most highway construction sites using current erosion and sediment
control technology that is properly maintained (Horner et al., 1990).
If turbidity limits are exceeded, a detailed assessment of site
conditions and follow-up remediation actions would be required. If
turbidity limits continue to be exceeded, penalties and enforcement
actions would be imposed. Enforcement of turbidity limits could be
performed either by state, local, or third party erosion and sediment
control inspectors, or--under appropriate protocols, training, and
documentation--by citizens or watershed groups.''
    EPA recognizes that the turbidity limits discussed in the report
are more like the action levels specified by Washington and other
states, rather than binding numeric effluent limitations being proposed
by EPA. However, EPA's analysis of ATS effluent data from more than
6,000 data points indicates that a limit of 13 NTUs is technologically
available.
    California assembled a blue ribbon panel to evaluate, among other
things, the feasibility of establishing numeric effluent limits from
construction sites (see DCN 41010). The blue ribbon panel found that
``It is the consensus of the Panel that active treatment technologies
make Numeric Limits technically feasible for pollutants commonly
associated with stormwater discharges from construction sites (e.g. TSS
and turbidity) for larger construction sites. Technical practicalities
and cost-effectiveness may make these technologies less feasible for
smaller sites, including small drainages within a larger site, as these
technologies have seen limited use at small construction sites. If
chemical addition is not permitted, then Numeric Limits are not likely
feasible.''
    EPA's selection of Option 2, which requires a turbidity limit only
for larger sites, is therefore consistent with the panel's conclusion.
EPA notes that although the panel mentions that a numeric limit is not
feasible without chemical addition (e.g., polymers) there are
technologies available (such as electrocoagulation) that do not use
polymers. Further, data in the literature suggests that a somewhat
higher limt (e.g., 50-150 NTU) may be achievable using enhanced
sediment basin design practices without relying on ATS. An option based
on this approach is discussed in more detail below.
    The panel, in determining that numeric effluent limits are
technically feasible, did express concerns, including cost-
effectiveness for small sites, toxicity of treatment chemicals, and the
potential for discharges with low TSS and turbidity into receiving
waters with high background levels (such as in some arid and semi-arid
areas) contributing to channel erosion. EPA has determined that Option
2 addresses these concerns, because the turbidity standard only applies
to larger sites and does not apply in arid and semi-arid areas because
of the R-factor applicability criteria. EPA is soliciting comment on
the need for regulatory requirements or guidance to address the
concerns regarding potential toxicity of treatment chemicals. EPA also
solicits comments on whether and how toxicity concerns should factor
into EPA's BAT determination.
    Based on the analysis conducted for this proposed rule, EPA
believes that the requirements of Option 2 are economically achievable.
Option 2 is projected to have a total industry compliance cost, once
fully implemented in NPDES permits, of $1.9 billion per year (2008 $).
Since EPA expects that the effluent guidelines requirements will be
implemented over time as states revise their general permits, EPA
expects full implementation within five years of the effective date of
the final rule, currently required to be promulgated in December 2009,
which would be 2014. EPA estimates that, once fully implemented, there
will be nearly 82,000 firms that perform work falling within scope of
Option 2. Average annual revenue for these in-scope firms is $544.14
billion (2008 $). Option 2 compliance costs are 0.35 percent of in-
scope firm revenues. Of these 82,000 fims, 6,396 would incur costs
under option 2. These firms have revenues of $409.02 billion (2008$)
and costs are 0.46% of revenues for firms incurring costs.
    Under Option 2, an estimated 774 firms (0.9 percent of all in-scope
firms) are estimated to incur compliance costs exceeding 1 percent of
annual revenue, and 76 firms (0.1 percent of in-scope firms) are
expected to incur compliance costs exceeding 3 percent of revenue. When
using EPA's assumption that under normal business conditions firms can
pass most of their compliance costs along to customers (85 percent of
costs for residential construction and 71 percent for non-residential),
there are 20 firms estimated to incur (net) costs exceeding 1 percent
of revenue, and no firms expected to incur (net) costs exceeding 3
percent of revenue.
    EPA has attempted to analyze the secondary impacts on home buyers
when costs are fully passed through. As part of this analysis, EPA
converted compliance costs into the likely dollar increase in housing
prices. Making assumptions about likely terms of financing, this was
converted to an increase in the monthly mortgage payment, where the
percent increase in home price is approximately equal to the percent
increase in mortgage payment. This analysis assumes there is no change
in the set of households that are new home buyers because of the
proposed regulation. EPA then used income distribution data to estimate
the change in the number of households in the market for a new home
that would qualify to purchase the median and lower quartile priced new
home under the higher monthly mortgage payment. This analysis was
performed using the median and lower quartile priced new home for each
metropolitan statistical area (MSA). For the MSA's, the weighted
average median priced for a home is $322,000, and the percent increase
would be 0.65%. In this way, EPA has attempted to characterize how the
potential increase in mortgage payment may affect housing
affordability. EPA estimated that 2,195 of these prospective home
purchasers would no longer qualify to purchase a median priced home
affected by the rule, and 3,243 would no longer qualify to purchase a
new lower quartile priced home affected by the rule. However, this
approach only looks at two specific points along the spectrum of
housing prices and therefore does not represent the total number of
households potentially impacted by the rule. EPA is interested in
developing an analysis reflective of the number of households that
would likely be adversely affected by the proposed regulation, and
solicits comment on appropriate methodology and any data that would be
required to conduct such an analysis. Based on our analysis thus far
EPA believes that the secondary impacts to new home buyers are
affordable.
