1997 Economic Census: Construction: Subject Series. January.
U.S. EPA 2002. "Development Document for the Effluent Guidelines for the Construction and
Development Point Source Category." Washington, D.C.: U.S. Environmental Protection
Agency.
U.S. EPA 2000. "Guidelines for Preparing Economic Analyses." Washington, D.C.: U.S. Environmental
Protection Agency, Report EPA 240-R-00-003, September.
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APPENDIX 5A
Closure and Employment Loss Analysis Results
Cash Flow Method
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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
1
2
3
Single-Family
0.0% - 0.0%
0.0% - 0.0%
0.0% - 0.0%
Multifamily
0.0% - 0.0%
0.0% - 0.0%
0.0% - 0.0%
Commercial
0.0% - 0.0%
0.1% - 0.2%
0.0% - 0.0%
Industrial
0.0% - 0.0%
0.1% - 0.1%
0.0% - 0.0%
Table 5A-2. Estimated Closures as Percent of Total Establishments
Cost Pass Through
Cash Flow Method
Option
1
2
3
Single-Family
0.0% - 0.0%
0.0% - 0.0%
0.0% - 0.0%
Multifamily
0.0% - 0.0%
0.0% - 0.0%
0.0% - 0.0%
Commercial
0.0% - 0.0%
0.0% - 0.0%
0.0% - 0.0%
Industrial
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
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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
1
2
3
Single-Family
0.0% - 0.0%
0.0% - 0.0%
0.0% - 0.0%
Multifamily
0.0% - 0.0%
0.2% - 0.2%
0.0% - 0.0%
Commercial
0.0% - 0.0%
0.1% - 0.2%
0.0% - 0.0%
Industrial
0.0% - 0.0%
0.1% - 0.1%
0.0% - 0.0%
Table 5A-4. Estimated Employment Losses as Percent of Total Employment
Cost Pass Through
Cash Flow Method
Option
1
2
3
Single-Family
0.0% - 0.0%
0.0% - 0.0%
0.0% - 0.0%
Multifamily
0.0% - 0.0%
0.0% - 0.0%
0.0% - 0.0%
Commercial
0.0% - 0.0%
0.0% - 0.0%
0.0% - 0.0%
Industrial
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 SB
Sensitivity Analysis for the National Partial Equilibrium Model
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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
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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
(SMillion)
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
10
1
0.5
4
4
0.7
0.7
0.7
0.7
1.0
0.5
85.11
93.46
58.82
41.67
80.00
88.89
-71.6
-78.7
-49.5
-35.1
-96.2
-53.4
-2,662
-2,923
-1,840
-1,303
-3,575
-1,986
1,805
1,544
2,628
3,165
892
2,482
-2,792
-3,066
-1,930
-1,367
-2,624
-2,916
-986
-1,522
698
1,798
-1,732
-434
MuUifamily Housing
4
10
1
4
4
4
-0.8- -0.2
-0.8- -0.2
-0.8- -0.2
-1.0- -0.2
-0.5- -0.2
-0.8- -0.1
91.54
96.42
73.35
90.40
93.34
93.08
-5.2
-5.5
-4.0
-5.9
-4.0
-4.2
-192
-203
-150
-218
-150
-158
317
333
257
284
369
360
-374
-394
-299
-369
-381
-380
-56
-61
-42
-84
-12
-20
Commercial
4
10
1
4
4
4
-0.8- -0.01
-0.8- -0.01
-0.8- -0.01
-1.0- -0.01
-0.5- -0.01
-0.8- -0.2
89.87
95.62
70.17
87.73
93.32
88.16
-67.1
-71.5
-51.9
-81.6
-44.0
-83.5
-2,494
-2,656
-1,930
-3,034
-1,633
-3,103
4,740
4,578
5,306
4,199
5,604
4,130
-4,857
-5,119
-3,898
-4,757
-5,015
-4,744
-116
-541
1,408
-558
588
-615
7»
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APPENDIX 5C
Baseline Analysis
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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
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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
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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)
1
3
5
ESC Costs
$1,187
$4,524
$8,569
ESC Costs per Acre
$1,187
$1,508
$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
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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)
(SI 997 millions, pre-tax)
Option
1
2
3
National Costs by Type of Construction (S millions)
Single-
Family
$64.6
$161.9
$0.0
Multifamily
$39.3
$86.8
$0.0
Commercial
$413.4
$612.3
$0.0
Industrial
$22.0
$29.3
$0.0
Total
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)
(SI 997 millions, pre-tax)
Option
1
2
3
Installation,
Design and
Permitting
$539.3
$842.4
$0.0
Operation and
Maintenance
$0.0
$48.0
$0.0
Government
Costs
$0.0
$0.3
$0.0
Deadweight Loss
$0.1
$0.4
$0.0
Total Social
Costs
$539.4
$891.1
$0.0
Total
Benefits"
$9.7
$20.6
$0.0
"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
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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 fmancials 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
1
2
3
Percent Change in Project Price to Buyer
Single-Family
Min
0.00%
0.00%
0.00%
Max
0.47%
0.44%
0.00%
Multifamily
Min
0.00%
0.00%
0.00%
Max
0.26%
0.24%
0.00%
Commercial
Min
0.00%
0.00%
0.00%
Max
0.24%
0.22%
0.00%
Indus trial
Min
0.00%
0.00%
0.00%
Max
0.37%
0.34%
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
1
2
3
Percent Change in Builder-Developer Profit
Single-Family
Min
0.00%
0.00%
0.00%
Max
-4.60%
-4.23%
0.00%
Multifamily
Min
0.00%
0.00%
0.00%
Max
-2.35%
-2.15%
0.00%
Commercial
Min
0.00%
0.00%
0.00%
Max
-2.13%
-1.96%
0.00%
Indus trial
Min
0.00%
0.00%
0.00%
Max
-3.36%
-3.09%
0.00%
Source: EPA estimates based on the methodologies presented in Chapter Four.
5C-5
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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
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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
Min
Max
Return on Net
Worth
Min
Max
Current Ratio
Min
Max
Debt to Assets
Min
Max
Single-family Residential
1
2
3
0.00%
0.00%
0.00%
-2.40%
-2.20%
0.00%
0.00%
0.00%
0.00%
-27.04%
-24.83%
0.00%
0.00%
0.00%
0.00%
-0.21%
-0.20%
0.00%
0.00%
0.00%
0.00%
0.96%
0.88%
0.00%
Multifamily Residential
1
2
3
0.00%
0.00%
0.00%
-1.73%
-1.59%
0.00%
0.00%
0.00%
0.00%
-5.57%
-5.11%
0.00%
0.00%
0.00%
0.00%
-0.30%
-0.27%
0.00%
0.00%
0.00%
0.00%
1.15%
1.06%
0.00%
Source: EPA estimates based on the methodologies presented in Chapter Four.
5C-7
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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
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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
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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
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
May 2002
Table 5C-6. Estimated Facility Closures
Alternate Baseline
Zero Cost Pass Through
Option
1
2
3
Single-Family
Number
12
16
0
Pet. of
Total
0.014%
0.019%
0.000%
Multifamily
Number
2
4
0
Pet. of Total
0.043%
0.087%
0.000%
TOTAL
Number
14
20
0
Pet. of Total
0.057%
0.106%
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
1
2
3
Single-Family
Number
64
162
0
Pet. of Total
0.019%
0.048%
0.000%
Multifamily
Number
18
65
0
Pet. of Total
0.051%
0.185%
0.000%
TOTAL
Number
82
227
0
Pet. of Total
0.070%
0.233%
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
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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
1
2
3
Storm Water
Control Costs
Per Lot
$62
$153
$0
Change in
Costs per
Unit
$112
$277
$0
Income
Needed to
Qualify
$82,503
$82,551
$82,472
Change in
Income
Needed
$32
$79
Number of
Households
Shifted
(thousands)
-16
-40
Percent of
Households
Shifted That
Could Afford
Baseline
-0.08%
-0.21%
Source: EPA estimates based on the methodologies presented in Chapter Four.
The changes in output and employment are considerably greater under the alternative baseline.
Table 5C-9 shows that under the more costly Option 2, construction-related impacts decrease employment
by 7,800 jobs. The stimulus effect of the regulation increases employment by a more than offsetting
19,410 jobs. The change in consumer spending, however, causes a job loss of 12,900 jobs in all industries
nationwide. This is half again as large as the job losses from consumer spending estimated under the
original baseline for Option 2 (8,640 jobs). Table 5C-9 shows a net employment loss of 1,300 under
Option 2. This is about the same as the net employment effect under the initial baseline (1,440 jobs)
Clearly, the estimated impact of the proposed rule depends on which baseline is considered more
appropriate.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
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Table 5C-9
Changes in Output and Total Employment from the Alternate Baseline (S1997)
Option
Comb.
Loss of
Output
($ 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
2
3
(30)
(74)
0
67
165
0
(1,101)
(2,732)
0
2,477
6,147
0
1,376
3,414
0
(1,616)
(4,012)
0
(241)
(598)
0
Multifamilv
1
2
3
(4)
(8)
0
10
21
0
(136)
(293)
0
354
772
0
218
479
0
(260)
(567)
0
(41)
(88)
0
Commercial
1
2
3
(50)
(102)
0
143
295
0
(1,840)
(3,789)
0
5,319
10,965
0
3,478
7,176
0
(3,569)
(7,361)
0
(90)
(185)
0
Industrial
1
2
3
(14)
(27)
0
21
(41)
0
(520)
(1,019)
0
779
1,527
0
259
508
0
(478)
(940)
0
(219)
(432)
0
Total
1
2
3
(97)
(211)
0
240
522
0
(3,597)
(7,833)
0
8,928
19,410
0
5,332
11,577
0
(5,923)
(12,880)
0
(591)
(1,303)
0
Source: EPA estimates based on the methodologies presented in Chapter Four.
5C-13
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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.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
CHAPTER SIX
INITIAL REGULATORY FLEXIBILITY ANALYSIS
6.1 INTRODUCTION TO THE INITIAL REGULATORY FLEXIBILITY ANALYSIS
This section considers the effects that the proposed C&D regulations would have on small
entities in accordance with the Regulatory Flexibility Act (RFA, 5 U.S.C et seq., Public Law 96-354) as
amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA). The purpose
of the RFA is to establish as a principle of regulation that agencies should tailor regulatory and
informational requirements to the size of entities, consistent with the objectives of a particular regulation
and applicable statutes. The RFA generally requires an agency to prepare an initial regulatory flexibility
analysis (IRFA) of any rule subject to notice-and-comment rulemaking requirements under the
Administrative Procedure Act or any other statute unless the agency certifies that the rule will not have a
"significant impact on a substantial number of small entities."1 Small entities include small businesses,
small organizations, and governmental jurisdictions.
For this proposed rulemaking, EPA conducted outreach to small businesses, convened a Small
Business Advocacy Review (SBAR) panel, and prepared an IRFA.2 The IRFA is detailed in this section
and represents EPA's assessment of the impacts of the proposed regulations on small businesses in the
C&D industries. The analysis is presented as follows:
Section 6.2 outlines EPA's initial assessment of small businesses in the
industries affected by the proposed regulations.
Section 6.3 presents EPA's analysis (i.e., IRFA) and summarizes the steps taken
by EPA to comply with the RFA.
1 The preparation of an IRFA for a proposed rule does not legally foreclose certifying no significant impact
for the final rule (USEPA, 1999).
2This analysis or a summary of the analysis must be published in the Federal Register at the time of
publication of a proposal.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
Section 6.4 presents the data, methodology, and results of EPA's analysis of
impacts to small businesses for this rulemaking.
6.2 INITIAL ASSESSMENT
EPA has determined that the proposed C&D regulations are subject to notice-and-comment
rulemaking requirements. EPA has developed a profile of the C&D industry that includes all potentially
affected operations as well as small businesses. This information is provided in Chapter Two and also in
Chapters Four and Five of this EA. Much of the profile information covered in these sections applies to
small businesses. Additional information on small businesses in the C&D industry is provided in
Sections 6.2 and 6.3 of this chapter. EPA's assessment concludes that the proposed rule may affect small
entities and the proposed rule would have an adverse economic impact on small entities.
Section 6.2.1 reviews the SBA definitions of small entities in the C&D industry. Section 6.2.2
then uses the definitions of small entities laid out in Section 6.2.1 to estimate the number of operations
that meet this small business definition.
6.2.1 Definition of Affected Small Entities
The RFA defines a "small entity" as a small not-for-profit organization, small governmental
jurisdiction, or small business. EPA expects that the principal impact of the C&D regulations on small
entities will fall on (1) small businesses that undertake C&D activities and (2) small governmental units
involved in permitting C&D activities. With respect to the first of these categories, the majority of C&D
activity in the United States is undertaken by private businesses, hence the small entity analysis will
focus on small businesses engaged in C&D activities.3 With respect to the second category of impact,
permitting activity is undertaken exclusively by governmental units (at various levels of government),
hence this part of the analysis will focus on the impacts on small government units.
3 While some governmental and nonprofit entities may engage directly in C&D activities (i.e., undertake
C&D work of their own accord), complete information is not available to warrant inclusion of governmental or
nonprofit entities in this analysis. For this reason, this analysis focuses only on small businesses.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
The RFA requires (with some exception) that EPA define "small" businesses according to the size
standards established by the Small Business Administration (SBA). SBA establishes criteria for
identifying small businesses based on either the number of employees or annual revenues (13 CFR 121).4
These size standards vary by NAICS (North American Industrial Classification System) code, and
previously by Standard Industrial Classification (SIC) codes. Qualifying revenue levels differ among
NAICS industries, and within the C&D industries there is a range of qualifying revenue levels, from $5.0
million for NAICS 23311 (Land subdivision and development) to $27.5 million for the majority of
industries within NAICS 233 and 234. For businesses in the special trades industries, the small business
size threshold is $11.5 million in revenues. Table 6-1 summarizes the SBA revenue thresholds for small
businesses in each of the C&D industries.
4 Employees counted in determining size includes all individuals employed on a full-time, part-time,
temporary or other basis. Employment is measured as the average number of employees for each pay period over
the previous 12 months. For standards based on revenues, SBA uses the average revenues over the last three
completed fiscal years.
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Table 6-1.
SBA Small Business Definitions for the Construction and Development Industry
NAICS Code
233110
233210
233220
233310
233320
234110
234120
234910
234920
234930
234990
235930
235940
Description
Land subdivision and land development
Single-family housing construction
Multifamily housing construction
Manufacturing and industrial building construction
Commercial and institutional building construction
Highway and street construction
Bridge and tunnel construction
Water, sewer, and pipeline construction
Power and communication transmission line construction
Industrial nonbuilding structure construction
All other heavy construction
Excavation contractors
Wrecking and demolition contractors
SBA Revenue Size
Cutoff (Millions)
$5.0
$27.5
$27.5
$27.5
$27.5
$27.5
$27.5
$27.5
$27.5
$27.5
$27.5
$11.5
$11.5
Source(s): 13 CFR 121 (Small Business Size Regulations; Size Standards and the North American Industry
Classification System; Correction); Small Business Administration 1998: Firm Size Data (see
http://www.sba.gov/advo/stats/data.html)
6.2.2 Number of Small Businesses Affected
The number of small businesses affected by the proposed rule was estimated through a series of
steps. First, EPA estimated the number of establishments in the affected industries. From the number of
establishments, EPA then estimated the number of businesses (or firms) affected. Finally, EPA estimated
the number of small businesses affected.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
6.2.2.1 Number of Establishments Affected
The first step in the small entity analysis is to determine the number of establishments affected.
