Economic Analysis of Proposed Effluent Guidelines and Standards for the Construction and Development Category May 2002 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 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. CONTENTS Page EXECUTIVE SUMMARY ES. 1 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 i 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 <IP_ADDRESS> Number and Size of Establishments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9 <IP_ADDRESS> Legal Form of Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 13 <IP_ADDRESS> Geographic Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 15 <IP_ADDRESS> Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 15 <IP_ADDRESS> Payrolls and Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 17 <IP_ADDRESS> Specialization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 18 2.3.2 Firm Level Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 21 <IP_ADDRESS> Number and Size of Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 21 <IP_ADDRESS> 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 <IP_ADDRESS> Establishments Engaged in Remodeling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 26 <IP_ADDRESS> 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 <IP_ADDRESS> Residential Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 31 <IP_ADDRESS> Nonresidential Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 37 ii CONTENTS ( cont. )

Page <IP_ADDRESS> Heavy Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 40 <IP_ADDRESS> Characterization of Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 45 <IP_ADDRESS> Supply Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 47 2.4.2 Characteristics of Construction Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 51 <IP_ADDRESS> Demand Factors Affecting Construction and Development Activities . . . . . 2 51 <IP_ADDRESS> Housing Demand and Elasticity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 52 <IP_ADDRESS> Impact of Regulation on Housing Demand . . . . . . . . . . . . . . . . . . . . . . . . . . 2 53 <IP_ADDRESS> Trends in New Homes Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 54 <IP_ADDRESS> Nonresidential Demand Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 55 <IP_ADDRESS> 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 <IP_ADDRESS> All Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 64 <IP_ADDRESS> 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 Option 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 11 iii 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 <IP_ADDRESS> Residential Single family Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 10 <IP_ADDRESS> Residential Multifamily Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 13 <IP_ADDRESS> Commercial Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 13 <IP_ADDRESS> 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 <IP_ADDRESS> Baseline Model Project Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 17 <IP_ADDRESS> 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 <IP_ADDRESS> Inputs to the Model Establishment Analysis . . . . . . . . . . . . . . . . . . . . . . . . . 4 25 <IP_ADDRESS> Balance Sheet and Income Statement for Model Establishment . . . . . . . . . . 4 26 <IP_ADDRESS> Methodology for Analysis of Regulatory Impacts on Model Establishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 28 <IP_ADDRESS> Analysis of Financial Ratios for Model Establishment . . . . . . . . . . . . . . . . . 4 30 <IP_ADDRESS> Compliance Cost Inputs into Financial Ratio Analysis . . . . . . . . . . . . . . . . . 4 33 4.3.2 Extension of Model Facility Analysis to Project Industry Closures . . . . . . . . . . . . . . 4 35 <IP_ADDRESS> Estimation of Affected Establishments and Employment . . . . . . . . . . . . . . . 4 35 <IP_ADDRESS> Closure and Employment Impacts Based on Financial Ratio Analysis . . . . . 4 38 <IP_ADDRESS> 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 CONTENTS ( cont. )

Page 4.5 IMPACTS ON THE NATIONAL HOUSING MARKET . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 58 4.5.1 Description of National Housing Market Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 58 <IP_ADDRESS> Complete Cost Pass Through and Housing Affordability . . . . . . . . . . . . . . . 4 58 <IP_ADDRESS> National Partial Equilibrium Modeling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 63 <IP_ADDRESS> 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 v CONTENTS ( cont. )

Page 5.7 ANALYSIS OF IMPACTS ON NATIONAL CONSTRUCTION MARKETS . . . . . . . . . . . 5 23 5.7.1 Residential Construction Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 24 <IP_ADDRESS> Housing Affordability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 24 <IP_ADDRESS> Housing Opportunity Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 24 <IP_ADDRESS> Single Family Housing Prices and Quantities . . . . . . . . . . . . . . . . . . . . . . . . 5 26 <IP_ADDRESS> Multifamily Housing Prices and Quantities . . . . . . . . . . . . . . . . . . . . . . . . . . 5 26 5.7.2 Non Residential Construction Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 27 <IP_ADDRESS> Commercial Space . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 27 <IP_ADDRESS> 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 <IP_ADDRESS> Number of Establishments Affected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 5 <IP_ADDRESS> Number of Businesses Affected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 6 <IP_ADDRESS> 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 <IP_ADDRESS> Reasons EPA is Considering the Proposed Rule . . . . . . . . . . . . . . . . . . . . . . 6 12 <IP_ADDRESS> Objectives and Legal Basis for the Proposed Rule . . . . . . . . . . . . . . . . . . . . . 6 12 <IP_ADDRESS> Description and Estimate of Number of Small Entities Affected . . . . . . . . . 6 14 vi CONTENTS ( cont. )