    Under normal business conditions with cost pass-through (85%
residential and 71% non-residential) EPA estimates the number of firms
expected to incur financial stress as a result of the regulatory
requirements to be 147 firms which represents 0.2 percent of in-scope
firms and 2.3 percent of firms incurring

costs under Option 2. A total of 103 firms are estimated to experience
negative business value and be at risk of closure due to regulatory
requirements, which represents 0.1 percent of in-scope firms and 1.6
percent of total firms incurring costs. These impact measures are not
additive, as they evaluate different aspects of a firm's financial
viability, and the same firm may be counted under more than one
measure. EPA recognizes that this industry is subject to business
cycles and performed an adverse business conditions analysis to assess
the impacts during an economic downturn. The adverse business
conditions case assumes no cost pass-through as well as other less
favorable operating factors for the industry. No-cost pass through is a
rigid assumption where all impacts are born by the permitee, and there
are no secondary impacts on builders who buy lots or buyers of the
finished construction. For the adverse case, the results for Option 2
show the number of firms expected to incur financial stress as a result
of the regulatory requirements to be 479 firms, which represents 0.6
percent of in-scope firms and 8.3 percent of firms incurring costs
under Option 2. A total of 662 firms are estimated to experience
negative business value and be at risk of closure due to regulatory
requirements, which represents 0.9 percent of in-scope firms and 11.4
percent of firms incurring costs. Nevertheless, given the measures of
financial impact, in terms of percentage of in-scope firms and firms
incurring costs, EPA considers the rule to be economically achievable
by the construction industry. EPA requests comments on its economic
achievability analyses and on its proposed determination that Option 2
is economically achievable.
    EPA's analysis shows that Option 2 has acceptable non-water quality
environmental impacts. The pollution prevention, sediment and erosion
control measures included in the proposed rule, including the
collection and treatment of stormwater at some construction sites, will
not result in a significant incremental increase in the energy
consumption, air emissions, or generation of solid waste at
construction sites.
    EPA has proposed to reject Option 1 as the basis for BAT and NSPS
in part because it would not represent the best available or best
demonstrated technology for controlling discharges from this industry.
Narrative effluent limitations, such as those contained in Option 1, to
prevent and minimize erosion and sediment dischargers have been a
feature of NPDES permits for many years. Controls are available and
demonstrated that provide a higher degree of pollution reduction than
Option 1 and consistently provide low turbidity values, making a
numeric turbidity limit feasible. In addition, in considering economic
achievability of the option, EPA believes that the measures of
affordability EPA has used in the past, facility closure and firm
failure, and the firm stress metric used in Regulatory Flexibility
Analysis also considered here (percent of revenue lost and whether that
measure is above 1 or 3 percent) demonstrate that Option 2 can be
reasonably borne by the industry.
    EPA has also proposed to reject Option 3 as the basis for BAT and
NSPS, due primarily to the total industry cost (estimated at $3.8
billion annually). Option 3, once fully implemented, would cost $1.9
billion more annually than Option 2. EPA closely evaluated whether
establishing a turbidity limit on all construction sites disturbing
more than 10 acres at a time represents the BAT or NSPS level of
control--and believes that it does not. Option 3 would require all
construction sites, in every part of the country and at all times of
the year, to meet a numeric effluent limitation on turbidity if the
construction activity disturbs 10 or more acres of land at a time.
Construction sites that have soils containing relatively little clay
(e.g., a site in coastal Florida with sandy soils) or with low
rainfall-runoff erosivity (such as those in certain parts of Idaho) can
likely control the discharge of sediments and other pollutants through
effective use of the erosion and sediment control measures included in
the non-numeric effluent limitations being proposed today. With
relatively little of the difficult-to-settle clay present, and with low
rainfall energy, sediment production is expected to be low and EPA
expects much of the sediment to be removed from stormwater through the
use of effective sediment controls. Therefore, EPA believes that
requiring these sites to meet a numeric turbidity limit, including the
additional costs for monitoring that a numeric turbidity limit would
impose, does not represent BAT for these sites. EPA solicits comments
on this approach.
    In light of the high total cost of Option 3 and the appropriateness
of ELG and NSPS turbidity limits in arid areas and at construction
sites where rainfall energy is low and soils contain little clay, EPA
believes that Option 3 does not represent the best available or best
demonstrated technology for the C&D point source category.
    In summary, EPA believes that Option 2 is technologically
available, economically achievable, and has acceptable non-water
quality environmental impacts. EPA believes that establishing a numeric
turbidity limitation on a segment of the point source category
represents best available and best available demonstrated technology
for the C&D industry, striking an appropriate balance that addresses
the factors EPA is required to consider under the CWA and the nature of
stormwater discharges from construction sites. In addition, EPA has
determined that the non-numeric effluent limitations being proposed
under Option 2 represent best available and best available demonstrated
technology for all dischargers in the C&D industry.