EPA developed estimates of the number of potentially affected establishments in Chapter Two (see Table
2-14.) The estimate of 148,553 potentially affected businesses was obtained after subtracting 62,400
establishments judged to be primarily engaged in remodeling activities, and 50,661 homebuilding
establishments that construct fewer than four homes per year and who were judged unlikely to disturb
more than one acre of land on a regular basis. Table 2-14 also reflects the fact that EPA distributed
establishments in the land development industry (NAICS 2331) among the four building construction
industries (NAICS 23321, 23322, 23331, and 23332) due to data limitations for the land development
industry.
For the small entity analysis, EPA was unable to include all of the establishments potentially
affected as shown in Table 2-14. In particular, EPA has not included special trades (NAICS 235) in its
small entity analysis because the financial data upon which the small entity analysis is based is not
available for these industries. EPA does not believe, however, that a substantial number of entities in
these industries are NPDES storm water permittees or co-permittees and would therefore not be subject
to the proposed rule requirements.
The final distribution of potentially affected establishments used in the small entity analysis is
shown in Table 6-2. The total number of establishments potentially affected by the proposed rule is
128,782 under Option 1. This is the figure upon which the small business analysis is based.
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Table 6-2. Number of Affected Establishments in the Construction and Development Industry
NAICS
23321
23322
23331
23332
23411
Industry
Single-family residential building
construction
Multi-family residential building
construction
Manufacturing and industrial building
construction
Commercial and institutional building
construction
Heavy construction
Potentially affected establishments
Option 1
Number
34,070
4,603
7,742
39,810
42,557
128,782
Percent of
Total
26.5%
3.6%
6.0%
30.9%
33.0%
67.0%
Option 2
Number
21,362
2,699
7,742
39,810
42,557
114,170
Percent of
Total
18.7%
2.4%
6.8%
34.9%
37.3%
100.0%
Totals may not add due to rounding.
Source: U.S. Census Bureau (2000a) and EPA estimates. See also Chapter Two, Table 2-14.
6.2.2.2 Number of Businesses Affected
In order to estimate the number of businesses affected by the proposed rule, EPA first examined
the ratio of businesses to establishments from SBA (1998) data.5 Table 6-3 shows these ratios.
5 For clarification, an establishment is defined as "a relatively permanent office or other place of business
where the usual business activities related to construction are conducted" (Census 2000). A business (or firm) refers
to the aggregation of all establishments owned by one company; therefore one business may consist of several
establishments.
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Table 6-3. Ratio of Businesses to Establishments by Employment Size Class
Employment
Class
Ito4
5 to 9
10 to 19
20 to 99
100 to 499
500+
23321
Single-Family
Housing
Construction
1.000
1.000
0.999
0.993
0.661
0.203
23322
Multifamily
Housing
Construction
1.000
0.999
1.000
0.994
0.884
0.540
23331
Manufacturing
and Industrial
Building
Construction
1.000
1.000
0.999
0.997
0.973
0.558
23332
Commercial
and
Institutional
Building
Construction
1.000
1.000
0.998
0.991
0.821
0.327
23411
Heavy
Construction
0.999
0.999
0.997
0.991
0.860
0.215
Source: SBA (1998).
As seen, the ratio of businesses to establishments is almost one-to-one for all establishments with
fewer than 100 employees. With the exception of NAICS 23331 (manufacturing and industrial
construction), the ratio of businesses to establishments is significantly lower for establishments
employing 100 or more workers. Table 6-4 applies these percentages to the total number of
establishments in the four industries to estimate the number of businesses.6 The overall ratio of
businesses to establishments for each industry was then applied to the number of potentially affected
establishments within each industry. To illustrate, for the single-family residential construction industry,
the estimate of potentially affected businesses is based on the following calculation:
(adjusted no. of affected establishments) * (total businesses/total establishments) = affected businesses
(34,070) * (138,732/138,850) = 34,041 potentially affected businesses
The number of potentially affected businesses was calculated in the same manner for the
remaining industries.
6 The table also shows average revenues per establishment. These results are used in the next step to
determine the number of small businesses affected.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
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Table 6-4. Estimated Number of Businesses by Employment Class, and Revenues per Establishment
Employment
Class
Number of
Establishments
Ratio of
Businesses to
Establishments
Estimated Number
of Businesses
Estimated Number of
Establishments Owned by
Multifacility Businesses
Revenues per
Establishment
(x $1,000)
Single-Family Housing Construction (NAICS 23321)
Ito4
5 to 9
10 to 19
20 to 991
100 to 4992
500+3
Subtotal
106,985
21,377
7,234
3,022
222
10
138,850
1.000
1.000
0.999
0.993
0.661
0.203
0.999
106,985
21,372
7,227
2,999
147
2
138,732
0
5
7
23
75
8
118
$412
$1,299
$2,991
$12,073
$75,923
$174,764
$1,760
Multifamily Housing Construction (NAICS 23322)
Ito4
5 to 9
10 to 19
20 to 991
100 to 4992
500+3
Subtotal
4,725
1,456
782
532
46
3
7,544
1.000
0.999
1.000
0.994
0.884
0.540
0.999
4,725
1,455
782
529
41
2
7,534
0
1
0
3
5
1
70
$383
$1,474
$3,612
$10,692
$40,855
$122,949
$1,070
Manufacturing and Industrial Building Construction (NAICS 23331)
Ito4
5 to 9
10 to 19
20 to 991
100 to 4992
500+3
Subtotal
3,136
1,666
1,261
991
195
30
7,279
1.000
1.000
0.999
0.997
0.973
0.558
0.997
3,136
1,666
1,260
988
190
17
7,257
0
0
1
3
5
13
22
$459
$1,529
$2,926
$10,891
$46,414
$217,247
$4,682
Commercial and Institutional Building Construction (NAICS 23332)
Ito4
5 to 9
10 to 19
20 to 991
100 to 4992
500+3
Subtotal
17,722
7,644
5,861
5,518
637
48
37,430
1.000
1.000
0.998
0.991
0.821
0.327
0.99¥
17,718
7,643
5,850
5,470
523
16
37,220
4
1
11
48
114
32
270
$467
$1,490
$3,434
$12,663
$77,162
$342,102
$437,317
Heavy Construction (NAICS 23411)
Ito4
5 to 9
10 to 19
20 to 991
100 to 4992
500+3
Subtotal
4,154
1,987
1,876
2,683
544
26
77,270
0.9997
0..9995
0.9966
0.9907
0.8601
0.2153
0.9886
4,153
1,986
1,870
2,658
468
6
11,141
1
1
6
25
76
20
729
$281
$939
$1,998
$7,124
$35,823
$118,810
$4,301
Source: Census (2000); SBA (1998).
1 Combined data from Census 20 to 49 and 50 to 99 employment classes.
2 Combined data from Census 100 to 249 and 250 to 499 employment classes.
3 Combined data from all Census employment classes of more than 500 employees.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
6.2.2.3 Number of Small Businesses Affected
To determine the number of potentially affected small businesses, the number of potentially
affected businesses was multiplied by the ratio of small businesses to total businesses. To estimate the
number of small businesses, EPA examined the distribution of revenues per establishment by size of
establishment (see last column of Table 6-4). This review concluded that average revenues for
establishments below 100 employees in size are consistently below the SBA small business size
threshold ($27.5 million per year) while average revenues for establishments above 100 employees
consistently exceed the SBA threshold.7 EPA thus concluded that the number of businesses with 100 or
fewer employees would be a good proxy for the number of businesses that fall below the SBA revenue
size threshold. Table 6-5 shows the results of this review. EPA estimates there are 95,753 potentially
affected businesses (representing 98.6 percent of all potentially affected businesses) that fall below the
SBA-defmed revenue threshold and that therefore may be considered "small" businesses.
7 EPA notes that while the SBA threshold applies to businesses not establishments, there are very few
multi-establishment businesses in the below 100-employee size classes, therefore the use of average establishment
revenues is appropriate.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
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Table 6-5. Estimated Number of Small Businesses Potentially Affected by the Proposed Rule.
NAICS
233210: Single-family
housing construction
233220: Multifamily
housing construction
233310: Manufacturing
and industrial building
construction
233320: Commercial and
institutional building
construction
23411 Heavy construction
Total
Potentially
Affected
Establishments
34,070
4,603
7,742
39,810
11,270
97,495
Potentially
Affected
Businesses
34,041
4,597
7,719
39,587
11,141
97,085
Potentially Affected Small
Businesses
Number
34,004
4,571
7,498
39,013
10,667
95,753
Percent of total
35.5%
4.8%
7.8%
40.7%
11.1%
100.0%
Small
Businesses as a
Percent of
Total for
Individual
Industry
99.9%
99.4%
97.1%
98.6%
95.7%
98.6%
Source: EPA estimates based on methodologies presented in this chapter and in Chapter Four.
6.3 EPA COMPLIANCE WITH RFA REQUIREMENTS
6.3.1 Outreach and Small Business Advocacy Review
In accordance with section 609(b) of the RFA, as amended by SBREFA, EPA convened a Small
Business Advocacy Review (SBAR) Panel for the proposed rule. The Panel was convened on July 16,
2001. Panel participants included representatives from EPA, the Office of Information and Regulatory
Affairs within the Office of Management and Budget (OMB), and the Office of Advocacy of the Small
Business Administration (SBA). "Small Entity Representatives" (SERs), who advised the Panel,
included small homebuilders and commercial builders. Throughout the development of these
regulations, EPA conducted outreach to small businesses in the C&D industries. EPA held several
informational public meetings in 1999 and again in 2001 to provide the public and those in potentially
affected C&D industries to learn more about the proposed rule and to voice their questions and concerns.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
In addition, several half-day focus group sessions were conducted with members of the National
Association of Home Builders (NAHB) in early 2001.
Consistent with the RFA/SBREFA, the Panel evaluated the assembled materials and small entity
comments on issues related to the elements of the IRFA. The Panel's activities and recommendations are
summarized in the Final Report of the Small Business Advocacy Review Panel on EPA 's Planned
Proposed Rule on National Pollutant Discharge Elimination System (NPDES) and Effluent Limitations
Guideline (ELG) Regulations for Construction and Development Activities (USEPA, 2001), or "Panel
Report." This document is included in the public record.
6.3.2 EPA's Initial Regulatory Flexibility Analysis
As required by Section 603 of the RFA, as amended by SBREFA, EPA has conducted an initial
regulatory flexibility analysis. The IRFA includes a discussion of the problems the proposed rule will
solve, as well as the objectives and legal basis for the proposal. The IRFA also includes a description
and estimate of the following:
• Number of small businesses that will be affected;
• The reporting, recordkeeping, and other compliance requirements of the proposed rule;
• Any Federal rules that may duplicate, overlap, or conflict with the proposed rule;
• Any significant regulatory alternatives to the rule that would accomplish the stated
objectives of the applicable statutes and minimize impacts to small businesses.
This section addresses each of these requirements of the IRFA that EPA has prepared to support
the proposed C&D regulations.
Section 607 of the RFA further notes that the Agency is to "provide either a quantifiable or
numerical description of the effects of a proposed rule or alternatives to the proposed rule, or more
general descriptive statements if quantification is not practicable or reliable." For this rulemaking, EPA
has prepared an economic analysis of the impacts to small C&D businesses. This analysis is provided in
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
Section 6.4. Additional information and the detailed results of this analysis are presented in Section
6.4.2.
6.3.2.1 Reasons EPA is Considering the Proposed Rule
EPA is proposing effluent limitation guidelines (ELG) for the C&D industry under a settlement
agreement with the Natural Resources Defense Council (NRDC). The ELG is an effort to establish
performance standards for construction and development projects during active and post-construction
phases. This rulemaking is being proposed under Title III of the Clean Water Act (CWA), and was
outlined in the Phase IINPDES storm water Final Rule (64 FR 68741) as the next step in the
development of the framework of the storm water program. While construction activities disturbing five
acres or more land are already subject to NPDES permits and the requirements set forth in EPA's
construction general permit (CGP), these permits do not generally contain technology-based requirements
for design, inspection, or maintenance of erosion and sediment control (ESC) best management practices
(BMPs). The current regulations require permittees to develop a storm water pollution prevention plan
(SWPPP) and in that plan to describe any ESCs they will use. The existing regulations do not require
that permittees use particular ESCs; actual ESC selection and design is the responsibility of the permittee
in conformance with any existing state and local requirements. State and local requirements for ESC
design, inspection, and maintenance criteria, if present, vary widely. The purpose of this rule is "to
establish nation-wide criteria to support builders and local jurisdictions in appropriate BMP selection"
(64 FR 68741).
6.3.2.2 Objectives and Legal Basis for the Proposed Rule
Construction and development (C&D) activity affecting water quality typically involves site
selection and planning, and land-disturbing tasks during construction such as clearing, excavating and
grading. Disturbed soil, if not managed properly, can be easily washed off-site during storm events.
Storm water discharges generated during construction activities can cause an array of physical, chemical
and biological impacts. Water quality impairment may result, in part, because a number of pollutants are
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preferentially absorbed onto mineral or organic particles found in fine sediment. The interconnected
process of erosion (detachment of the soil particles), sediment transport, and delivery is the primary
pathway for introducing pollutants from construction sites into aquatic systems. A primary concern at
most construction sites is the erosion and transport process related to fine sediment because rain splash,
rills (small channels typically less than one foot deep) and sheetwash (thin sheets of water flowing across
a surface) encourage the detachment and transport of this material to water bodies. Although streams and
rivers naturally carry sediment loads, erosion from construction sites and runoff from developed areas
can elevate these loads to levels above those in undisturbed watersheds.
Existing national storm water regulations require construction site operators to outline controls to
manage construction site runoff, but do not require any specific level of control. One of the options
being proposed (Option 2) would establish effluent limitation guidelines in the form of minimum
standards for design and implementation of erosion and sediment controls used during the active phase of
construction. This approach would cover sites with five or more acres of disturbed land, and would
establish minimum requirements for conducting site inspections and providing certification as to the
design and completion of various aspects of those controls.
EPA acknowledges that many State and local governments have existing standards for temporary
controls. The proposed rule is intended to work in concert with existing requirements where equivalent,
and would not supercede more stringent requirements. In addition, EPA is proposing two alternatives
that would not set national standards for control of storm water discharges from construction sites subject
to permit requirements under section 402 of the CWA. Both of these approaches would rely instead on a
combination of existing State and local requirements and additional requirements based on the best
professional judgement (BPJ) of the permitting authority. Under one of these alternatives (Option 1), the
proposal would establish minimum requirements for conducting site inspections and providing
certification as to design and completion of controls required by the permit authority in its NPDES
permit. These requirements are similar to the inspection and certification requirements in Option 2.
Existing compliance determination practices for construction site storm water controls rely principally on
site inspections by local governments, however, enforcement efforts are reported to be uneven
nationwide, largely due to limited enforcement resources at the Federal, State and local levels. The
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inspection and certification requirements in today's proposed rule could strengthen the current permit
program.