Page <IP_ADDRESS> Description of Proposed Recordkeeping, Reporting, and Other Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 15 <IP_ADDRESS> Identification of Relevant Federal Rules That May Duplicate, Overlap, or Conflict with the Proposed Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 16 <IP_ADDRESS> 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 <IP_ADDRESS> Development of Revenue Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 22 <IP_ADDRESS> 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 <IP_ADDRESS> Water Storage Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 4 <IP_ADDRESS> Navigational Dredging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 6 7.2.2 Reduced In Stream TSS and Sediment Concentration . . . . . . . . . . . . . . . . . . . . . . . . . 7 7 7.2.3 Non Quantified Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 9 <IP_ADDRESS> Water Contact Recreation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 9 <IP_ADDRESS> Biodiversity Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 10 <IP_ADDRESS> 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 vii CONTENTS ( cont. )

Page 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 <IP_ADDRESS> Compliance Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2 <IP_ADDRESS> 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 viii 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 LIST OF TABLES ( cont. )

Table Page 2 13 Number of Firms and Establishments Above and Below SBA 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 x 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 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 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 xiii LIST OF FIGURES Figure Page 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 xiv Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 EXECUTIVE SUMMARY ES. 1 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 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 II NPDES 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 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 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.

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 3 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 VI. A 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.

ES 4 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 Table ES 1. Industry Definitions for Construction and Development Industry Profile NAICS Code Industry Relevant SIC Codes 233 Building, developing, and general contracting 2331 Land subdivision and development 23311 Land subdivision and development 6552 Land subdividers and developers, except cemeteries 2332 Residential building construction 23321 Single family housing construction 1521 General contractors   single family houses 1531 Operative builders ( partial) 8741 Management services ( partial)

23322 Multifamily housing construction 1522 General contractors   residential buildings other than single family ( partial) 1531 Operative builders ( partial) 8741 Management services ( partial)

2333 Nonresidential building construction 23331 Manufacturing and industrial building construction 1531 Operative builders ( partial) 1541 General contractors   industrial buildings and warehouses ( partial) 8741 Management services ( partial)

23332 Commercial and institutional building construction 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) 234 Heavy Construction 2341 Highway, street, bridge, and tunnel construction 23411 Highway and street construction 1611 Highway and street construction contractors, except elevated highways 8741 Management services ( partial)

23412 Bridge and tunnel construction 1622 Bridge, tunnel, and elevated highway construction 2349 Other heavy construction 23491 Water, sewer, and pipeline construction 1623 Water, sewer, pipeline, and communications and power line construction ( partial) 8741 Management services ( partial)

23492 Power and communication transmission line construction 1623 Water, sewer, pipeline, and communications and power line construction ( partial) 8741 Management services ( partial)

23493 Industrial nonbuilding structure construction 1629 Heavy construction, n. e. c. ( partial) 8741 Management services ( partial)

23499 All other heavy construction 1629 Heavy construction, n. e. c. ( partial) 7353 Heavy construction equipment rental and leasing ( partial) 8741 Management services ( partial) 235 Special trade contractors 23593 Excavation contractors 1794 Excavation work special trade contractors 23594 Wrecking and demolition contractors 1795 Wrecking and demolition work special trade contractors Source: U. S. Census Bureau ( 2000) .