    Although EPA has proposed Option 2 as a basis for BAT and NSPS, EPA
is soliciting comment on the appropriateness of the numeric turbidity
limit of 13 NTUs and the technology basis (i.e., ATS) for Option 2. EPA
has identified information that indicates that a limit in the range of
50-150 NTUs might be met by relying on passive, rather than active,
treatment systems. Passive treatment systems consist of a number of
techniques that do not rely on pumping of stormwater or mechanical
filtration and that are not as complex, do not cost as much and do not
utilize as much energy as ATS.
    Data in the literature indicate that passive systems may be able to
provide a high level of turbidity reduction at a significantly lower
cost than active treatment systems. For example, McLaughlin (see DCN
41005) evaluated several modifications to standard sediment trap
designs at the North Carolina State University Sediment and Erosion
Control Research and Education Facility (SECREF). He evaluated standard
trap designs as contained in the North Carolina Erosion and Sediment
Control Manual utilizing a stone outlet structure as well as
alternative designs utilizing a skimmer outlet and various types of
porous baffles. Baffle materials tested included silt fence, jute/
coconut and tree protection fence tripled over. Tests were conducted
using simulated storm events in which sediment was added to stormwater
at flows of 10 to 30 liters per second. McLaughlin found that a
standard gravel outlet did not significantly reduce turbidity values.
Average turbidity values in the basin were 843 NTUs, while average
turbidity in the effluent was 758 NTUs using the standard outlet. Use
of a skimmer instead of a standard gravel outlet reduced turbidity to
an average of 353

NTUs. Additional tests were conducted to evaluate the addition of
polyacrylamide (PAM) through the use of floc logs. Floc logs are a
solid form of PAM which are designed to be placed in flowing water.
They are typically anchored by a rope or by placing them in a mesh bag
or cage either in open channels or in pipes. As the water flows over
the floc logs, the PAM dissolves somewhat proportional to flow. The
floc logs typically have substantial amounts of non-PAM components,
which are intended to improve PAM release, maintain the physical
integrity of the blocks and enhance PAM performance (McLaughlin--Soil
Facts; Chemical Treatments to Control Turbidity on Construction Sites).
McLaughlin found that addition of PAM to sediment traps resulted in
average effluent turbidities of 152 NTUs using a rock outlet and 162
NTUs using a skimmer outlet. For one set of tests, use of a standard
stone outlet along with PAM was able to attain an average effluent
turbidity of 51 NTUs, while tests with jute/coconut mesh baffles with
PAM were only slightly higher, at 71 NTUs.
    Warner (see DCN 43071) evaluated several innovative erosion and
sediment controls at a full-scale demonstration site in Georgia as part
of the Erosion and Sedimentation Control Technical Study Committee
(known as ``Dirt II''). The Dirt II project consisted, among other
things, of field monitoring as well as modeling of erosion and sediment
control effectiveness at construction sites. The demonstration site was
a 50-acre lot in a suburban area near Atlanta where a school was being
constructed. In total, 22.5 acres of the site was disturbed. A
comprehensive system of erosion and sediment controls were designed and
implemented to mimic pre-developed peak flow and runoff volumes with
respect to both quantity and duration. The system included perimeter
controls that were designed to discharge through multiple outlets to a
riparian buffer, elongated sediment controls (called seep berms)
designed to contain runoff volume from 3 to 4 inch storms and slowly
discharge to down-gradient areas, multi-chambered sediment basins
designed with a siphon outlet that discharged to a sand filter, and
various other controls. Extensive monitoring was conducted at the site.
For one particularly intense storm event of 1.04 inches (0.7 inches of
which occurred during one 27 minute period), the peak sediment
concentration monitored prior to the basin was 160,000 mg/L while the
peak concentration discharged from the sand filter after the basin was
168 mg/L. Effluent turbidity values ranged from approximately 30 to 80
NTUs. Using computer modeling, it was shown that discharge from the
sand filter, which flowed to a riparian buffer, was completely
infiltrated for this event. Thus, no sediment was discharged to waters
of the state from the sand filter for this event. For another storm
event, a 25-year rainfall event of 3.7 inches occurred over a 2 day
period. Effluent from one sand filter during this storm was 175 mg/L
while discharge from a second sand filter was 100 mg/L, except for the
first-flush data point occurring at the beginning of the storm event.
    There are other references in the literature describing the various
types of passive treatment systems and the efficacy of passive
treatment systems. One potential application of a passive system would
be to add liquid polymer, such as PAM, to the influent of a
conventional sediment basin. This can be accomplished by using a small
metering pump to introduce a pre-established dose of polymer in the
influent pipe or channel. If the polymer is added in a channel far
enough above the basin, then turbulent mixing in the channel can aid in
the flocculation process. Otherwise, some sort of provision may need to
be made to provide mixing in the basin to produce flocs. Polymers
typically used in this particular application include PAM, chitosan,
polyaluminum chloride (PAC), aluminum sulfate (alum) and gypsum. With
any polymer, jar tests should be performed beforehand with soils
present on the site in order to determine an appropriate polymer type
and dosage.