Under another alternative (Option 3), no new requirements would be established under this
option. Both the control requirements and the certification requirements would be left to the best
professional judgement of the permitting authority in order to allow them to be better tailored to local
conditions. These proposed options are discussed in more detail in sections IX and X of today's notice.
At this time, EPA is co-proposing all three options because it sees advantages to each.
This rulemaking is being proposed under Title III of the Clean Water Act (CWA), specifically
under the authorities of sections 301, 304, 306, 307, 308, 402 and 501 of the Clean Water Act. Further
legal basis for this proposed rule may be found in 33 U.S.C. sections 1311, 1314, 1316, 1317, 1318,
1342 and 1361 and under authority of the Pollution Prevention Act of 1990, 42 U.S.C. 13101 et seq., Pub
L. 101-508, November 5, 1990. Chapter One of this report and the preamble to the proposed rule contain
more detailed information on the objectives and basis for this proposed rule.
6.3.2.3 Description and Estimate of Number of Small Entities Affected
As presented in Table 6-5, EPA estimates that there are about 97,085 potentially affected C&D
businesses nationwide in the four industries discussed in this chapter, of which 95,753 (98.6 percent) are
small businesses.8 Approximately 40 percent of the small businesses are in the commercial and
institutional building construction industry and 35 percent are in the single-family residential
construction industry. Heavy construction accounts for 11 percent of small C&D businesses,
manufacturing and industrial building construction accounts for 8 percent, and multifamily residential
construction accounts for 5 percent.
8 The businesses shown in Table 6-5 excludes those representing 19,771 establishments in Special Trades
Contracting (NAICS 235) that are potentially affected by the proposed rule (see Table 2-14), but were not analyzed
in this chapter because the financial data upon which the small entity analysis is based is not available for these
industries. EPA does not believe, however, that a substantial number of entities in these industries are NPDES
storm water permittees or co-permittees, and would therefore generally not be subject to the proposed rule
requirements.
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6.3.2.4 Description of Proposed Recordkeeping, Reporting, and Other Requirements
The proposed C&D regulations contain recordkeeping and reporting requirements for entities in
the C&D industry. In Chapter Five, EPA estimated the costs associated with the additional requirements
imposed on C&D establishments as a result of the proposed rule. This section focuses specifically on the
costs and burden associated with recordkeeping, reporting and related requirements.
For the purpose of this analysis, "burden" means the total time, effort, or financial resources
expended by persons to generate, maintain, retain, or disclose or provide information to or for a federal
agency. This includes the time needed to review instructions; develop, acquire, install, and utilize
technology and systems for the purposes of collecting, validating, and verifying information, processing
and maintaining information, and disclosing and providing information; adjust existing procedures to
comply with any previously applicable instructions and requirements; train personnel to be able to
respond to a collection of information request; search data sources; complete and review the collection of
information; and transmit or otherwise disclose the information.
EPA estimated that states would incur some costs related to implementation of the proposed rule.
Specifically, general permit development and implementation of the inspection and certification
provisions are estimated to require approximately 200 labor hours per state during the first three years of
program implementation. See Chapter Five, Section 5.8 for full details.
EPA analyzed costs to government units under the assumption that the majority of Phase I and
Phase II storm water NPDES permit programs are fully implemented. Any new regulatory requirements
will be incremental to the costs of these programs. The analysis in Chapter Five concluded that once
Phase I and Phase II are fully implemented by communities, the proposed rule will not add any additional
burden to government units.
The current NPDES storm water permitting authority defaults to the state level except where
places are large enough to qualify as Phase I (medium and large MS4) or Phase II (small MS4)
communities. Since permitting authority, and thus permitting costs, will affect only Phase II or larger
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
communities, and since EPA's analysis indicates no incremental impacts to Phase II or larger
communities, EPA does not expect smaller government units to be adversely impacted by the proposed
rule. Therefore no additional analysis was conducted to assess the impacts of the proposed rule on small
government entities.
A significant new requirement for construction firms contained in both Option 1 and Option 2
would be maintenance of a site log book. The site log will record the date of initial groundbreaking and
any inspection or maintenance activities related to erosion and sediment control. The availability of the
log must be posted on the site and the log must be made available to government inspectors and the
public. This is a record-keeping requirement only and no information will be collected. EPA estimates
that site log will require 8.7 hours per year for each construction firm respondent. EPA further assumes
that all recordkeeping tasks will be performed by an engineering assistant. The fully loaded hourly wage
for the engineering assistant labor category in the construction industry, based on data from the U.S.
Department of Labor, Bureau of Labor Statistics, is $38.47 per hour. Thus, the 8.7 hours per year burden
implies an average annual cost of $335 for each firm. Since there are an estimated 95,753 small firms
subject to Option 1, the annual cost of the site log requirement is $32.07 million. This is the largest
portion of the inspection costs discussed in Chapter Five. Since Option 2 excludes firms disturbing less
than five acres each year from the site log requirement, the total costs of this requirement to small
business will be reduced.
6.3.2.5 Identification of Relevant Federal Rules That May Duplicate, Overlap, or Conflict
with the Proposed Regulations
EPA has analyzed the potential impacts of the proposed rule under the baseline assumption that
all C&D activities are in compliance with existing federal and state regulations affecting C&D
operations, including Phase I and future Phase IINPDES storm water regulations. Neither EPA nor the
Small Business Advocacy Review Panel identified any federal rules that duplicate or interfere with the
requirements of the proposed rule (USEPA, 2001).
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
6.3.2.6 Significant Regulatory Alternatives
The proposed rule retains the coverage of the Phase IINPDES storm water permitting program,
which excludes construction activities that disturb less than one acre of land. EPA believes that this
exclusion alleviates the potential compliance burden for small-scale builders who operate independently
and who work on very few (and relatively small) projects in a given year.9 EPA believes that larger plans
of development and individual construction projects that disturb a total of more than one acre are more
likely to contribute to increased storm water runoff and erosion problems than activities disturbing less
than one acre. In addition, activities disturbing less than one acre are more likely to be dispersed, thus
decreasing the concentration of adverse effects.
Additionally, under Option 2 of the proposed rule construction sites disturbing less than 5 acres
would be excluded. EPA believes that a substantial share of activity on sites between one and five acres
in size may also be undertaken by small-scale builders. This broader exclusion, therefore, would
potentially reduce compliance burdens for more small-scale builders by exempting them from additional
requirements.
EPA considered additional options that would, for example, exempt construction activities taking
place on sites often acres or less. EPA was unable, however, to identify data to suggest that exempting
sites under ten acres from the requirements of the proposed rule would produce substantial additional
relief to small entities. In fact, EPA found evidence that even the largest home builders operate on sites
in this size range (Otsuji, 2001).
Waivers for construction activities occurring in areas with low erosion potential remain in place
from the Phase II NPDES storm water Final Rule. Under Phase II such waivers may be granted where
little or no rainfall is expected during the period of construction. Qualification for this waiver may be
determined using the tables of rainfall-runoff erosivity (R) factors published for each region of the U.S.
by the Department of Agriculture (64 FR 68774). In addition, EPA has taken regional climate factors
into account throughout the development of this proposed regulation and has built a sizeable amount of
9 Note that as in the Phase II NPDES storm water rule, this exclusion does not apply to development
activities disturbing less than one acre that are part of a larger development plan (64 FR 68772-68773).
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
flexibility into the rule to allow permittees to choose appropriate controls based on their particular site
characteristics.
6.4 EPA'S ANALYSIS OF SMALL BUSINESS IMPACTS
The following sections describe the methodologies and results for the economic impact analysis
of the proposed rule on small businesses in the C&D industry.
6.4.1 Classification of Model Facilities for Impact Analysis
For its economic impact analysis, EPA used model facilities based on Census data, however,
these facilities are not identical to the 7997 Census of Construction data. This section describes how
EPA applied its analysis of small business-owned establishments to the model facilities used in the
impact analysis.
In the single-family and multifamily housing construction industries, (NAICS 233210 and
233220, respectively), EPA used multiple model facilities based on the number of housing starts
performed by the establishment per year for its economic impact estimates. EPA compared the model
facility data by starts class with both the 7997 Census of Construction data by employment class and the
SBA size standard for small business status. Table 6-6 presents key model facility data by starts class.
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May 2002
Table 6-6. Key Model Facility Data by Housing Starts Classification Category
Number of Units Started
Average
Number of
Employees
Average
Value of
Construction
Work ($1,000)
NAICS 233210
Single-Family Housing Construction
Ito4
5 to 9
10 to 24
25 to 99
100 to 499
500+
2.5
3.3
4.3
8.6
32.1
160.0
$492
$1,089
$1,987
$4,923
$24,031
$109,033
NAICS 233220
Multifamily Housing Construction
2 to 9
10 to 24
25 to 99
100 to 499
500+
3.2
5.1
8.0
13.5
64.7
$645
$1,382
$3,500
$7,410
$43,844
Source: EPA estimates based on Rappaport and Cole (2000).
Single-family housing construction establishments with 100 to 499 starts per year employ, on
average, 32 workers per establishment and earn $24 million in revenues. Establishments with fewer
starts tend to employ fewer workers and have lower average revenues. Conversely, establishments with
more than 500 starts per year employ on average 160 workers and earn revenues in excess of $109
million per establishment.
Multifamily housing construction establishments with 100 to 499 starts per year employ, on
average, 13.5 workers per establishment and earn $7.4 million in revenues. Establishments with more
than 500 starts per year employ on average 65 workers and earn revenues of $44 million per
establishment. Although average employment per establishment in the 500+ start class does not exceed
100 workers, employment per establishment in that class is almost five times larger than the 100 to 499
starts class.
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The natural break points in the employment and revenue per establishment data by housing start
class match reasonably well with those from the 7997 Census of Construction data described in Section
6.2.2. Therefore, for the purpose of this analysis, EPA assumes that model facilities with fewer than 500
housing starts per year in both the 233210 and 233220 NAICS codes are small business-owned
establishments, and model facilities in the 500+ starts class represent large business-owned
establishments. Note that based on 7997 Census of Construction figures by employment class, EPA
estimated 99.8 percent of establishments in NAICS 233210 and 99.4 percent of establishments in NAICS
233220 overall are small business-owned. Based on the Census Housing Starts Statistics special study,
EPA estimated that 99.7 percent of establishments in NAICS 233210 and 98.4 percent of establishments
in NAICS 233220 overall are small business-owned.10
To estimate the number of small business-owned facilities affected by the proposed C&D
effluent guideline, EPA first projected impacts for each model facility and extrapolated those to the
establishments represented by the model. If the model facility has fewer than 500 starts per year, then all
impacts to establishments represented by that facility are incurred by small businesses; impacts to
establishments represented by the model facility for the 500+ starts class are incurred by large business-
owned establishments.
In the manufacturing and industrial, commercial and institutional, and heavy construction
industries, (NAICS codes 233310, 233320, and 23411, respectively), a single model facility was used for
the economic impact analysis. Selection of the model facility for each industry was based on median
revenue by employment class. Because EPA used a single model facility in each of these industries, it is
not appropriate to designate the model facility as owned by a small or large business. Therefore, EPA
calculated the percent of establishments that are small business-owned, as estimated from the 7997
Census of Construction, and applied that percentage to all impacts to estimate small business impacts.
For example, approximately 97 percent of establishments in NAICS 233310 are small business-owned.
10 Small differences arise in estimating the percentages of total establishments in the industry that are small
business-owned because of differences in how the data is arranged. SB A sets its definition of "small" by firm
revenues. However, the Census data available to EPA is arranged by employment class, not revenues, while data in
the Census special study used to develop model establishments is arranged by starts class, not revenues or
employment. Thus minor discrepancies in percentages that are insignificant to the analysis will occur.
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If 100 establishments in that NAICS code are projected to incur compliance costs exceeding one percent
of revenues, EPA assumes that 97 of those establishments are small businesses.
6.4.2 Revenue Test Methodology
EPA assessed the impacts to small businesses by examining the ratio of estimated compliance
costs to business revenues. Impacts are determined by the number and percentage of businesses
incurring costs that exceed one percent and three percent of revenues.
EPA's primary tool for projecting revenue test impacts is the model facility. For each model
facility, it is straightforward to divide estimated business-level compliance costs by model facility
revenues. However, that answers only part of the question concerning the impact of the proposed
regulation on small business entities. To determine the number and percentage of businesses exceeding
the revenue test thresholds, EPA must consider not only the model facility, but the businesses
represented by that model as well. The model facility actually represents a set of approximately similar
businesses (e.g., similar levels of employment within some bounded range) with revenues that form a
statistical distribution around the model facility's revenue figure. Some businesses in this statistical
distribution will have revenues below those of the model business while others will have revenues above
those of the model business. Therefore, simply examining the ratio of compliance costs to revenues for
the model business is insufficient. If, for example, the model facility incurs compliance costs that are
less than one percent of revenues, a conclusion that no businesses are affected by the regulation is
unwarranted. It is highly likely that other businesses represented by the model have lower revenues and
therefore may well incur costs exceeding one percent of revenues.
To address this issue, EPA developed estimates of the statistical revenue distribution of
establishments represented by each model facility.11 EPA then used those distributions to estimate the
number and percentage of small business-owned establishments in each industry that incur compliance
costs exceeding one and three percent of revenues. EPA used model facility revenues for the mean of
11 As described in Section 6.2.2 above, EPA determined that in the construction industry, the small business
is essentially identical to the small business-owned establishment.
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each distribution, but had no direct information concerning the dispersion of establishment income
around each model facility. EPA therefore developed the distributions by making reasonable
assumptions about the variance and shape of the distribution. In order to deal with the uncertainty
caused by the lack of direct evidence about the shape of the distribution, EPA used two different
assumptions about the distribution of revenues to generate a range of impacts.
6.4.2.1 Development of Revenue Distributions
The two curves in Figure 6-1 represent the cumulative distribution functions for two different
sets of assumptions concerning the distribution of establishment income around a hypothetical model
facility mean of $1.0 million in annual revenues. The cumulative distribution function is used to
determine the probability y that a random variable x is less than or equal to some specified value. It is
appropriate to use the cumulative distribution function for this application because EPA is concerned
with the probability that an establishment earns less than some specified level of revenues. For example,
suppose estimated establishment compliance costs for this model facility class are equal to $15,000. Any
establishment in this model facility class that earns revenues less than $1.5 million will incur compliance
costs that exceed one percent of revenues. Thus, EPA would use the cumulative distribution function to
estimate the probability that a facility earns revenues of $1.5 million or less.