ES 5 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 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 Industry Number of Establishments 1992 1997 Pct. Change 1992 1997 233, exc. 2331 Building, developing, and general contracting, except land development and subdevelopment 168,407 191,101 13.5%

2331 Land development and subdevelopment 15,338 8,185  46.6%

234 Heavy construction 37,180 42,557 14.5%

235 a Special trade contracting 14,864 19,771 33.0%

Subtotal 235,789 261,617 11.0%

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 ( 2000) .

ES 6 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 Industry Number of Employees Percent of Total 233, except 23311 Building, developing, and general contracting, except land subdivision and land development 1,301,126 55.2%

23311 Land subdivision and land development 41,827 1.8%

234 Heavy construction 880,400 37.3%

235 a Special trade contractors 135,057 5.7%

TOTALS 2,358,410 100.0%

a 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.

ES 7 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 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 Description Value of Construction Work a ( $ 1,000)

Total Per Establishment 233, except 2331 Building, developing, and general contracting, except land development and subdivision $ 368,006,098 $ 1,926 2331 Land subdivision and land development $ 13,635,521 $ 1,666 234 Heavy construction $ 127,841,600 $ 3,004 235 b Special trade contractors $ 15,910,770 $ 805 TOTAL $ 525,393,989 $ 2,008 a 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 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

  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 Industry Establishments With Payroll Number Percent of Total 2331 Land development and subdivision 8,185 3.1%

23321 Single family residential building construction 138,849 53.1%

23322 Multi family residential building construction 7,543 2.9%

2333 Nonresidential construction 44,710 17.1%

234 Heavy construction 42,557 16.3%

235 a Special trade contracting 19,771 7.6%

SUBTOTAL 261,617 100.0%

Minus Remodeling Establishments 62,400 Minus Establishments Starting 1  4 Houses per Year 50,661 Number of Potentially Affected Establishments 148,556 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.

ES 10 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 defined 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, commercial 6 , 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 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 Table ES 6. Estimated Number of Small Businesses Potentially Affected by the Proposed Rule.

NAICS Potentially Affected Establishment s Potentially Affected Businesses Potentially Affected Small Businesses Small Businesses as a Percent of Total for Individual Industry Number Percent of total 233210: Single family housing construction 34,070 34,041 34,004 35.5% 99.9%

233220: Multifamily housing construction 4,603 4,597 4,571 4.8% 99.4%

233310: Manufacturing and industrial building construction 7,742 7,719 7,498 7.8% 97.1%

233320: Commercial and institutional building construction 39,810 39,587 39,013 40.7% 98.6%

23411 Heavy Construction 11,270 11,141 10,667 11.1% 95.7%

Total 97,495 97,085 95,753 100.0% 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 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 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 cyclicality 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) .

1959 1964 1969 1974 1979 1984 1989 1994 1999 Year 0 500 1,000 1,500 Thousands of units 1 unit 2 4 units 5 units or more Source: http: / / www. census. gov/ pub/ const/ bpann. pdf New Privately Owned Housing Units Authorized by Building Permits in Permit Issuing Places Annual Data Figure ES 1. Historical data on housing construction.

ES 13 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)

1971 1980 1981 1990 1991 2000 2001 2010 proj .

Change in households 1,578 1,281 1,137 1,255 Change in vacancies 151 219 184 223 Net removals 333 214 343 344 Total Demand 2,062 1,714 1,664 1,822 New single family housing units 1,110 979 1,108 1,203 New multifamily housing units 602 491 257 343 Mobile homes 349 244 298 276 Total Supply 2,062 1,714 1,664 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 ES 14 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 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 Description Regulatory Mechanism Applicability Option 1 Inspection and Certification of Construction Site Erosion and Sediment Controls Amendment to NPDES storm water permitting regulations Construction sites disturbing 1 acre or more Option 2   Codification   of the Construction General Permit ( CGP) plus Inspection and Certification Requirements Effluent limitation guidelines Construction sites disturbing 5 acres or more Option 3 No Additional Regulation ( Baseline) N/ A 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 ES 15 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 combined impact of the Phase II NPDES 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.

ES 16 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   Commercial 9   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.