    The Auckland (New Zealand) Regional Council conducted several
trials to evaluate the effectiveness of chemical flocculants and
coagulants in improving settling of suspended sediment contained in
sediment laden runoff from earthworks sites (Auckland Regional Council.
The Use of Flocculants and Coagulants to Aid the Settlement of
Suspended Sediment in Earthworks Runoff--Trials, Methodology and
Design. Technical Publication 227. June, 2004). Trials were conducted
using both liquid and solid forms of flocculants. Trials were initially
conducted on two projects: a highway project and residential
development.
    The highway project (ALPURT) evaluated both a liquid polymer system
and solid polymers. Liquid polymers evaluated were alum and PAC and
solid polymers evaluated were all polyacrylamide products (Percol AN1,
Percol AN2 and Percol CN1). Bench tests indicated that AN2 performed
best among the solid polymers and that both PAC and alum were effective
in flocculating the soils present on the site.
    Following bench testing of the polymers, liquid and solid dosing
systems were developed. For the liquid dosing system, initial
consideration was given to a runoff proportional dosing system which
would include a weir or flume for flow measurement, an ultrasonic
sensor and signal generating unit, and a battery driven dosing pump.
These components, together with costs for necessary site preparatory
work, chemical storage tanks and a secure housing, were estimated to
cost approximately $12,000 (1999 NZ $) per installation. An alternative
system was developed that provided a chemical dose proportional to
rainfall. This rainfall driven system, which did not require either a
runoff flow measurement system or a dosing pump, had a total cost of
$2,400 (1999 NZ $) per installation.
    The rainfall driven system operated by collecting rainfall in a
rainfall catchment tray. Rainfall into this tray was used to displace
the liquid treatment chemical from a storage tank into the stormwater
diversion channel prior to entering the sediment basin. The size of the
catchment tray was determined based on the size of the catchment
draining to the basin, taking into consideration the desired chemical
dosage rate obtained from the bench tests. Accumulated rainfall from
the catchment tray fills a displacement tank that floats in the
chemical storage tank. As the displacement tank fills with rainfall and
sinks, liquid chemical is displaced from the chemical storage tank and
flows via gravity to the dosing point.
    Field trials of the liquid treatment system using alum were
conducted at the ALPURT site. The authors report that the system
performed ``satisfactorily in terms of reduction of suspended solids
under a range of rainfall conditions varying from light rain to a very
high intensity, short duration storm, where 24mm of rainfall fell over
a period of 25 minutes.'' Suspended solids removal for the intense
storm conditions was 92% with alum treatment. For a similar storm on
the same catchment with the same retention pond without alum treatment,
suspended solids removal was about 10%.
    Field trials at the ALPURT site were also conducted using PAC. In
total, 21 systems were used with contributing catchments ranging
between 0.5 and 15 hectares (approximately 1 to 37 acres). The overall
treatment efficiency of the PAC treated basins in terms of suspended
sediment reduction were

reported to be between 90% and 99% for ponds with good physical
designs. The authors noted that some systems did not perform as well
due to mechanical problems with the system or physical problems such as
high inflow energy (which likely caused erosion or sediment
resuspension) or poor separation of basin inlets and outlets. The
suspended solids removal for all ponds incorporating PAC ranged from
77% to 99.9%, while the removal in a pond not incorporating PAC ranged
from 4% to 12%. Influent suspended solids concentrations for the
systems incorporating PAC ranged from 128 to 28,845 mg/L while effluent
concentrations ranged from 3 to 966 mg/L. In comparison, influent
suspended solids concentrations for the untreated ponds were
approximately 1,500 mg/L while effluent concentrations were
approximately 1,400 mg/L. The authors also noted that dissolved
aluminum concentrations in the outflow from the basins treated with
PAC, in most cases, were actually less than the inflow concentrations,
and were also less than the outflow concentrations from the untreated
ponds. Outflow aluminum concentrations in the PAC treated ponds ranged
from 0.01 to 0.072 mg/L. The ALPURT trials generally indicate that a
relatively simple, passive treatment system using liquid polymers can
result in significant reductions in suspended sediment concentrations,
even with influent concentrations in excess of 25,000 mg/L. Although
some effluent concentrations were as high as several hundred mg/L, the
majority were below 100 mg/L. This indicates that a passive liquid
polymer system, perhaps coupled with a gravity sand filter or
distributed discharge to a vegetated buffer (as described by Warner,
2001) could be used to meet a numeric effluent limit for turbidity at a
significantly lower cost than ATS. EPA solicits comments on this issue.
    Field trials of polymer treatment using solid forms of PAM by the
Auckland Regional Council were conducted at the ALPURT site as well as
a residential project (Greenhithe). Trials at the ALPURT site were
conducted by placing the floc blocks in plastic mesh bags in plywood
flumes through which the runoff from the site was directed. Initial
trials encountered problems due to the high bedload of granular
material, which accumulated against and stuck to the floc logs
inhibiting solubility of the polymer. The system was reconfigured to
incorporate a forebay before the flumes in order to facilitate removal
of the bedload fraction. The authors noted that while this system was
generally effective at low flow rates, it was difficult to control
dosage rates and sediment accumulation in the flumes continued to be a
problem. The authors concluded that ``Floc Block treatment has a high
potential for removal of suspended solids from stormwater with
consistent quality, particularly for small catchments; when flow
balancing can be achieved prior to treatment.''