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May 2002
Figure 6-1
Baseline Distribution Functions
for Facility Revenues
i.oo
0.75
a
"a 0.50
g
—
0.25
0.00
$1,000 $2,000 $3,000
Rewmies(x $1,000)
$4,000
As a starting point for its analysis, EPA examined the implications of assuming that income is
normally distributed and has a standard deviation equal to the mean. That is, the coefficient of variation
(standard deviation divided by mean) for this distribution is equal to one. In Figure 6-1, this is
represented by the curve labeled "unit normal." An implication of the unit normal distribution for this
analysis is that some establishments are projected to earn negative revenues. This can be observed by
examining the y axis; the unit normal distribution assumption results in about a 15 percent probability of
an establishment earning negative revenues. While negative income (e.g., net income, cash flow) is both
possible and plausible for a business establishment, negative revenue is not.12
12 EPA examined an alternative assumption that income is normally distributed, but with standard deviation
such that there was zero probability of an establishment earning negative revenues. This adjustment results in a
coefficient of variation equal to about 0.29. EPA determined that this was probably not a reasonable distribution for
use in this analysis because the probability of an establishment earning low revenues is quite small. For example,
using the hypothetical mean revenues of $1 million, the probability of an establishment earning revenues less than
$500,000 is only about 5 percent; the probability of an establishment earning revenues between $500,000 and $1.0
million is about 45 percent.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
EPA then examined the implications of using a lognormal distribution. EPA estimated the mean
and standard deviation for the lognormal distribution through a standard transformation of the mean and
standard deviation of the unit normal distribution. Using this transformation, the lognormal distribution
can be interpreted as having the same mean and standard deviation as the equivalent unit normal
distribution, but a skewed distribution (unlike the normal distribution, which is symmetric). In Figure 6-
1, for example, the probability of establishment revenues less than or equal to $1.0 million is 50 percent
under the unit normal distribution assumption, as is the probability of revenues greater than $1.0 million.
Under the lognormal distribution assumption, about 66 percent of establishments have income less than
or equal to $1.0 million, and about 34 percent have income greater than $1.0 million.
The distribution of establishment revenues may be skewed because it is probable — but
infrequent — that some establishments in any model class will perform extremely well and earn very
high revenues relative to other establishments; there is no inherent limit to the revenues such an
establishment might earn. Conversely, there is a limit to the minimum revenues even the poorest
performing establishments will earn; poor performers cannot earn less than zero revenues. Such a
distribution would tend to be skewed as is the lognormal distribution in Figure 6-1.
6.4.2.2 Application of Revenue Distributions to Estimating Small Business Impacts
Given the revenue distributions developed in the preceding section, EPA applied the
distributions to the problem of estimating revenue test impacts as follows. First, EPA used revenues for
each model facility from the four major construction industries (single-family, multifamily,
manufacturing and industrial, commercial and institutional) as the mean of the distribution for each
model class. EPA then set the standard deviation for each model class' distribution equal to its mean.
With mean, standard deviation, and two alternative assumptions concerning the shape of the distribution
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
(normal or lognormal), EPA calculated the probability that revenues are less than or equal to any given
value for each model class.13
After estimating the compliance costs per establishment for each option, EPA calculated the level
of revenues at which the estimated compliance costs would exactly equal one percent and three percent
of revenues. EPA then used its two distributions to calculate the probability that establishments have
revenues less than or equal to these specified levels. These probabilities provide the range for the
percentage of establishments projected to incur compliance costs exceeding the one percent and three
percent thresholds. Multiplying these probabilities by the number of establishments in the model class
provides the range for the number of establishments projected to incur compliance costs exceeding the
one percent and three percent thresholds. Note that EPA chose to truncate the unit normal distribution at
zero revenues; EPA calculated the probability that establishments earn revenues equal to the specified
one or three percent threshold for incurring impacts. This is because analytically the region of the
distribution showing some probability of negative revenues cannot be appropriately evaluated.
This process is illustrated in Figure 6-1. The hypothetical model establishment earns $1 million,
the mean for each distribution. If EPA estimates annual compliance costs of $7,500 will be incurred by
this business, then any business in this model class earning less than $750,000 will incur compliance
costs exceeding one percent of revenues, and any business earning less than $22,500 will incur
compliance costs exceeding three percent of revenues. The "critical value" in Figure 6-1 represents the
one percent threshold (i.e., revenues of $750,000). Based on the normal distribution, EPA would project
that 22 percent of establishments incur costs exceeding the one percent threshold (i.e., the probability of
revenues less than $750,000 is equal to 0.38, while the probability of revenues less than $0 is equal to
0.16, thus, the net probability equals 0.22). Based on the lognormal distribution, EPA would project that
54 percent of establishments incur costs exceeding the same threshold. These provide the lower and
upper bounds for EPA's impacts estimates.
13 For calculation purposes, EPA used the @NORMAL and @LOGNORMDIST functions in the Lotus
spreadsheet program.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
6.4.3 Small Business Impact Analysis Results
Tables 6-7a and 6-7b present the range of establishments projected to incur compliance costs
exceeding one percent and three percent of revenues, respectively, for each proposed ESC option under a
zero percent cost pass through assumption. Tables 6-7c and 6-7d present the same results under an
estimated cost pass through assumption. In each table, the "A" denotes the results obtained assuming a
normal distribution and the "B" indicates the results obtained using the lognormal distribution, as
discussed in Section 6.4.2.
The number of small business-owned establishments incurring compliance costs exceeding the
revenue threshold is less than one percent for all options and project types under the zero CPT
assumption. Impacts under the estimated CPT assumption are even smaller. Under the zero CPT
scenario, the number of small businesses with costs exceeding one percent of revenues ranges from a low
of 0 to 126 under Option 1 and from a low of 104 to a high of 627 under Option 2 (Table 6-7a). The
number of businesses with costs exceeding three percent of revenues ranges from a low of 0 to a high of
42 under Option 1 and from a low of 0 to a high of 205 under Option 2 (Table 6-7b).
Under the estimated CPT scenario, the number of small businesses with costs exceeding one
percent of revenues ranges from a low of 0 to 15 under Option 1 and from a low of 0 to a high of 70
under Option 2 (Table 6-7c). The number of businesses with costs exceeding three percent of revenues
ranges from a low of 0 to a high of 5 under Option 1 and from a low of 0 to a high of 24 under Option 2
(Table 6-7d).
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Table 6-7a. Estimated Number of Small Business-Owned Establishments
With Compliance Costs Exceeding 1 Percent of Revenues
Zero Percent Cost Pass Through
Option
1
2
3
Single-family
Number
Low
0
40
0
High
47
140
0
Pet. of Small
Businesses
Low
0.000%
0.118%
0.000%
High
0.138%
0.412%
0.000%
Multifamily
Number
Low
0
8
0
High
5
18
0
Pet. of Small
Businesses
Low
0.000%
0.175%
0.000%
High
0.110%
0.395%
0.000%
Commercial
Number
Low
0
18
0
High
62
234
0
Pet. of Small
Businesses
Low
0.000%
0.046%
0.000%
High
0.159%
0.599%
0.000%
Option
1
2
3
Industrial
Number
Low
0
2
0
High
12
36
0
Pet. of Small
Businesses
Low
0.000%
0.270%
0.000%
High
0.160%
0.480%
0.000%
Heavy
Number
Low
0
36
0
High
0
199
0
Pet. of Small
Businesses
Low
0.000%
1.863%
0.000%
High
0.000%
0.337%
0.000%
TOTAL
Number
Low
0
104
0
High
126
627
0
Pet. of Small
Businesses
Low
0.000%
0.109%
0.000%
High
0.000%
0.109%
0.000%
Source: EPA estimates based on methodologies presented in this chapter and in Chapter Four.
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Table 6-7b. Estimated Number of Small Business-Owned Establishments
With Compliance Costs Exceeding 3 Percent of Revenues
Zero Percent Cost Pass Through
Option
1
2
3
Single-family
Number
Low
0
0
0
High
15
45
0
Pet. of Small
Businesses
Low
0.000%
0.000%
0.000%
High
0.044%
0.133%
0.000%
Multifamily
Number
Low
0
0
0
High
2
6
0
Pet. of Small
Businesses
Low
0.000%
0.000%
0.000%
High
0.044%
0.132%
0.000%
Commercial
Number
Low
0
0
0
High
21
77
0
Pet. of Small
Businesses
Low
0.000%
0.000%
0.000%
High
0.054%
0.197%
0.000%
Option
1
2
3
Industrial
Number
Low
0
0
0
High
4
12
0
Pet. of Small
Businesses
Low
0.000%
0.000%
0.000%
High
0.053%
0.160%
0.000%
Heavy
Number
Low
0
0
0
High
0
65
0
Pet. of Small
Businesses
Low
0.000%
0.000%
0.000%
High
0.000%
0.607%
0.000%
TOTAL
Number
Low
0
0
0
High
42
205
0
Pet. of Small
Businesses
Low
0.000%
0.000%
0.000%
High
0.044%
0.214%
0.000%
Source: EPA estimates based on methodologies presented in this chapter and in Chapter Four.
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Table 6-7c. Estimated Number of Small Business-Owned Establishments
With Compliance Costs Exceeding 1 Percent of Revenues
Estimated Cost Pass Through
Option
1
2
3
Single-family
Number
Low
0
0
0
High
7
20
0
Pet. of Small
Businesses
Low
0.000%
0.000%
0.000%
High
0.021%
0.059%
0.000%
Multifamily
Number
Low
0
0
0
High
0
1
0
Pet. of Small
Businesses
Low
0.000%
0.000%
0.000%
High
0.000%
0.022%
0.000%
Commercial
Number
Low
0
0
0
High
6
24
0
Pet. of Small
Businesses
Low
0.000%
0.000%
0.000%
High
0.015%
0.061%
0.000%
Option
1
2
3
Industrial
Number
Low
0
0
0
High
2
6
0
Pet. of Small
Businesses
Low
0.000%
0.000%
0.000%
High
0.027%
0.080%
0.000%
Heavy
Number
Low
0
0
0
High
0
19
0
Pet. of Small
Businesses
Low
0.000%
0.000%
0.000%
High
0.000%
0.178%
0.000%
TOTAL
Number
Low
0
0
0
High
15
70
0
Pet. of Small
Businesses
Low
0.000%
0.000%
0.000%
High
0.016%
0.073%
0.000%
Source: EPA estimates based on methodologies presented in this chapter and in Chapter Four.
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Table 6-1 A. Estimated Number of Small Business-Owned Establishments
With Compliance Costs Exceeding 3 Percent of Revenues
Estimated Cost Pass Through
Option
1
2
3
Single-family
Number
Low
0
0
0
High
2
7
0
Pet. of Small
Businesses
Low
0.000%
0.000%
0.000%
High
0.006%
0.021%
0.000%
Multifamily
Number
Low
0
0
0
High
0
0
0
Pet. of Small
Businesses
Low
0.000%
0.000%
0.000%
High
0.000%
0.000%
0.000%
Commercial
Number
Low
0
0
0
High
2
8
0
Pet. of Small
Businesses
Low
0.000%
0.000%
0.000%
High
0.005%
0.020%
0.000%
Option
1
2
3
Industrial
Number
Low
0
0
0
High
1
2
0
Pet. of Small
Businesses
Low
0.000%
0.000%
0.000%
High
0.013%
0.027%
0.000%
Heavy
Number
Low
0
0
0
High
0
7
0
Pet. of Small
Businesses
Low
0.000%
0.000%
0.000%
High
0.000%
0.065%
0.000%
TOTAL
Number
Low
0
0
0
High
5
24
0
Pet. of Small
Businesses
Low
0.000%
0.000%
0.000%
High
0.005%
0.025%
0.000%
Source: EPA estimates .
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6.5 REFERENCES
Otsuji, 2001. Personal communication between Patrick Otsuji, California State Water Resources Control
Board, Division of Water Quality, Storm Water Section, and Dina Metivier of Eastern Research
Group, Lexington, MA. April 2001.
Rappaport B.A., T.A. Cole. (U.S. Census Bureau, Manufacturing and Construction Division). 2000.
Construction Sector Special Study: Housing Starts Statistics—A Profile of the Homebuilding
Industry.
SBA. 1998. Statistics of U.S. Businesses: Firm Size Data. U.S. Small Business Administration, Office
of Advocacy. Available at: http: //www. sba. gov/advo/stats/data.html.
U.S. Census Bureau. 2000. 1997 Economic Census: Construction, United States. Various Reports.
Available at: http://www.census.gov/epcd/ec97/us/USOOO_23.HTM.
U.S. EPA. 2001. "Final Report of the Small Business Advocacy Review Panel on EPA's Planned
Proposed Rule on National Pollutant Discharge Elimination System (NPDES) and Effluent
Limitations Guideline (ELG) Regulations for Construction and Development Activities." U.S.
Environmental Protection Agency.
U.S. EPA. 1999. Revised Interim Guidance for EPA Rulewriters: Regulatory Flexibility Act as
Amended by the Small Business Regulatory Enforcement Fairness Act. March 29.
http://www.epa/gov/sbrefa/documents/igui99.pdf
U.S. GPO (U.S. Government Printing Office). 2000. Small Business Size Regulations; Size Standards
and the North American Industry Classification System; Correction. 13 CFR Part 121.
Washington, DC: Small Business Administration. Federal Register. 65(172): 53533-53558.
September 5. http: //www. sba. gov/library/lawroom .html
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CHAPTER SEVEN
BENEFITS METHODOLOGY
Previous chapters have considered the costs of implementing the proposed regulations and their
effect on the industry, markets, and economy. Those chapters discussed the negative impact of the
regulation on the national economy but the purpose of the regulation is to benefit the nation by improving
water quality and the environment. These benefits can be measured in economic terms and balanced
against the costs of implementing the proposed rule. This chapter reviews previous benefits assessments
for similar regulations to develop a methodology for measuring the benefits of the proposed construction
and development regulation.
7.1 PREVIOUS APPROACHES TO BENEFITS ASSESSMENT
Two basic approaches are used to measure the economic benefits of a policy change. In the "top-
down" approach, the analyst defines the total benefits of an improvement (or avoidance of degradation)
brought about by some policy action or combination of actions, and posits a means of scaling the benefit
to the size and scope of the action. The overall benefits of the proposed action can then be calculated.
The alternative, "bottom-up" approach enumerates the pathways through which society derives value
from the environmental consequences of the proposed action and estimates that value. Reducing
sediment runoff, for example, reduces the potential need to dredge navigation channels. A bottom-up
approach makes the connections from changes at the sediment source to deposition in the harbor to the
savings to society from reduced dredging costs. The following sections establish a framework for
development of bottom-up methods to estimate benefits of the proposed construction and development
rule.
A prominent study of the benefits of reducing sediment in waterways is Ribaudo's Water Quality
Benefits from the Conservation Reserve Program (Ribaudo, 1989). For benefit categories where there is
sufficient information, Ribaudo carefully links soil loss to water quality measures and benefit values. For
other categories, where he has estimates of total damage costs, he assumes that reductions in sediment
discharge will lead linearly to similar reductions in damage costs. Fox, et al. (1995) suggest that the
relationship between sediment loading and water quality is not linear but S-shaped. At high sediment
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loadings, incremental reductions in sediment discharge may have essentially no effect on water quality.
At very low loadings, incremental reductions may actually be harmful for some purposes. Some fish, for
example, prefer some sediment in the water column. The linearity assumption presumes that starting
sediment loads are in the middle section of the S-curve. This may or may not be valid for a particular
location and benefit category but is probably a reasonable working assumption.
In maintaining the connection from physical effects of the policy to changes in welfare, bottom-
up approaches offer the opportunity to assess different policy options, if they can be well-described and
have discernible effects. The connections, however, are only as good as the research upon which they
are based. Poor connections may be bridged with reasonable assumptions. However, weakness at any
level compromises the credibility of the results.