ES 17 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 Table ES 9a. Weighted Average Change in Sales Price to Buyer ( All Site Sizes) 100 Percent Cost Pass Through Option Percent Change in Project Price to Buyer Single family Multifamily Commercial Industrial 1 0.01% 0.01% 0.01% 0.01%

2 0.07% 0.04% 0.04% 0.06%

3 0.00% 0.00% 0.00% 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 Percent Change in Developer/ Builder Profit Single Multi Commercial Industrial 1  0.12%  0.07%  0.07%  0.13%

2  0.65%  0.38%  0.35%  0.54%

3 0.00% 0.00% 0.00% 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:

ES 18 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.

ES 19 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 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 a Gross Profit Return on Net Worth Current Ratio Debt to Equity Min. Max. Min. Max. Min. Max. Min. Max.

Single family residential Option 1 0.000%  0.230% 0.000%  2.540% 0.000%  0.020% 0.000% 0.900%

Option 2 0.000%  0.520% 0.000%  5.850% 0.000%  0.050% 0.000% 0.210%

Option 3 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%

Multifamily residential Option 1 0.000%  0.310% 0.000%  0.990% 0.000%  0.050% 0.000% 0.200%

Option 2 0.000%  0.950% 0.000%  3.070% 0.000%  0.160% 0.000% 0.640%

Option 3 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%

Commercial Option 1 0.000%  0.170% 0.000%  0.530% 0.000%  0.020% 0.000% 0.130%

Option 2 0.000%  0.400% 0.000%  1.250% 0.000%  0.050% 0.000% 0.310%

Option 3 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%

Industrial Option 1 0.000%  0.140% 0.000%  0.430% 0.000%  0.020% 0.000% 0.120%

Option 2 0.000%  0.320% 0.000%  1.020% 0.000%  0.050% 0.000% 0.280%

Option 3 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 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 ES 20 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 Single Family Multifamily Commercial Number Pct. of Total Number Pct. of Total Number Pct. of Total 1 4 0.005% 1 0.022% 11 0.028%

2 13 0.015% 3 0.065% 43 0.108%

3 0 0.000% 0 0.000% 0 0.000%

Option Industrial Heavy TOTAL Number Pct. of Total Number Pct. of Total Number Pct. of Total 1 2 0.026% 0 0.000% 18 0.012%

2 7 0.090% 26 0.230% 92 0.063%

3 0 0.000% 0 0.000% 0 0.000%

Source: EPA estimates ( see Chapter Five) .

ES 21 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 Table ES 12. Estimated Facility Closures Estimated Cost Pass Through Option Single Family Multifamily Commercial Number Pct. of Total Number Pct. of Total Number Pct. of Total 1 1 0.001% 0 0.000% 1 0.003%

2 2 0.002% 0 0.000% 4 0.010%

3 0 0.000% 0 0.000% 0 0.000%

Option Industrial Heavy TOTAL Number Pct. of Total Number Pct. of Total Number Pct. of Total 1 0 0.000% 0 0.000% 2 0.001%

2 1 0.013% 3 0.027% 10 0.007%

3 0 0.000% 0 0.000% 0 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.

ES 22 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 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 Total Assets Min Max Min Max Single family Residential 1 0.000% 0.100% 0.000% 0.070% 2 0.000% 0.230% 0.000% 0.170% 3 0.000% 0.000% 0.000% 0.000%

Multifamily Residential 1 0.000% 0.260% 0.000% 0.190% 2 0.000% 0.820% 0.000% 0.600% 3 0.000% 0.000% 0.000% 0.000%

Commercial 1 0.000% 0.120% 0.000% 0.090% 2 0.000% 0.270% 0.000% 0.220% 3 0.000% 0.000% 0.000% 0.000%

Industrial 1 0.000% 0.110% 0.000% 0.080% 2 0.000% 0.250% 0.000% 0.190% 3 0.000% 0.000% 0.000% 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.