    Field trials were also conducted at the Greenhithe site, which was
a 4 hectare (approximately 10 acre) residential project. As with the
ALPURT trial, a flume was constructed and placed in the flow path
immediately before the sediment basin. Results of the trials were
mixed. The authors noted several problems with the floc logs, such as
drying and breakdown of the logs due to prolonged exposure to the air
and softening and breakdown during periods of prolonged submergence.
Sediment accumulation around the logs and breakdown continued to be a
problem. Incorporating an effective sediment forebay and limiting
bedload are suggestions for increasing performance. In addition, the
authors recommended soaking the floc logs in water to allow hydration
before use and periodic spraying with water as ways to limit drying of
the floc logs. EPA notes that similar problems with floc logs have been
noted by some construction site field inspectors (see DCN 41109) and by
McLaughlin (see DCN 43082). EPA solicits comments on the effectiveness
of floc logs as components of passive treatment systems. EPA also
solicits comments on any operational or maintenance considerations that
should accompany use of solid forms of polymers.
    Results of the PAC studies at the ALPURT sites have led the
Auckland regional council to require chemical treatment for any site
that produces more than 1.5 metric tons of (net) sediment as determined
by the Universal Soil Loss Equation. Sites that exceed this threshold
will require chemical treatment in accordance with a site chemical
treatment plan. Exceptions include projects of less than one month
duration and sites with granular volcanic soils and sand areas.
Chemical treatment may also not be required if bench testing indicates
that chemical treatment will provide no improvement in sediment removal
efficiency (see DCN 41111). EPA solicits comments on the approach
adopted by the Auckland Regional Council and its applicability to
construction and development site discharges in the U.S.
    In addition to (or in place of) adding polymers to sediment basins,
polymers can be introduced on other areas of the site as a soil
stabilization measure or as components of other BMPs. For example,
McLaughlin (DCN 41005) evaluated adding polymer to check dams on
highway projects. Various other researchers evaluated PAM as a soil
stabilization agent. There are a number of documents in the
administrative record for this rulemaking describing the use of PAM.
    The data from these studies indicate that various types of passive
treatment systems that utilize both solid and liquid forms of polymers
have been reported to be effective in reducing turbidity levels in
discharges from construction and development sites. EPA is therefore
soliciting comments on whether a turbidity limitation of 50 to 150 NTUs
(or some other value) based on passive treatment systems should instead
serve as the basis for BAT limitations and NSPS. EPA solicits comments
on the costs, pollutant removal effectiveness and effluent quality
attainable by passive treatment systems and on the technical basis for
establishing a particular a numeric turbidity limit of 50 to 150 NTUs
(or some other value). EPA also solicits comment on the ability to
reliably meet a 50 to 150 NTU limit using passive systems on different
types of construction and development sites and in locations across the
country and on the appropriate monitoring requirements that should
accompany passive treatment systems. EPA also solicits comments on the
applicability of a 50 to 150 NTU (or some other value) standard.
Specifically, since passive systems may be less costly and require less
expertise and operator supervision than active treatment systems, EPA
solicits comments on whether a standard based on passive systems should
apply more broadly and to more sites than are covered by EPA's proposed
Option 2, or if EPA should establish a tiered set of turbidity
limitations, reflecting variation of site parameters such as site size,
rainfall patterns, soil types, soil erodibility, or some other
parameter and the specific thresholds that should apply to such
parameters. EPA also requests comment on whether it should develop an
enhanced non-numeric limitation based on the types of passive
technologies discussed above without establishing a specific numeric
limit, as well as whether it should consider an ``action level'' based
approach such as is required by Washington and several other states
through their construction general permits. EPA further requests
comment on the feasibility and burden

on permitting authorities of an ``action level'' established
nationally.
2. Definition of ``New Source'' for the Construction and Development
Category
    EPA interprets the definition of ``new source'' at CWA section
306(a)(2) as not including discharges associated with construction
activity. Section 306(a)(2) of the CWA defines ``new source'' as ``any
source, the construction of which is commenced after publication of
proposed regulations * * *'' The plain language of section 306 excludes
C&D sites because a construction site cannot itself be constructed.
Further, the term ``source'' is defined in 306(a)(3) of the CWA to mean
``any building, structure, facility, or installation * * *'' or in-
other-words sources that are the product of the construction, not the
construction activity itself. Additionally, there is an independent
definition of ``construction'' in section 306(a)(5). If construction
sites were intended to be ``new sources,'' the Agency finds it
illogical that there would be a separate definition for
``construction'' or that there would be a requirement in section 306 of
the CWA that ``sources'' be ``constructed'' prior to becoming ``new
sources.''