7.2 BENEFITS CATEGORIES CONSIDERED
The Environmental Assessment for the proposed rule (EPA 2002b) accomplishes the first two or
three steps of Ribaudo's process. The assessment estimates the sediment loads avoided by
implementation of the proposed regulation. Sediment load can be linked to services society values and
therefore to benefit categories.
EPA used a model watershed approach to estimate the impacts of development on water quality.
Several studies in Maryland and Pennsylvania provided the basic reference information for what occurs
in a watershed as the landscape is developed. Attention focused on increased sediment loads from
construction sites. These case studies were then generalized using appropriate adaptations to different
weather, slope, and soil conditions in different regions of the country. Table 7-1 summarizes the
categories of information developed in the baseline environmental assessment and the categories of
benefits which they were used to estimate.
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Table 7-1. Environmental Measures from the Baseline Environmental Assessment
Environmental Effect
Settleable Solids
Turbidity Producing Solids
Units
Total tons per Year
Total tons per Year
Benefit Category
Dredging
Treatment/Dredging
The theoretically correct benefit measure is the change in producer and consumer surplus
ensuing from a change in environmental quality. As most environmental changes entail non-market
goods, such as clean air and water, demand functions cannot be readily estimated. Economists instead
use the fact that environmental externalities impose costs on the public to estimate benefits. Most benefit
assessments in the soil conservation context use the costs of avoiding the consequences of the
environmental harm as a proxy for the correct benefit measures. It can be shown that averting costs are a
lower bound on the correct welfare measures (Laughland, et al., 1996). Whether averting costs are a near
or distant lower bound depends on how closely the product of the averting process substitutes for the
actual environmental good. Most of the studies cited below rely on avoided cost measures which should
be considered a lower bound benefit estimate.
Although benefits are measured in terms of avoided costs, whether those costs are actually
incurred or not is largely irrelevant. The measures indicate society's willingness to pay for the
environmental change or the utility lost due to the change. If a reservoir fills with sediment, for example,
the community has lost water storage capacity. Whether or not it chooses to replace the lost capacity
depends on budget constraints and other priorities. Nevertheless, the community has lost some of the
utility of the resource. If it is not replaced, the loss of utility may be exacted from the community in other
ways such as increased flood damage or water shortages. Thus, the avoided costs should be viewed as
the opportunity cost of failing to control sedimentation rather than as a budgetary saving for the
responsible agency.
The following sections review benefit categories suggested for this analysis and used in other
assessments. For each category we discuss the methods, units, and results of prior studies and EPA
assessments. We also describe the methods used to assess the benefits of the proposed ESC controls for
each category.
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7.2.1 Decreased Erosion and Sediment Generation
Faster run off from construction sites and impervious surfaces has ill effects on stream sediment
and structure both upstream and downstream in the watershed. Upstream, faster run off cuts into
streambanks and adds to the sediment load. Downstream, additional sediment settles out when flows
slow or reach larger water bodies. Some of the sediment is suspended degrading water quality. The
benefits of reducing suspended sediment are discussed in Section 7.2.2. In this section we discuss the
benefits of reducing larger sediment particles which contribute to sedimentation of water bodies.
7.2.1.1 Water Storage Capacity
People impound water for many reasons. Reservoirs supply municipal water systems and
mitigate the rising waters of floods. Flow control structures on large rivers enhance navigation. When
any of these impoundments fill with sediment, they are less capable of fulfilling their purpose. Ribaudo
(1989) cited an estimate by Crowder (1987) that 820,000 acre-feet of water storage capacity are lost to
anthropogenic sources annually. Thus, there is a benefit in reducing the amount of sediment that flows
into these impoundments. Ribaudo estimated the benefits as the costs of constructing replacement
reservoirs and assumed that a one percent reduction in sediment discharge would result in one percent
lower replacement costs.
An alternative approach would estimate the connection from stream bank and overland erosion
to sediment movement to reservoirs to the need to maintain water storage capacity. The Environmental
Assessment estimates the total tons of sediment moved from stream bank and overland erosion. This
total volume affects both water storage capacity in reservoirs and the need for dredging of navigational
channels. The estimate of total sediment volume can be allocated to these two categories as well as to
other fates, such as redeposition along watercourses. For example, the regional capacity of reservoirs
compared to the total capacity of water bodies indicates the proportion of sediments settling in lakes that
would be subject to dredging. Similarly, the number or area of navigational channels maintained in the
region compared to natural outlets could indicate the proportion of sediment that would need to be
removed from channels. Given the animus against new water projects in the current policy climate,
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construction of replacement water storage capacity is unlikely so all benefits from sediment reduction in
this category are valued at the average cost of dredging.
Table 7-2 illustrates such an application using the stream bank erosion figures from the
Environmental Assessment. The U. S. Army Corps of Engineers' (USAGE) National Inventory of Dams
indicates that the surface area of reservoirs behind dams represent 35.2 percent of the water area of the
nation (USAGE 2001). EPA adopted this percentage as an estimate of the proportion of sediment
generated from construction sites that would reach constructed water bodies. The tonnage deposited is
converted to cubic yards based on 1.82 cubic yards per ton (Sohngren and Rausch, 1998a). Sohngren
and Rausch (1998a) estimate the variable costs of dredging as $2.10 per cubic yard which is in the same
range as USAGE estimates. As discussed in Section 7.2, the avoided costs should be viewed as the
opportunity cost of failing to control sedimentation rather than as a cost saved by reducing the volume to
be dredged. Whether the dam owner chooses to remove the sediment or not is irrelevant. Sedimentation
reduces the social utility of the resource. Multiplying these factors together yields an estimate of the
benefits of reduced sedimentation.
Table 7-2. Sample Calculation of Avoided Loss of Water Storage Capacity
Effect of regulation on sediment load
(tons per year)
Allocation to Water Storage Facilities
Amount of sediment reaching reservoirs
Tonnage expressed in cubic yards
Cost of restoration dredging per cubic yard
Total cost of re-dredging avoided annually
Row:Formula
11,000,000 1
Tons
35.2% 3,872,000 2:1x0.352
7,047,000 3:2x1.82
$2.10 4
$14,799,000 5:3x4
Sources: U.S. EPA, 2002a
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7.2.1.2 Navigational Dredging
River channels and harbors are dredged periodically to maintain a mandated depth. Much of the
sediment removed can be traced to human activities. According to the USAGE, more than 400 ports and
25,000 miles of navigation channels (USAGE 2002a) are maintained in the U. S. There are two kinds of
dredging operations performed, construction, or new, dredging and maintenance dredging. Construction
dredging involves the removal of sediments not previously disturbed in order to create a new channel, or
to enlarge an existing channel. Maintenance dredging is the removal of extra sediment in an existing
waterway (USAGE 2002a).
Both the USAGE and members of industry participate in dredging activities under the USAGE
Dredging Program. Under this program, industry and the Corps combined spent $494 million on
maintenance dredging work and $127 million on new dredging work, for a total of $622 million in 1997.
This activity removed 253 million cubic yards of material for maintenance and 32 million cubic yards for
new work, combining for a total of 285 million cubic yards dredged (USAGE 2002b). Based on this
data, the average cost per cubic yard is $1.95 for maintenance dredging, $3.97 for new work, and $2.18
for both new and maintenance dredging work.
Relatively little of the sediment dredged from navigation channels comes from urban
development. The totals above represent material deposited by all forms of sedimentation. EPA has
estimated that the proposed rule would keep 0.6 to 2.6 million cubic yards from reaching navigational
channels. This is less than one percent of the annual amount dredged under the USAGE Dredging
Program and an even smaller proportion of the total amount dredged in the U.S. annually.
Dredging costs have been used to estimate the benefits of sediment reduction in several other
studies. Ribaudo (1989) assumed directly proportional reductions between erosion and dredging costs
and used an estimate from Clark et al. (1985) for total dredging costs attributable to eroding soils.
Sohngren and Rausch (1998b) looked specifically at the Maumee River watershed in Ohio. The marginal
cost of dredging contaminated sediment there were quite high as an existing confined disposal facility for
contaminated dredge spoil was near its capacity. This necessitated construction of a new facility.
Sohngren and Rausch (1998a) make the connections from farm field to harbor and estimate that 12.7
percent of soil eroded off fields in the watershed ends up in the navigation channel.
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As discussed in the water storage capacity section, the sediment load deposited in navigation
channels can be estimated and average costs per ton dredged applied to estimate avoided costs from
policy alternatives. The starting value is the change in sediment delivered to waterways. This value is
taken from the Environmental Assessment. Table 7-3 shows an allocation of this sediment to navigation
channels using Sohngren and Rausch's (1998a) estimate of the proportion of sediment reaching
navigation channels, 12.7 percent. The Sohngren and Rausch estimate is probably relatively high, as the
Maumee River which they studied flows into Toledo harbor. Many rivers do not flow to developed,
commercial harbors. Variable cost avoided is the appropriate metric for this application as the regulation
is unlikely to prevent dredging operations entirely since other sources of sediment will continue to flow.
Sohngren and Rausch (1998a) estimate the variable costs as $2.10 per cubic yard. This agrees well with
the $2.18 per cubic yard estimated from USAGE data above.
Table 7-3. Sample Calculation of Avoided Navigational Dredging
Effect of regulation on total erosion (tons per yr)
Allocation to Navigational Channels
Assume 12.7 percent reaches maintained channel (tons per yr)
Amount of sediment to be dredged annually in cubic yards
Variable cost per cubic yard
Total avoided cost of navigational dredging
11,000,000
1,397,000
2,543,000
$2.10
$5,339,000
Row:Formula
1
2: 1x0.127
3: 2x1.82
4
5:3x4
Sources: Sohngren and Rausch, 1998a, and U.S. EPA, 2002a.
7.2.2 Reduced In-Stream TSS and Sediment Concentration
Sediment and other components of storm water runoff contribute to low water quality in
receiving waterways. If these waterways are used for public water supplies or industrial processes, the
water may need treatment before it is used. Excessive sediment in the water causes turbidity which
impedes the action of disinfectants and results in harmful disinfectant by-products. Conventional
filtration and flocculation removes the turbidity before further treatment processes. The worse the intake
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water's quality the more intense and expensive the treatment required. Three studies in the late 1980's
and one in 1998 estimated the elasticity of water treatment costs with respect to the turbidity of the intake
water. The studies used a hedonic method. Dearmont, et al. (1998), for example, regressed the costs of
chemicals for treatment on turbidity of intake water and other variables for a sample of Texas water
treatment facilities. They found that a one percent reduction in nephelometric turbidity units (NTUs) in
the intake water resulted in 0.27 percent reduction in treatment chemical costs. Similar elasticities from
other studies ranged from 0.07 percent (Holmes, 1988) to 0.333 percent (Moore and McCarl, 1987).
Ribaudo (1989) used Holmes' (1988) results to link total suspended solids (TSS) to turbidity to treatment
costs per gallon for watersheds nationwide. Different studies express their results in various units
corresponding to different points in the water use process. Sohngren and Rausch (1998b) do not describe
their methods but estimate that water treatment costs are $0.05 for each ton of gross soil erosion. Fox
and Dickson (1990) express their results in terms of sediment in waterways, i.e. tons of suspended
sediment, and find a cost of $13.44 (Canadian) per ton. The two plus orders of magnitude difference
between these estimates makes sense if only 1 out of 250 tons of soil eroded became suspended
sediment. Fox and Dickson (1990) adjust their cost estimate based on the probability of the suspended
sediment from their three sample watersheds reaching water treatment plants given the geography of the
region.
The EPA assessment of the benefits and costs of President Clinton's Clean Water Initiative (U.S.
EPA, 1994) estimated that improved water quality would reduce nationwide treatment costs by 1 to 5
percent; storm water was a source of 6.6 percent of the impairment. The nationwide avoided costs from
improved storm water quality were estimated as $3.2 to $17.0 million per year.
The Environmental Assessment estimates the TSS loadings reductions from ESC management.
EPA estimates water treatment benefits from reducing TSS loadings by taking a derivative from Holmes'
(1988) equation which shows the change in NTU from changes in sediment loads, given stream flow, and
water storage capacity. Values for assumptions about stream flow, storage capacity and costs of
processing intake water are taken from Holmes (1988). The literature contains a range of NTU-to-cost
elasticities from 0.07 to 0.333. Using this range of elasticities generates the range of benefit estimates
from $22.49 to $106.97 per 1,000 tons of sediment introduced into waters. Holmes' costs were reported
in 1984 values. Updating these values to 1997 price levels using the CPI for urban consumers (CPI-U in
1984=103.9, CPI-U in 1997=160.5) yields values of $34.74 and $165.24 per 1,000 tons in 1997 dollars.
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Table 7-4. Sample Calculation of Avoided Water Treatment Costs
Change in annual TSS (1,000 tons/yr)
after development from pre-development levels
Calculated range of treatment costs per 1,000 tons/yr
Range of changes in costsb/
2,000
Row:Formula
1
Low High
$34.74 $165.24 2
$69,480 $330,480 3:1x2
Sources: Holmes, 1988, and U.S. EPA, 2002a.
7.2.3 Non-Quantified Benefits
Several categories of benefits discussed in other studies were considered for this benefit
assessment. For the most part, the benefits expected to be derived from these categories are relatively
small and difficult to quantify. Rather than expend inordinate resources to quantify small benefits, EPA
focused on the more promising, larger categories.
7.2.3.1 Water Contact Recreation
One of the salutary effects of improved water quality is wider opportunities for water contact
recreation. Ribaudo and Young (1989) used a criteria-based approach to estimate the benefits of
improved water quality on recreation. They established levels of suspended sediment, nitrogen, and
phosphorous which would show whether or not the water body was safe for swimming. They then
estimated the changes in runoff and ensuing change in water quality indicator levels to assess whether the
program being considered would bring the water body within the criteria for swimmable waters.
Ribaudo and Young found that the changes in erosion they assessed were too small to result in any water
quality changes that would upgrade the receiving waters' status. So there were no water-based recreation
benefits attributable to the program.
Feather and Hellerstein (1997) took a different approach. They used information from the
National Resource Inventory and National Survey of Recreation and the Environment to estimate a direct
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relationship between soil loss and consumer welfare from water-based recreation. They were able to
estimate improvements in recreation consumer surplus from erosion reductions from alternative
agricultural practices.
While the ESC regulations would reduce TSS loadings, they are not expected to affect many of
the other water quality indicators that preclude water contact recreation. Like the Ribaudo and Young
study, estimation of recreation benefits could consume a great deal of analytical resources and not
generate any measurable benefits.
7.2.3.2 Biodiversity Effects
Excess sediment can play havoc with natural stream ecosystems. Salmon and trout lay their eggs
in scrapes on sand or gravel substrates. Flowing sediment can bury the eggs and prevent their hatching.
Similarly, mussel beds can be buried by excessive sediment movement, smothering the mussels. Even
relatively small sediment loads may become harmful during storm events when bed loads shift rapidly.
More than half of the freshwater mussel species in the U.S. are imperiled or already extinct (Stein and
Flack 1997). It is difficult to quantify either the value society places on preservation of endangered
species or the contribution the proposed regulation may make to species preservation.