ES 23 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 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 National Costs by Type of Construction ( $ millions) Total ( $ millions) Single family Multifamily Commercial Industrial 1 $ 24.1 $ 11.9 $ 78.4 $ 3.7 $ 118.1 2 $ 121.5 $ 59.4 $ 277.3 $ 11.0 $ 469.2 3 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 National Costs per Unit by Type of Construction $ / house $ / sq ft $ / sq ft $ / sq ft 1 $ 16.91 $ 0.003 $ 0.007 $ 0.008 2 $ 90.79 $ 0.019 $ 0.031 $ 0.030 3 $ 0.00 $ 0.000 $ 0.000 $ 0.000 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 ES 24 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.

ES 25 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.

ES 26 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.

ES 27 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 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 Single family Multifamily Commercial Number Pct. of Small Businesses Number Pct. of Small Businesses Number Pct. of Small Businesses Low High Low High Low High Low High Low High Low High 1 0 47 0.000% 0.138% 0 5 0.000% 0.110% 0 62 0.000% 0.159%

2 40 140 0.118% 0.412% 8 18 0.175% 0.395% 18 234 0.046% 0.599%

3 0 0 0.000% 0.000% 0 0 0.000% 0.000% 0 0 0.000% 0.000%

Option Industrial Heavy TOTAL Number Pct. of Small Businesses Number Pct. of Small Businesses Number Pct. of Small Businesses Low High Low High Low High Low High Low High Low High 1 0 12 0.000% 0.160% 0 0 0.000% 0.000% 0 126 0.000% 0.000%

2 2 36 0.270% 0.480% 36 199 1.863% 0.337% 104 627 0.109% 0.109%

3 0 0 0.000% 0.000% 0 0 0.000% 0.000% 0 0 0.000% 0.000%

Source: EPA estimates ( see Chapter Six) .

ES 28 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 Table ES 15b. Estimated Number of Small Business Owned Establishments With Compliance Costs Exceeding 3 Percent of Revenues Zero Percent Cost Pass Through Option Single family Multifamily Commercial Number Pct. of Small Businesses Number Pct. of Small Businesses Number Pct. of Small Businesses Low High Low High Low High Low High Low High Low High 1 0 15 0.000% 0.044% 0 2 0.000% 0.044% 0 21 0.000% 0.054%

2 0 45 0.000% 0.133% 0 6 0.000% 0.132% 0 77 0.000% 0.197%

3 0 0 0.000% 0.000% 0 0 0.000% 0.000% 0 0 0.000% 0.000%

Option Industrial Heavy TOTAL Number Pct. of Small Businesses Number Pct. of Small Businesses Number Pct. of Small Businesses Low High Low High Low High Low High Low High Low High 1 0 4 0.000% 0.053% 0 0 0.000% 0.000% 0 42 0.000% 0.044%

2 0 12 0.000% 0.160% 0 65 0.000% 0.607% 0 205 0.000% 0.214%

3 0 0 0.000% 0.000% 0 0 0.000% 0.000% 0 0 0.000% 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 ES 29 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 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)

Source: EPA estimates ( See Chapter Eight) . Decrease from baseline in: Option 1 Option 2 Low High Settleable solids Turbidity producing solids 2,110 527 6,330 1,583 8,901 2,225 Total solids 2,638 7,913 11,127 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 ES 30 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 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 Benefit Category Total Water Treatment Water Storage Navig. Dredging 1 $ 0.1 $ 7.1 $ 2.6 $ 9.7 2 $ 0.2 $ 15.0 $ 5.4 $ 20.6 3       $ 0.0 Source: EPA estimates ( see Chapter Eight) .

ES 31 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 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.

ES 32 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 Table ES 18. Social Costs and Benefits of Options ( 1997 $ Million per year)

Option Installation,

Design and Permitting Operation and Maintenance Government Costs Deadweight Loss Total Social Costs Total Benefits 1 $ 118.1 $ 421.2 $ 0.0 $ 0.0 $ 48.0 $ 0.0 $ 0.0 $ 0.3 $ 0.0 $ 0.0 $ 0.2 $ 0.0 $ 118.2 $ 9.7 $ 20.6 $ 0.0 2 $ 469.6 3 $ 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.

ES 33 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 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.

ES 34 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 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/ US000_ 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.

ES 35 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 1 1 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 1 2 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.