    Though EPA interprets the CWA not to apply NSPS under section 306
of the CWA to the C&D point source category, the District Court order
enjoins EPA to propose and promulgate NSPS. Therefore, EPA proposes to
define ``new source'' for purposes of part 450 as any source of
stormwater discharge associated with construction activity that itself
will result in an industrial source from which there will be a
discharge of pollutants regulated by a new source performance standard
in subchapter N other than today's rulemaking. (All new source
performance standards promulgated by EPA for categories of point
sources are codified in subchapter N). The definition of new source
proposed today for purposes of part 450 would mean that the land-
disturbing activity associated with constructing a particular facility
would itself constitute a ``new source'' when the facility being
constructed would be a ``new source'' regulated by new source
performance standards under section 306 of the CWA. For example,
construction activity that builds a new pharmaceutical plant covered by
40 CFR 439.15 would be subject to new source performance standards
under 40 CFR 450.24.

F. Option Selection Rationale for BCT

    EPA is proposing to establish BCT requirements equivalent to BPT.
As discussed in IX.C above, the requirements of the proposed BPT have
been demonstrated to be technologically available and EPA's analyses
show that the requirements are economically achievable.
    Establishing BCT effluent limitations for a point source category
begins by identifying technology options that provide additional
conventional pollutant control beyond that provided by application of
BPT effluent limitations. Conventional pollutants under the CWA are
biochemical oxygen demand (BOD5), total suspended solids
(TSS), fecal coliform, pH, and oil and grease. CWA section 304(a); 40
CFR 401.16. Stormwater discharges, if not adequately controlled, can
contain very high levels of TSS. In addition, many of the construction
materials used at the site can contribute BOD or oil and grease. Fecal
coliform can also be present at elevated levels, due to natural sources
(contributed by animal wastes) or if stormwater is not segregated from
sanitary waste facilities. See Section VII for additional discussion of
pollutant sources.
    EPA evaluates the candidate BCT options by applying the two-part
BCT cost test. The first part of the BCT cost test is the POTW test. To
``pass'' the POTW test, the cost per pound of conventional pollutant
discharges removed in upgrading from BPT to the candidate BCT must be
less than the cost per pound of conventional pollutant removed in
upgrading POTWs from secondary treatment to advanced secondary
treatment. Using the RS Means Historical Cost Indices, the inflation-
adjusted POTW benchmark (originally calculated to be $0.25 in 1976
dollars) is $0.92 (2008 $). To examine whether an option passes this
first test, EPA calculates incremental values of the candidate option
relative to the proposed BPT (Option 1). EPA calculated the incremental
cost per pound of conventional pollutants removed ($/lb TSS) for Option
2 to be $0.068. Since this result is less than the POTW benchmark,
Option 2 passes the first part of the two-part BCT cost test. EPA also
calculated the incremental cost per pound of conventional pollutants
removed for Option 3, which is $0.074. Therefore, Option 3 also passes
the first part of the BCT cost test.
    To pass the second part of the BCT cost test, the industry cost
effectiveness test, EPA computes a ratio of two incremental costs. The
numerator is the cost per pound of conventional pollutants removed by
the BCT candidate technology relative to BPT. The denominator is the
cost per pound of conventional pollutants removed by BPT relative to no
treatment (i.e., raw wasteload). As in the POTW test, the ratio of the
numerator divided by the denominator is compared to an industry cost
benchmark. The industry cost benchmark is the ratio of two incremental
costs: The cost per pound to upgrade a POTW from secondary treatment to
advanced secondary treatment, divided by the cost per pound to
initially achieve secondary treatment from raw wasteload. If the
calculated ratio is lower than the industry cost benchmark of 1.29
(i.e., the normalized cost increase must be less than 29 percent), then
the candidate technology passes the industry cost test. The calculated
ratio for Option 2 is 4.46; therefore, it fails the second part of the
BCT cost test. The calculated ratio for Option 3 is 4.81; therefore, it
also fails the second part of the BCT cost test. Therefore, EPA is
proposing to set BCT equal to Option 1.
    EPA estimated loading reductions, which are used as the basis of
the BCT cost test (as well as the removals, water quality impacts and
monetized benefits analysis), by using a model site approach and
modeling soil erosion using the Revised Universal Soil Loss Equation
(RUSLE). An alternative approach would be to estimate removals on a
concentration basis by comparing average effluent TSS concentrations in
construction site discharges under baseline conditions to
concentrations following EPA's candidate BCT technology options. EPA
could then estimate total stormwater treatment volumes and, based on
the change in concentrations following treatment, determine the total
load of conventional pollutants removed.
    EPA did not use a concentration based approach because a nationally
representative database of discharge data from construction sites does
not exist and EPA believes that the data from several states identified
in the literature is inadequate to use as a basis for national
estimates. Instead, EPA used RUSLE to estimate soil erosion rates from
construction sites. EPA chose to use RUSLE because it is a nationally-
recognized model that is based on extensive field data. RUSLE, and its
predecessors and variants (such as the Universal Soil Loss Equation
(USLE) and the Modified Universal Soil Loss Equation (MUSLE)), have
been widely used to estimate erosion rates from agricultural areas. The
Office of Surface Mining has developed guidelines (see DCN 41113) for
using RUSLE on mine lands, construction sites and reclaimed areas and
RUSLE has been widely used to estimate soil erosion rates from these
areas. RUSLE estimates soil erosion

rates based on a number of input parameters. These input parameters are
the rainfall-runoff erosivity factor (R), the soil erodibility factor
(K), slope length factor (L), slope steepness factor (S), cover-
management factor (C), and practice support factor (P). In developing
estimates of soil erosion rates, EPA used a mix of data sources as well
as estimates based on best professional judgment (BPJ). For R, EPA used
the RUSLE 2 database (RUSLE 2 ARS Version January 19, 2005, Program
Database) to extract values for each of the indicator cities modeled.