7.2.5.5 Other Sources of Benefits
Roads and irrigation ditches provide transportation services to people. When sediment and
vegetation clog ditches these services are impeded. Ribaudo (1989) and Fox and Dickson (1990) both
use government highway ditch maintenance costs as the starting point for valuing decreased roadside
sedimentation. Ribaudo estimates state removal costs as a function of rural road mileage, gross erosion,
and the reported costs to remove one cubic yard of material. This process yields an average cost of $79
per thousand tons of gross erosion. Fox and Dickson divide provincial expenses for ditch maintenance
by the cropland area to arrive at a cost of $3.41 per hectare. Both studies then estimate the benefits of
different practices by assuming directly proportional reductions in costs with reductions in gross erosion.
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While maintenance of roadside swales is among the BMPs suggested under this regulation, major
reductions in offsite road maintenance are not anticipated in the Environmental Assessment.
Ribaudo (1989) also estimates the benefits for irrigation ditch maintenance. He accepts Clark, et
al.'s (1985) estimate of overall damage to irrigation systems from cropland erosion and assumes
reductions in erosion would result in proportional reductions in damage. Sohngren and Rausch (1998b)
estimate that drainage ditch maintenance costs are $0.15 per ton of gross soil erosion without explaining
their methodology. Agricultural water management is probably not relevant to this proposed regulation.
7.3 CONCLUSION
These methods form a coherent assessment of the benefits of the proposed regulations. There are
several opportunities for reality and sensitivity testing of benefit values to ensure that they are within the
realm of possibility. Information on total navigational and reservoir dredging costs in the region can be
compared to the final results to determine if the benefits estimates are in a reasonable range.
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7.4 REFERENCES
Clark, E. H. II, J. A. Haverkamp, and W. A. Chapman. 1985. Eroding Soils: The off-farm impacts.
Washington, DC: The Conservation Foundation. Cited in Ribaudo, 1989.
Crowder, B. M. 1987. Economic Costs of Reservoir Sedimentation: A regional approach to estimating
erosion damage. Journal of Soil and Water Conservation, 42(3): 194-197. Cited in Ribaudo,
1989.
Dearmont, David, Bruce McCarl, and Deborah A. Tolman. 1998. Cost of Water Treatment Due to
Diminished Water Quality: A case study in Texas. Water Resources Research, 34(4):849-855.
Feather, Peter and Daniel Hellerstein. 1997. Calibrating Benefit Function Transfer to Assess the
Conservation Reserve Program. American Journal of Agricultural Economics, 79(1): 151-162.
Fox, Glenn, and Ed J. Dickson. 1990. The Economics of Erosion and Sediment Control in Southwestern
Ontario. Canadian Journal of Agricultural Economics, 38:23-44.
Fox, Glenn, Gloria Umali, and Trevor Dickinson. 1995. An Economic Analysis of Targeting Soil
Conservation Measures with Respect to Off-site Water Quality. Canadian Journal of
Agricultural Economics, 43:105-118.
Holmes, Thomas P. 1988. The Offsite Impact of Soil Erosion on the Water Treatment Industry. Land
Economics 64(4):356-366.
Laughland, Andrew S., Wesley N. Musser, James S. Shortle, and Lynn M. Musser. 1996. Construct
Validity of Averting Cost Measures of Environmental Benefits. Land Economics 72(1):100-112.
Moore, W. B. and B. A. McCarl. 1987. Off-site Costs of Soil Erosion: A case study in the Wilamette
Valley. Western Journal of Agricultural Economics, 12:42-49. Cited in Dearmont, et al., 1998.
Ribaudo, Marc O. 1989. Water Quality Benefits from the Conservation Reserve Program. U. S.
Department of Agriculture, Economic Research Service, Agriculture Economic Report No. 606.
February.
Ribaudo, Marc O., and C. Edwin Young. 1989. Estimating Water Quality Benefits from Soil Erosion
Control. Water Resources Bulletin, 25(l):71-78.
Sohngren, Brent and Jonathan Rausch. 1998a. Soil Erosion in the Maumee River Basin: A case study
using market methods to value environmental externalities. Ohio State University Working
Paper. Dated June 5, 1998.
Sohngren, Brent and Jonathan Rausch, 1998b. Benefits of Controlling Soil Erosion in the Maumee River
Basin. Ohio State University, Department of Agricultural, Environmental, and Development
Economics, Natural Resource and Environmental Economics Research News. November, 1998.
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Stein, Bruce A. and Stephanie R. Flack. 1997. 1997 Species Report Card: The State of U.S. Plants and
Animals. Arlington, Va:The Nature Conservancy. Available at:
http://www.natureserve.org/publications/97reportcard/title.html Accessed on February 20, 2002.
USAGE 2002a. U.S. Army Corps of Engineers, Philadelphia District - Navigation. Available at:
http://www.nap.usace.army.mil/sb/nav.htm. Accessed on February 12, 2002.
USAGE 2002b. Actual Dredging Cost Data for 1963-2000: Summary of Corps and Industry Activities.
U.S. Army Corps of Engineers Navigation Data Center. Available at:
http://www.wrsc.usace.armv.mil/ndc/ddhisbth.htm. Accessed on February 14, 2002.
USAGE 2001. National Inventory of Dams Database. U.S. Army Corps of Engineers Topographical
Engineering Center. Available at:
http://crunch.tec.armv.mil/nid/webpages/niddownloaddamsdata.html Accessed on November 12,
2001.
U.S. EPA. 2002a. Development Document for the Proposed Effluent Guidelines for the Construction
and Development Point Source Category. Washington, D.C.: U.S. Environmental Protection
Agency. EPA-821-R-02-007. Available at:
http://www.epa.gov/waterscience/guide/construction/.
U.S. EPA. 2002b. Environmental Assessment of Effluent Guidelines for the Construction and
Development Point Source Category. Washington, D.C.: U.S. Environmental Protection Agency.
EPA-821-R-02-009. Available at: http://www.epa.gov/waterscience/guide/construction/.
U.S. EPA. 1999. Economic Analysis of the Final Phase II Storm Water Rule. Washington, D.C.: U.S.
Environmental Protection Agency. EPA-833-R-99-002. Available from National Environmental
Publications Information at: http://www.epa.gov/clariton/.
U.S. EPA. 1995. Economic Benefits of Runoff Controls. EPA 841-S-95-002. Available at:
http://www.epa.gov/nps/runoff.html. Accessed on May 23, 2001.
U.S. EPA. 1994. President Clinton's Clean Water Initiative: Analysis of Benefits and Costs. Cited in
U.S. EPA, 1999.
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CHAPTER EIGHT
BENEFITS ASSESSMENT RESULTS
The purpose of the proposed regulation is to benefit the nation by improving water quality and the
environment. These benefits can be measured in economic terms and balanced against the costs of
implementing the proposed rule. The preceding chapter described the methodology EPA developed to
measure the benefits of the ESC regulation. This chapter summarizes the results of that analysis. The
first section draws on the Environmental Assessment to show the changes in sediment loads and other
factors that indicate the environmental effects of the regulation. The second section describes the results
of applying these environmental changes to the benefit estimation model described in Chapter Seven.
8.1 ENVIRONMENTAL ASSESSMENT RESULTS
The Environmental Assessment used a model watershed approach to estimate several indicators
of water quality in the baseline condition and under the alternative options. The primary environmental
indicator selected was sediment entering waterways which was divided into turbidity producing solids and
settleable solids, i.e. particle size 20 microns or less and greater than 20 microns. Sediment is a good
indicator of the regulation's effectiveness as metals and organic compounds enter the environment
attached to sediment particles. Table 8-1 shows the estimated difference between sediment tonnage
released under the baseline and that released with each regulatory option.
8.2 BENEFITS ASSESSMENT RESULTS
As discussed in Chapter Seven, the sediment loadings drive benefit analyses for several
categories of benefits. Table 8-2 shows the low and high values for the range of annual benefit estimates.
The point estimate represents EPA's best judgment of the most probable benefit value after weighing the
accuracy and distribution of the information used to develop the benefit range. Most of the benefits arise
from the avoided costs of lost water storage capacity.
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Table 8-1.
Total Suspended Sediment (TSS) - Differences from Baseline
Decrease from
Baseline in:
High Estimate
Low Estimate
Option 1 - Inspection and
Certification
Turbidity
Producing Load
(Tons/Year)
1,582,541
527,514
Settleable Solids
Load
(Tons/Year)
7,912,707
2,637,569
Option 2 - Codify CGP, Inspection and
Certification
Turbidity
Producing Load
(Tons/Year)
2,225,328
2,225,328
Settleable Solids
Load (Tons/Year)
11,126,639
11,126,639
Source: U.S. EPA, 2002.
Table 8-2.
Benefits Estimates
Benefit Category
Water Treatment
Water Storage
Navigational Dredging
Total
Type of
Estimate
Point
Low
High
Point
Low
High
Point
Low
High
Point
Low
High
Option 1
Inspection and
Certification
0.1
0.0
0.3
7.1
3.5
10.6
2.6
1.3
3.8
9.7
4.8
14.4
Option 2
Codify CGP + Inspectn
&Certn
0.2
0.1
0.4
15.0
15.0
15.0
5.4
5.4
5.4
20.6
20.5
20.8
Source: EPA estimates based on the methodologies presented in Chapter Seven.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
8.3 REFERENCES
U.S. EPA. 2002. Development Document for the Effluent Guidelines for the Construction and
Development Point Source Category.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
CHAPTER NINE
COSTS AND BENEFITS OF THE PROPOSED RULE
9.1 INTRODUCTION
This chapter addresses the net social costs of the proposed rule. It brings together the results
described in Chapters 5 and 8 to directly compare the estimated costs and benefits of the proposed
regulation in accordance with Executive Order 12866 and other administrative regulations. The economic
analysis describes a typical year's impacts subsequent to implementation of the proposed rule. When
flows of costs and benefits vary through time, it is common practice to calculate the net present value of
each series of flows and then compare the annual payments that would be necessary to amortize that
value. For example, when new regulation requires investment in capital equipment there may be a large
cost to retrofit plants and smaller maintenance costs in later years while benefits do not begin to accrue
for several years. To compare the two, their net present values are placed on an annual basis, i.e.
annualized. When flows are constant, and the same discount rate is used to calculate the net present
value as well as the amortization, the annualized value is the same as the annual value. The impacts in
this report represent typical annual values for costs and benefits and so are constant throughout the
evaluation period. Thus, all years are considered the same and annualization is unnecessary. Section 9.2
describes the direct social costs of the proposed rule, while Section 9.3 describes the proposed rule's
indirect effects. Section 9.4 compares these costs with the benefits estimated in Chapter 8.
9.2 SOCIAL COSTS OF THE PROPOSED RULE
9.2.1 Direct Social Costs
Direct social costs are the real resource opportunity costs to the private sector, and to the
government, of implementing the regulation. The largest component of social cost is the cost to firms to
comply with the CGP provisions. Installation of improved ESC management is a direct cost to
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construction firms. In addition, firms would also bear increased design, certification, and inspection costs.
Operation and maintenance (O&M) of improved ESCs also adds to costs. Governments at the Federal,
State, and Municipal level would have roles in implementing this regulation. These public resources spent
by government entities might have been used for other purposes and so represent a direct social cost.
Each of these direct cost categories was quantified in Chapter 5 and is briefly discussed below.
9.2.1.1 Compliance Costs
Implementation of the proposed rule requires the firm to devote real resources, which might have
been used for other purposes, to compliance. EPA estimated design, installation, certification, and
inspection costs per acre for the baseline and each regulatory option in Chapter 5. These figures are
adjusted to constant 1997 dollars using the Engineering News-Record Construction Cost Index (ENR
CCI) to represent the real private opportunity cost. These costs were shown in Table 5-4.
The ESCs in the proposed rule do not depart significantly from current practices. The basic
operations of construction would change little from existing practices. Potential changes in the inputs or
production processes are minimal. No radically new technology is proposed that would require a
substantial learning period to operate or essentially change the production process. Nor would the
proposed regulation generate new waste products which might raise issues for disposal, sale, or reuse.
9.2.1.2 Government Regulatory Costs
Codification of the CGP would require only a few hours of activity at the Federal, State, and local
levels of government. Administration would, in most instances, be conducted at the State or local levels,
though some oversight would remain with EPA. These activities impose opportunity costs as they draw
resources from other government functions. EPA estimates that each state would require approximately
200 labor hours to codify the CGP. To a large extent the proposed regulation utilizes administrative and
enforcement institutions established by prior zoning, building code, and storm water regulation. EPA
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
estimates that this one-time activity would cost $260,000 per year for five years as states revise their
permitting language and programs.
In addition, government entities conduct many projects that would be subject to the proposed
regulations. Approximately 24.7 percent of the value of construction put in place would be incurred by
government entities. The breakdown is 10.1 percent Federal, 8.5 percent State, and 6.1 percent local.
Much of this expenditure is for maintenance of existing structures and so does not entail new ground
disturbance.
9.2.2 Social Welfare Losses
Social welfare losses occur when compliance costs result in higher prices for the goods in
question. Individuals gain utility from products when the market price is lower than the value they derive
from the product. This difference between value and price is termed "consumer surplus." Producers
also gain a surplus, or profit, when they can sell a product for more than the cost of production. The
proposed regulations are likely to affect new construction prices and so shift the market supply function.
Market models for each sector estimate the transfer of surplus from consumers to producers as buyers
pay more to builders for the added storm water facilities. In addition, the higher price would discourage
some buyers so the number of homes or buildings that will be sold would fall slightly. Such reductions in
sales result in losses of both consumer and producer surplus without any offsetting gain, and so are
termed "deadweight loss." The market models estimate these surplus changes based on linear supply and
demand curves with elasticities taken from the literature.
Consumer and producer surplus losses were reported in Table 5-19 as the gross loss attributable
to the proposed rule and include the deadweight loss. Although lost as profits, much of the producer
surplus figure is spent in the industry to comply with the new regulations. Similarly, most of the consumer
surplus loss is spent in the construction industry absorbing the "passed on" costs of compliance with the
regulations. The loss in consumers' utility becomes spending for improved storm water management.
Only the deadweight loss, estimated at $10,000 for Option 1 and $185,000 for Option 2, is completely lost
to society.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
9.2.3 Transitional Effects
Traditional environmental regulations may have resulted in some plant closings and
unemployment. The local impact of such effects is generally not considered a social impact issue since, in
general, the effects are transitory. The employees shift to other jobs and the capital invested in the plant
shifts to other uses. There is a small social loss in job search costs and unemployment time. However,
when workers are specialized or unable to adapt to new labor market conditions, they may be
permanently unemployed which would result in a loss of social welfare.
Construction is a highly flexible industry. It is normal practice for employees and firms to move
from job to job applying their individual skills to the task at hand. Job search costs and shifting
investments are standard elements of the industry. EPA does not foresee any major disruptions in the
industry as a result of the proposed rule.
9.3 INDIRECT EFFECTS
Beyond shifting the market supply for the regulated commodity, the regulation could affect the
structure of the industry, change labor or capital productivity or discourage innovation. These effects
would have wider impacts on society as they ripple through related markets and industries. EPA
determined that the proposed rule has relatively little possibility of causing indirect social welfare effects.
No substantial changes in market structure are anticipated from this proposed rule. While some
forms of regulation may result in advantages to large firms or encourage vertical integration, this
regulation builds on existing practices of design and certification already common in the industry.
The proposed regulation is expected to have little effect on labor or capital productivity. It may
require firms to employ more workers without increasing output, e.g., to maintain silt fencing, but this
opportunity cost is captured in the installation, operating, and maintenance cost. No substantial changes in
productivity are anticipated. Nor is the proposed regulation expected to have substantial affects on
research, innovation, or investment toward future technological development of the industry. EPA
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expects that other costs to society not specifically addressed by the analyses presented in this report
would be modest.
9.4 COMPARISON OF ESTIMATED COSTS AND BENEFITS
Chapter 8 described the results of the environmental assessment and benefit monetization. All of
the benefits estimated represent incremental social benefits from the baseline case. Table 9-1 compares
the sum of social costs discussed above with the benefits estimated in Table 8-5. Anticipated social costs
are greater than the monetized benefits.
The social benefit estimate includes only those benefits that could be monetized. Section 7.2.6
discusses several other classes of benefits that could not be quantified yet provide real social benefits.
These included increased utility from water-based recreation and biodiversity preservation.
Table 9-1. Social Costs and Benefits
(1997 SMillion per year)
Option
1
2
3
Installation,
Design and
Permitting
$118.1
$421.2
$0.0
Operation and
Maintenance
$0.0
$48.0
$0.0
Government
Costs
$0.0
$0.3
$0.0
Deadweight
Loss
$0.1
$0.2
$0.0
Total Social
Costs
$118.2
$469.6
$0.0
Total
Benefits
$9.7
$20.6
$0.0
Source: EPA estimates based on the methodologies presented in Chapter Four and Chapter Seven.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
CHAPTER TEN
UNFUNDED MANDATES REFORM ACT
10.1 INTRODUCTION
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), P.L. 104-4, establishes
requirements for Federal agencies to assess the effects of their regulatory actions on state, local, and
tribal governments and the private sector. Under section 202 of the UMRA, EPA generally prepares a
written statement, including a cost-benefit analysis, for proposed and final rules with "Federal mandates"
that may result in expenditures to State, local, and tribal governments, in the aggregate, or to the private
sector, of $100 million or more in any one year.
Before promulgating an EPA rule for which a written statement is needed, section 205 of the
UMRA generally directs EPA to identify and consider a reasonable number of regulatory alternatives and
adopt the least costly, most cost-effective or least burdensome alternative that achieves the objectives of
the rule. The provisions of section 205 do not apply when they are inconsistent with applicable law.
Moreover, section 205 allows EPA to adopt an alternative other than the least costly, most cost-effective
or least burdensome alternative, if the Administrator publishes with the final rule an explanation of why
that alternative was not adopted.
Before EPA establishes any regulatory requirements that may significantly or uniquely affect
small governments, including tribal governments, it is to develop, under section 203 of the UMRA, a small
government agency plan. The plan is to provide for notifying potentially affected small governments, thus
enabling officials of affected small governments to have meaningful and timely input in the development
of EPA regulatory proposals with significant Federal intergovernmental mandates, and informing,
educating, and advising small governments on compliance with the regulatory requirements.
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10.2 ANALYSIS AND RESULTS
EPA has determined that the proposed C&D regulations may contain a federal mandate that may
result in expenditures of $100 million or more by State, local or Tribal governments in the aggregate, or to
the private sector in any one year. Accordingly, EPA has prepared the written statement in accordance
with section 202 of the UMRA. This and previous sections of the EA constitute this statement: Chapter
Five of the EA identifies costs and impacts (burdens) on construction firms that would be subject to the
proposed regulations, as well as other market affects. Chapter Eight presents estimated monetary
benefits that may accrue under the proposed regulations, in accordance with UMRA when costs of a
federal mandate exceed $100 million in any one year.
EPA determined that the smallest unit of government potentially affected by the proposed rule
would be on the sub-county (i.e., municipal or township) government level. Census data was used to
determine financial and other information (e.g., population) for local government entities (Census 2000a,
Census 1999). This information was combined with data from several other sources to assess the
impacts of the proposed rule on small (serving populations of less than 50,000) government entities.
The estimated total cost of the proposed rule under ESC option 1 is approximately $118 million.!
Based on the value of construction work done, approximately 24.7 percent of this cost, or $29 million,
would be borne by public entities. Under ESC option 2, the estimated total cost of the proposed rule is
$469 million, with public entities incurring approximately $116 million of this total.
Approximately 83 percent of the total U.S. population in 1996 (219 million out of 265 million) lived
in areas governed by a municipality or town/township. Of those served by these sub-county governments,
approximately 43 percent (114 million) lived in areas served by municipal or town/township governments
with populations of less than 50,000. The remaining portion of the total U.S. population (i.e., those not
served by municipal or town/township governments) may be served only by a county government, a
1 Total compliance cost equals the installation, design, and permitting costs plus operation and
maintenance costs.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
special district government, or some other form of local government not covered by the Census report
(Census 1999).
The value of construction work done by government agencies (federal, state, and local) is
approximately 24.7 percent of the total value of construction work done, with the remainder performed by
private entities. EPA applied the 24.7 percent factor to the total national compliance costs for each option
to determine the portion of costs accruing to government entities.
EPA then used data on the funding of capital outlay for highway projects to determine the portion
of compliance costs accruing to each level of government (i.e., to federal, state, and local entities). Based
on this data, approximately 41 percent of government compliance costs would be borne by the Federal
government, 34 percent would be borne by state governments, and the remaining 25 percent would be
borne by local governments.
EPA compared the local government share of compliance costs against several financial
indicators to determine the extent of the impacts on small governmental units. The indicators used were
total revenues, capital outlay, and capital outlay for construction only. In all cases, compliance costs were
less than 0.2 percent of the financial measure, indicating no significant impact on small governmental
units. The calculations are shown in Table 10-1 below.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines
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Table 10-1.
Impacts of Proposed Rule Compliance Costs on Government Units
Government Component
Total Compliance Costs
Private Compliance Costs (75.3%) [a]
Public Compliance Costs (24.7%) [a]
Federal (41. 07%) [b]
State (34.29%) [b]
Local (24.64%) [b]
Small Government Entities
(< 50,000) [c]
Option 1
Costs
$118,100,000
$88,929,300
$29,170,700
$11,980,406
$10,002,633
$7,187,660
$3,098,600
As Percent
of Total
Costs
100.00%
75.30%
24.70%
10.14%
8.47%
6.09%
2.62%
Option 2
Costs
$469,200,000
$353,307,600
$115,892,400
$47,597,009
$39,739,504
$28,555,887
$12,310,443
As Percent
of Total
Costs
100.00%
75.30%
24.70%
10.14%
8.47%
6.09%
2.62%
Total Revenues: Small Government
Compliance Costs as % of Total Revenues
Capital Outlay: Small Government
Compliance Costs as % of Total Capital
Outlay
Construction Outlay Only: Small
Government
Compliance Costs as % of Construction
Outlay
$103,640,793,000
0.00%
$11,262,360,000
0.03%
$6,901,826,000
0.04%
$103,640,793,000
0.01%
$11,262,360,000
0.11%
$6,901,826,000
0.18%
[a] Based on value of construction work done by government entity. 1997 Census of Construction.
[b] Based on the percent of capital outlay for highways funded by governmental unit. 1999 FFfWA Conditions and
Performance Report to Congress.
[c] Based on the percent of U.S. population living in municipalities or towns/townships serving < 50,000 (43.11% of the
population in 1996).
Note: Approximately 83% of the U.S. population ( or 219,004,000) lives in an area governed by a municipality or a
town/township. The remaining population may be served only by a county government, a special district government, or other
governmental organization not covered here. Of the 219 million served by these subcounty governments, approximately
114,347,000 (or 43 percent) are served by municipal or town/township governments with populations of < 50,000.
Sources: 1997 Census of Governments: Compendium of Government Finances; 1997 Census of Governments: Government
Organization; 1999 Status of the Nation's Highways, Bridges, and Transit: Conditions and Performance, Report to Congress;
1997 Census of Construction.
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Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002
10.3 REFERENCES
Census 2000a. 1997 Census of Governments: Compendium of Government Finances. Volume 4. U.S.
Census Bureau. December.
Census 2000b. 1997 Economic Census: Construction - Industry Summary
Census 1999. 1997 Census of Governments: Government Organization. Volume 1. U.S. Census
Bureau. August.
FHWA 2000. Status of the Nation's Highways, Bridges, and Transit: Conditions and Performance.
Report to Congress. Federal Highway Administration. May.
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Index
accounts payable to sales ratio 2-74, 2-75
active construction ES-74, 3-2, 1-4, 4-6, 4-11, 4-46, 4-58, 6-13
affordability ES-58, ES-87, 2-1, 2-52, 4-2, 4-58-60, 4-67, 5-24
assets to sales ratio 2-74
barrier to entry ES-83, ES-84, 2-31, 2-44-46, 4-2, 4-44, 4-45, 5-20-23
benefits ES-91-95, 1-6, 1-8,2-9,2-17-19,2-47,2-49, 3-11,4-66, 5-37, 5-38,
5-42, 7-1-6, 7-8-14, 8-70, 8-71, 8-73, 9-1, 9-3, 9-4, 10-2
Best Available Technology Economically Achievable (BAT) ES-74, 3-1, 3-2, 3-6
Best Conventional Pollutant Control Technology (BCT) ES-74, 3-1, 3-2, 3-6
best management practices (BMPs) ES-74, 1-3, 2-48, 3-2, 3-4, 3-6, 3-8, 3-10, 4-12, 4-70, 6-12, 7-10
Best Practicable Control Technology Currently Available (BPT) ES-74, 3-1, 3-2, 3-6
building permit(s) ES-57, ES-70, 1-6, 2-31-35, 2-38, 2-76, 2-77, 2-78, 2-80, 4-46, 4-48,
4-50, 4-53, 4-67, 4-69-72, 5-7
Census Bureau ES-57, ES-60, ES-61, ES-63, ES-65, ES-67, ES-68, ES-73, ES-97, 1-5-7, 2-3, 2-4, 2-5, 2-7,
2-8, 2-11-14, 2-16, 2-18-22, 2-28, 2-30, 2-31, 2-33, 2-34, 2-36, 2-38, 2-45, 2-53, 2-55, 2-57,
2-61-63, 2-65, 2-66, 2-68-70, 2-78, 2-78, 2-80, 2-81, 4-25, 4-34, 4-49, 4-50, 4-61, 4-62, 4-66,
4-69, 4-77, 4-78, 5-24, 5-41, 6-6, 10-5
C&P Report 2-39-41
capital costs 2-67, 4-12, 4-58, 4-78
cashflow 4-13, 4-14, 4-35, 4-41-44
Clean Water Act (CWA) 1-2, 1-5,3-1,4-7,6-12,6-14
collection period 2-74, 2-75
commercial construction ES-60, ES-69, ES-70, ES-75-84, ES-86, ES-87, ES-90, ES-91, ES-93, ES-94, 1-5,
2-7, 2-19, 2-22, 2-24, 2-25, 2-28, 2-30, 2-47, 2-48, 2-54, 2-79, 4-5, 4-8, 4-13, 4-14,
4-26, 4-27, 4-34, 4-36, 4-37, 4-41, 4-45, 4-47, 4-50-57, 4-69-71, 4A-1, 4A-2, 4B-1-3,
5-1-10, 5-13-15, 5-17-22, 5-27, 5-29-32, 5-34, 6-4, 6-6, 6-10, 6-14, 6-20, 7-7
Construction General Permit (CGP) ES-73, ES-74, 1-2-5,2-5,3-1-3,3-5,3-11,5-35,6-12,8-71,9-1,9-2
consumer ES-58, ES-76, 2-1, 2-50-52, 4-59, 4-66, 4-72, 4-73, 4B-4, 5-2, 5-10, 5-29-31, 7-3,
7-10, 9-2
consumer surplus 4-66, 4-72, 5-29, 5-31, 7-3, 7-10, 9-2
cost pass through (CPT) ES-58, ES-76-78, ES-80, ES-81-84, ES-90, ES-91, 2-1, 4-3, 4-4, 4-5, 4-6, 4-14, 4-19,
4-21, 4-29, 4-31, 4-58, 4-65, 4-71, 5-3, 5-5, 5-6, 5-10, 5-11, 5-13, 5-14, 5-16-19, 5-20, 5-21-23
current ratio ES-79-81, 2-70, 2-71, 2-73, 4-32, 4-38-40, 5-10, 5-12-14, 5-16
deadweight loss ES-87, ES-95, 5-31, 9-2, 9-4
debt to equity ES-79, ES-81, 4-28, 4-29, 4-33, 4-40, 5-10-14, 5-16
demand ES-73, ES-86, ES-87, 2-4, 2-30, 2-50-52, 2-54, 2-55, 2-79, 3-2-6, 4-59, 4-63-67, 4-69-
72, 4-74, 5-23, 5-38, 7-3, 9-2
developer-builder 2-44, 4-10-14, 4-29, 4B-4, 5-2, 5-10
Dun & Bradstreet (D&B) ES-78, ES-81, 2-70, 2-75, 4-26-28, 4-34, 4-35, 4-38, 4-40, 4-76, 5-11
employment ES-56, ES-57, ES-63, ES-69, ES-75, ES-81, ES-82, ES-87-89, 1-1, 1-6, 2-8, 2-9,
2-11, 2-15-17, 2-21, 2-22, 4-2, 4-25, 4-26, 4-35-38, 4-40, 4-41, 4-43, 4-66, 4-72-
74s 4-78, 5-75, 5-1, 5-15, 5-16, 5-18, 5-19, 5-24, 5-29-32, 5-34, 6-3, 6-7, 6-8, 6-18
entry costs 2-46, 4-44
equipment ES-60, 2-5, 2-7, 2-17, 2-19, 2-58, 2-61, 2-63-68, 3-8, 4-41, 4-44, 9-1
erosion ES-73, ES-74, 1-3-5, 2-28, 3-2-6, 3-9, 3-10, 4-1, 5-24, 5-39, 6-12, 6-13, 6-16, 6-17, 7-4-12
erosion and sediment ES-73, ES-74, 1-3, 1-4, 2-28, 3-2-6, 3-9, 3-10, 4-1, 5-24, 5-39, 7-4, 7-12
erosion and sediment controls (ESCs) ES-73, ES-74, 1-3, 1-4, 3-2, 3-3-6, 3-9, 3-10, 4-1, 4-2, 4-6,
4-10, 4-11, 4-12, 4-72, 5-29, 5-39, 9-1
Executive Order 12866 ES-56, 1-1, 1-8, 5-37, 5-38, 9-1
Federal government 2-55, 2-57, 10-3
Federal Highway Administration (FHWA) 2-39, 2-40, 2-41, 2-42, 2-43, 2-79, 4-23, 4-24, 4-76, 10-4, 10-5
Federal Water Pollution Control Act 1-2, 3-1
fixed assets to net worth ratio 2-70, 2-71, 2-74
geographic distribution 2-8, 2-9, 2-15
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Index (cont.)