For K and S, EPA used STATSGO soil survey data for each of the
indicator cities modeled. For S, EPA inventoried STATSGO soil survey
data for over 20 million acres of land surrounding eleven indicator
cities to determine area-weighted average slopes present. EPA used the
average slope value to calculate the loadings estimates, pollutant
loading reductions and water quality changes and associated benefits
contained in today's proposal. EPA also calculated a low slope estimate
and a high slope estimate in order to evaluate how variation in slope
values would affect the results. So as not to use the lowest slope
values reported or the highest slope values reported in the STATSGO
data, EPA calculated a low slope value as the average of the range of
low slope values reported and the overall average slope calculated for
the area. Likewise, EPA calculated a high slope estimate as the average
between the range of the highest reported slope values reported and the
overall average slope calculated for the area. EPA estimated baseline
loads and pollutant load reductions using the high and low slope
estimates, but did not determine water quality improvements or benefits
using these values. For L, EPA assumed a range of slope lengths based
on BPJ. For C and P, EPA used BPJ to select values contained in the
SEDCAD documentation (SEDCAD 4, Design Manual and User's Guide, Warner,
R.C. et al. 2006). For C, EPA used a value of 1.0, which corresponds to
bare soil. For P, EPA used a value of 0.9, which represents a ``Roughed
and Irregularly Tracked'' soil surface.
    EPA recognizes that alternate reasonable assumptions might
substantially lower the estimated erosion rates, however, we believe
that our assumptions based on BPJ are reasonable. EPA notes that the
RUSLE estimates developed in support of the BCT calculations are
sensitive to the BPJ assumptions for P, C, and L. EPA assumed bare soil
conditions with no soil cover for the duration of the construction
project, which was assumed to be 9 months. EPA also assumed that 90% of
the construction project would be disturbed. EPA has not identified a
data source that indicates typical values on construction sites for any
of these parameters.
    Changing C from 1 to some other value to reflect cover present on a
portion of the site would reduce the erosion estimates for that portion
of the site that has been covered. As an example, for subsoil on a 6%
gradient with straw mulch at 1 ton per acre, the value of C may be 0.2.
This would lower the erosion estimates for that portion of the site
that has been covered by a factor of 5. EPA expects that some portion
of the site would be bare soil for the duration of the construction
period, while other portions of the site would have cover installed.
EPA therefore recognizes that its estimates of sediment generation are
tied to the BPJ assumptions associated with some of the RUSLE
parameters and solicits data on the percentage of sites of different
sizes that are likely to be bare soil vs. containing various types of
cover, and the amount of time these conditions would be present.
    Changes in P would also affect erosion rates. The values selected
for P would reflect management practices used on the site such as silt
fences, terraces and straw bale barriers. P is best determined using
the RUSLE program, since values vary based on location. For example, in
Lexington, Kentucky, the P value for contour furrowing with moderate
ridge height on a 300 foot hillslope with a 10% gradient and hydrologic
soil group B on nearly bare soil is 0.89. This value assumes no silt
fences, terraces, straw bale barriers or other perimeter controls.
Because P factors are usually associated with agricultural management
practices, it is not clear to EPA how to compute a P value that would
reflect the use practices common on construction sites. EPA solicits
comments on this issue. As an alternate example of how P might change,
if 50% cover were to be applied to the above example for Lexington,
Kentucky, then the P value would change from 0.89 to 0.58, lowering the
estimated soil erosion rates by 35% (not accounting for any effects
that changes in cover would have on the other parameters in the model).
    Likewise, changes in estimates for slope and slope length would
change the erosion rate estimates. EPA notes that the United States
Department of Transportation (USDOT) specifies maximum slope lengths
for flows to silt fences, which range from 25 feet on a 50% slope to
500 feet on a slope of less than 2% for a 30-inch silt fence (USDOT.