gross profit ratio ES-79,ES-81, 2-73, 4-28, 4-29, 4-31, 4-32, 4-40, 5-10-14, 5-16
heavy construction ES-58-61, ES-63, ES-65, ES-66, ES-68, ES-70, ES-79, ES-84, 1-5, 2-1-3,
2-6-12, 2-14, 2-16, 2-19, 2-21, 2-22, 2-24, 2-25, 2-27, 2-29-31, 2-39, 2-46, 2-50,
2-54-62, 2-64-70, 2-80, 4-77, 4A-3, 4A-4, 5-14, 5-15, 6-4, 6-6, 6-8, 6-10, 6-14, 6-20
hedonic values 7-8
homebuilding ES-58, ES-67, ES-97, 2-1, 2-44-46, 2-80, 4-25, 4-26, 4-77, 6-5
homebuyers ES-58, 2-1, 2-47, 2-52
Housing Opportunity Index (HOI) ES-87, 4-58, 4-66, 4-67, 4-68, 5-23, 5-24, 5-25
industrial construction ES-60, ES-69, ES-70, ES-75, ES-76, ES-78, ES-79, ES-81-84, ES-86, ES-87, ES-90-
92, ES-94, 1-2, 1-5, 2-2, 2-5, 2-7, 2-8, 2-19, 2-22, 2-24, 2-25, 2-28, 2-30, 2-54,
2-55, 2-63, 2-65, 2-72, 2-79, 3-1, 4-4-8, 4-14, 4-26, 4-27, 4-29, 4-34, 4-36, 4-37,
4-41, 4.45, 4-47, 4-50-57, 4-70, 4-71, 4-73, 4A-1, 4A-3, 4B-1-3, 5-1-10, 5-13-15,
5-17-22, 5-28, 5-30, 5-32, 5-34, 6-3, 6-4, 6-6, 6-10, 6-14, 6-20, 7-7
infrastructure savings 2-48
Initial Regulatory Flexibility Analysis (IRFA) ES-88, ES-89, 1-8, 6-1, 6-11
institutional construction ES-60, ES-70, 1-5, 2-7, 2-19, 2-22, 2-24, 2-25, 2-30, 2-47, 4-27, 4-47,
4-50, 6-4, 6-6, 6-10, 6-14, 6-20
inventory 1-6, 2-45, 2-68-75, 4-4, 4-28, 4-45, 4-54, 4-78, 5-7, 7-5, 7-9, 7-13
Joint Center for Housing Studies ES-57, ES-66, ES-68, ES-97, 2-8, 2-12, 2-26, 2-27, 2-80
land developer 2-44
land development ES-58, ES-61, ES-63, ES-65, ES-68, ES-69, 2-1-3, 2-8-12, 2-15, 2-16, 2-19,
2-22, 2-25, 2-28, 2-61, 2-66, 2-68, 2-69, 2-80, 4-5, 4-12, 4-15-17, 4-20, 4-21, 4-37,
4-77, 4A-2, 4A-4, 4A-5, 4B-4, 6-4, 6-5
lane-mile(s) 2-39, 2-40
low impact development (LID) 2-47, 2-47, 2-48, 2-49, 2-50, 2-79, 2-80
machinery 2-63-68
manufacturing construction ES-60, ES-70, ES-97, 1-5, 2-7, 2-19, 2-24, 2-25, 2-30, 2-58, 2-61, 2-80, 4-8,
4-14, 4-27, 4-29, 4-34, 4-41, 6-4, 6-6, 6-10, 6-14, 6-20
market model ES-87, 4-2, 4-29, 4-58, 4-59, 4-63, 4-68-71, 4-73, 5-2, 5-26, 5-31
metropolitan statistical area (MSA) 2-32, 4-58, 4-66, 4-67, 4-68, 4B-1, 5-31
model projects) ES-75, ES-76, 1-7, 3-90, 4-1, 4-5, 4-7-10, 4-12-15, 4-17-19, 4-21, 4-23, 4-25,
4-51, 4-72, 4A-79, 5-2-6
multifamily construction ES-60, ES-69, ES-70, ES-73, ES-75, ES-76, ES-78-84, ES-86, ES-87, ES-90,
ES-91, 1-5, 2-7, 2-19, 2-22, 2-24, 2-25, 2-28, 2-29, 2-50, 4-5, 4-8, 4-13, 4-26,
4-27, 4-29, 4-34, 4-36, 4-37, 4-41, 4-45, 4-48-50, 4-53, 4-54, 4-56, 4-57, 4-69,
4-71, 4-72, 4-77, 4A-1, 4A-2, 4B-1-3, 5-1, 5-2, 5-4-8, 5-10, 5-13, 5-14, 5-17-22,
5-26, 5-27, 5-30-32, 5-34, 6-4, 6-7, 6-8, 6-10, 6-14, 6-18, 6-19
municipal ES-92, 1-2, 5-36, 7-4, 9-1, 10-2, 10-4
NAICS 23 ES-59, ES-61, ES-63, 2-5, 2-6, 6-3
NAICS 233 ES-59, ES-61, ES-63, ES-65, ES-68, ES-89, 2-2, 2-6, 2-8-12, 2-15, 2-25, 2-55,
2-58, 2-59, 2-63, 2-67, 2-70, 6-3
NAICS 2331 ES-61, ES-63, 2-2, 2-8, 2-9, 2-11-13, 2-15, 2-28, 2-29, 2-58, 2-59, 2-63, 2-67,
2-70, 6-5
NAICS 234 ES-59, ES-63, ES-65, ES-66, ES-68, 2-6, 2-8-10, 2-12, 2-16, 2-25, 2-27, 2-29,
2-39, 2-55, 2-58, 2-59, 2-64, 2-67, 2-70, 5-14
NAICS 235 ES-59, ES-61, ES-69, 2-3, 2-6, 2-8, 2-9, 2-11,2-13, 2-29, 2-55, 2-67, 2-70, 6-5, 6-14
NAICS 23593 ES-59, ES-61, ES-63, ES-65-68, 2-3, 2-6, 2-8-12, 2-14, 2-16, 2-19, 2-26, 2-27,
2-30, 2-58, 2-59, 2-61-63, 2-65, 2-66, 2-68, 2-69
NAICS 23594 2-8, 2-10, 2-66
National Association of Home Builders (NAHB) ES-57, ES-66, ES-71, ES-73, ES-97, 1-7, 2-8, 2-26, 2-27, 2-79,
2-80, 4-4, 4-5, 4-10, 4-11, 4-15-17, 4-49, 4-67, 4-68, 4-76, 4-77, 4A-1-3, 4A-5, 4B-1-5, 5-23, 6-11
National Governors Association (NGA) 2-46, 2-80
11-2
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Index (cont.)
National Pollutant Discharge Elimination System (NPDES) ES-56, ES-57, ES-59, ES-67, ES-73-75, 1-1-4, 1-6, 2-5,
2-6, 2-26, 2-27, 2-29, 3-1-4, 3-6, 4-2, 4-3, 4-7, 4-17, 4-48,
4.53, 4.54, 4-75, 4.73, 5-2, 5-7, 5-35, 6-5, 6-11,6-17
National Resources Inventory (NRI) 1-6, 4-45-47, 4-53, 4-54, 4-78, 5-7
New Community Design (NCD) 2-46, 2-47, 2-48, 2-50, 2-79
New Source Performance Standards (NSPS) ES-74, 3-2, 4-6, 4-7
nonemployer establishments 2-11,2-12
non-residential construction 4-69, 4-71, 5-27
North American Industrial Classification System (NAICS) 2-2,2-5,6-3
Notice of Intent (NOI) 1-6
Notice of Termination (NOT) 3-5, 3-10
operation and maintenance (O&M) ES-94, ES-95, 4-6, 4-58, 9-1, 9-4, 10-2
payroll ES-61, ES-63, ES-68, 2-2, 2-9, 4-41, 4-42
permittee(s) ES-59, ES-67, 1-3, 2-6, 2-27, 2-29, 3-2, 3-4, 3-5, 3-6, 6-5, 6-12, 6-14, 6-18
Phase I ES-75, 1-2, 2-5, 3-1, 3-3, 4-2, 4-17, 4-75, 5-2, 5-35, 6-15, 6-16
Phase II ES-57, ES-75, 1-2, 1-3, 1-7, 2-5, 2-81, 3-1, 3-3, 4-2, 4-3, 4-17, 4-48, 4-53,
4-54, 4-75, 4-78, 5-2, 5-7, 5-35, 6-12, 6-15, 6-17, 7-13
post-construction ES-74, 1-3, 3-2, 3-8, 4-12, 6-12
potentially affected entities ES-57, ES-67, ES-68, ES-70, ES-89, 1-1, 1-4-7, 2-4, 2-9, 2-25,
2-27-30, 4-36-38, 6-2, 6-5, 6-9, 6-10, 6-14, 10-1, 10-2
Pretreatment Standards for Existing Sources (PSES) 3-2
Pretreatment Standards for New Sources (PSNS) 3-2
principal, interest, taxes, and insurance (PITI) 2-52, 4-59, 4-60, 4-61, 4-67, 4-68, 4-69
producer surplus 4-72, 5-31, 9-2
profit margin 2-75, 4-14
quick ratio 2-70, 2-73
rainfall 1-3, 3-11, 4-73, 6-17
Regulatory Flexibility Act (RFA) ES-56, ES-58, ES-88, ES-97, 1-1, 1-8,2-1,6-1,6-5,6-10,6-11
remodelers ES-66, ES-67, 2-12, 2-26, 2-27
remodeling ES-57, ES-58, ES-66-68, ES-97, 2-2, 2-8, 2-12, 2-26-28, 2-80, 4-37, 6-5
residential construction 2-2, 2-31, 2-32, 2-54, 2-55, 2-79, 4-4, 4-9, 4-15, 4-26-28, 4-34, 4-36,
4-38, 4-46, 4-49, 4-58, 4-69, 4-71, 4-77, 4B-2, 5-7, 5-9, 5-10, 5-12,
5-24, 5-27, 6-7, 6-14
return on assets 2-74, 2-75
return on equity 2-75
return on net worth ES-79, ES-81, 2-74, 2-75, 4-28, 4-29, 4-31, 4-32, 4-40, 5-10-16
return on sales 2-74, 2-75
runoff ES-56, ES-93, 1-3, 1-4, 1-8, 2-1, 2-48, 2-50, 3-6-9, 4-12, 5-38, 6-13,
6-17,7-1,7-7,7-9,7-13
sales to inventory ratio 2-74, 2-75
sales to net working capital ratio 2-74, 2-75
sediment ES-56, ES-73, ES-74, ES-91-93, 1-1, 1-3-5, 2-28, 2-48, 3-2-7, 3-9-11, 4-1, 5-24,
5-38, 5-39, 6-12, 6-13, 6-16, 7-1-10, 7-12, 8-70, 8-71
single-family construction ES-60, ES-68-71, ES-73, ES-75, ES-76, ES-78-84, ES-86, ES-87, ES-90, ES-91,
1-5, 2-7, 2-9, 2-10, 2-18-20, 2-22, 2-24, 2-25, 2-28-30, 2-32, 2-35, 2-44, 2-45,
2-50, 2-60, 2-72, 2-79, 4-3, 4-5, 4-8-10, 4-13, 4-15, 4-16, 4-18, 4-26-28, 4-34,
4-36-38, 4-45-49, 4-53-57, 4-72, 4-77, 4A-1-5, 4B-1-14, 5-17-23, 5-25,
5-26, 5-29-32, 5-34, 6-4, 6-6, 6-8, 6-10, 6-14, 6-18, 6-19
small business ES-56, ES-58, ES-68, ES-70, ES-88-91, ES-97, 1-1, 1-8, 2-1, 2-3, 2-11, 2-22, 2-25,
2-81, 4-42, 4-78, 6-1, 6-2, 6-3, 6-4, 6-5, 6-7, 6-9, 6-10, 6-11, 6-16, 6-18, 6-20, 6-21
Small Business Administration (SBA) ES-68, ES-88, ES-97, 2-3, 2-4, 2-10, 2-21, 2-22, 2-24, 2-25, 2-81,
4-42, 4-78, 6-2, 6-3, 6-4, 6-6, 6-10, 6-18, 6-20
Small Business Advocacy Review (SBAR) ES-88, 6-1, 6-10, 6-11, 6-16
11-3
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Index (cont.)
Small Business Regulatory Enforcement Fairness Act (SBREFA) ES-56, ES-58, ES-88, ES-97, 1-1, 1-8,
2-1, 6-1, 6-10, 6-11 6-10, 6-11, 6-16, 6-18, 6-20, 6-21
small entities ES-68, ES-69, ES-88, ES-89, 2-3, 2-9, 2-10, 2-11,
2-21, 2-25, 4-2, 6-1, 6-2, 6-5, 6-11, 6-14, 6-17
specialization ratio 2-9, 2-18, 2-20
storm water ES-56-58, ES-67, ES-73-75, ES-87, ES-93, 1-1-4, 1-7, 1-8, 2-1, 2-5, 2-47-49,
2-79, 2-81, 3-1-5, 3-7-9, 3-11, 4-2, 4-3, 4-6, 4-15, 4-17-19, 4-21, 4-48, 4-51, 4-53,
4.54, 4-58, 4-73-75, 4-76, 4-77, 4-78, 4B-4, 5-2, 5-7-9, 5-35, 5-39, 6-5, 6-12,
6-13,6-15,7-7,7-8,7-13,9-2
storm water pollution prevention plan (SWPPP) ES-73, ES-74, 1-3, 3-2, 3-6, 3-7, 3-8, 3-9, 6-12
subdevelopment ES-61, 2-3, 2-9, 2-11, 2-12, 2-66, 2-68, 2-69
subdivision ES-58, ES-60, ES-63, ES-65, ES-68, ES-89, 1-5, 2-1, 2-2, 2-7, 2-8, 2-10, 2-13-16,
2-19, 2-22, 2-24, 2-25, 2-46, 2-48, 2-61, 2-65, 2-66, 2-68, 2-69, 4-5, 4-10, 4-17, 6-3, 6-4
supply ES-73, ES-86, ES-87, 2-4, 2-30, 2-31, 2-44, 2-46, 2-48, 2-54, 2-69, 2-79, 4-6, 4-58,
4-59, 4-63-67, 4-72, 5-30, 7-4, 9-2, 9-3
surplus 4-66, 4-72, 5-29, 5-31, 7-3, 7-10, 9-2
Survey of Construction 2-31
system enhancement 2-41-43
system expansion 2-41-43
system preservation 2-41-43
Total Maximum Daily Load (TMDL) 1-3
total suspended solids (TSS) ES-91, 3-2, 7-7, 7-8, 7-9, 7-10, 8-71
Unfunded Mandates Reform Act (UMRA) ES-56,ES-95, 1-1, 1-8, 5-37, 5-39, 9-5, 10-1, 10-2
value of business done 2-12, 2-58, 2-61
value of construction work ES-65, Ixii, 2-18, 2-20, 2-32, 2-39, 2-55, 2-57-62, 2-69, 4-26, 4-75,
10-2-4
value put in place ES-57, 1-6, 2-32, 2-37, 2-38, 2-80
watershed(s) 4-16, 4-34, 4-49, 4-76, 4A-1, 6-13, 7-2, 7-4, 7-6, 7-8, 8-70
welfare ES-94, 2-18, 2-19, 4-58, 4-59, 4-66, 4-67, 4-69, 4-72, 5-24, 5-30, 5-31, 7-2, 7-3, 7-10,
9-2, 9-3
willingness to pay 7-3
11-4
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