1995. Best management practices for erosion and sediment control.
Report No. FHWA-FLP-94-005. Eastern Federal Lands Highway Design, U.S
Department of Transportation, Sterling, Virginia), which are generally
consistent with the BPJ slope lengths selected by EPA, which range from
150 to 425 feet. Maximum slope lengths can be even longer if super silt
fence is used. Maryland Department of the Environment (MDE) specified
maximum slope lengths for super silt fences ranging from 250 feet on a
50% or greater slope to 1,500 feet on a slope between 10 and 20%. For
slopes less than 10%, there are no limitations on maximum slope lengths
when super silt fence is used (see Table 7-14 of the TDD). In contrast,
the March 18, 2008 draft California construction general permit would
require dischargers for Risk Level 2 and 3 sites to apply linear
sediment controls along the toe, face and at the grade breaks of
exposed and erodible slopes. Maximum sheet flow lengths would be 20
feet for slopes between 0 and 25%, 15 feet for slopes between 25 to 50%
and 10 feet for slopes over 50%. If EPA were to make different
assumptions about slope length, or use different data to estimate
slopes, this could significantly lower the soil erosion estimates. EPA
solicits comments on using the USDOT, MDE, draft California, or other
data or recommendations as appropriate bases for estimating slope
lengths likely to be present on construction sites. EPA also solicits
data indicating slope lengths as a function of slope present on actual
construction sites as well as other methods to approximate slope
lengths. It has been suggested that using the average slope value from
STATSGO for areas surrounding EPA's indicator cities may not reflect
the possibility that permittees may choose to select land that has
flatter slopes than the average values calculated from the STATSGO
data, or that permittees may quickly grade sites to be a flatter slope
than the average values calculated from the STATSGO data before exposed
soil is exposed to significant rainfall. EPA notes that in these cases,
the slope length on these sites may be longer than the values estimated
by EPA. Conversely, using the average slope value from STATSGO for
areas surrounding EPA's indicator cities may not reflect steeper slopes
that may be present on projects such as infill developments within
existing urban or suburban areas. These sites may not have been
developed earlier because flatter land was available to developers.

However, as development progresses outward from the urban core and land
becomes less available, it is plausible to assume that undeveloped
areas with steeper slopes may be developed. In these cases, slope
lengths may be shorter than those estimated by EPA.
    While EPA chose to use the RUSLE model because a nationally
representative database of discharge data from construction sites does
not exist, EPA did compare available data with its RUSLE model results.
EPA identified several sources of discharge data. Table 5-1 of the TDD
lists eight studies from six states (Maryland, Pennsylvania,
Washington, Georgia, Texas and Ohio) that contain TSS data from
construction site discharges. These studies show mean inflow TSS
concentrations ranging from 359 to 17,500 mg/L, with a mean TSS
concentration from all studies of 3,681 mg/L. Additionally, during the
current rulemaking, EPA collected discharge data from two vendors and
the Oregon Department of Environmental Quality associated with ATS
systems on 17 sites located in the states of Oregon, Washington and
California. These data show NTU measurements in the influent to the ATS
ranging from 0.3 to 4,816 NTUs, with most measurements in the hundreds
of NTUs. Although relationships between TSS and turbidity are highly
site-specific, it has been suggested that TSS concentrations are
roughly 3 times turbidity measured in NTUs. Using this conversion for
the ATS data, influent concentrations ranged from approximately 1 to
14,400 mg/L, with most measurements below 2,000 mg/L. EPA also
identified data in two studies discussed earlier in this notice. On a
site located in Fulton County, GA, Warner found that influent to a
basin for a 1.04 inch storm (with 0.7 inches falling in a 27 minute
period) had a peak TSS concentration of 160,000 mg/l. For the Auckland
monitoring studies, influent concentrations for ponds not using
chemical treatment ranged from 680 to 1,500 mg/L. Influent
concentrations to ponds utilizing chemical addition ranged from 128 to
28,845 mg/L.
    In comparison, EPA's RUSLE model results for the 11 indicator
cities ranged from a low of 5,984 mg/L in Albany, New York (using the
low slope estimates) to a high of 283,417 mg/L in Las Vegas, Nevada
(using the high slope estimate). For the average slope value, which is
the basis for the load reduction, water quality improvement and
benefits estimates contained in today's proposal, concentration values
ranged from a low of 9,874 mg/L in Albany, New York to a high of
190,872 mg/L in Las Vegas, Nevada, with a median of 78,516 mg/L. These
results are presented in the record (see DCN 41138).
    Moreover, results from Seattle, WA from one of the eight studies
mentioned above (Horner, Guerdy, and Kortenhoff, 1990, DCN 01350) can
be compared with EPA's model results for Seattle. In Horner, the mean
inflow TSS concentration was 17,500 mg/L. Using the RUSLE model, the
modeled concentration was 125,593 mg/l.
    EPA also compared its estimates of effluent concentrations from a
standard sediment basin (without ATS) to available data. Warner
monitored sediment basins in Georgia and noted TSS concentrations in
basin effluents ranging from 100 to 20,000 mg/L with effluent turbidity
values ranging from 125 to 3,500 NTUs. Data from the Aukland study
found conventional sediment basin effluent concentrations of about
1,400 mg/L. Data from Horner, Guerdy and Kortenhoff, 1990, Schueler and
Lugbill, 1990, and Jarrett, 1996 give mean effluent concentrations
ranging from 63 mg/L to 876 mg/L, with a mean concentration of 365 mg/L
(see DCN 41138). In addition, 2005 DMR data from 120 construction sites
in King County, WA (Seattle) show a median effluent concentration of
9.2 NTU and a mean concentration of 43.11 NTU (which corresponds to
about 30 mg/L to 130 mg/L using the rough conversion factor referenced
above). See DCN 41138 for these DMR data. EPA solicits comments on the
representativeness of the Seattle data as a basis for estimating
sediment basin effluent concentrations, since it is EPA's understanding
that this data consists of grab samples collected within 24 hours of a
storm event (consistent with the Washington monitoring requirements)
rather than flow-weighted or time-weighted composite samples collected
during the entire effluent hydrograph. Likewise, EPA solicits comments
on the other references cited above, and whether these studies should
be considered representative of discharges from all areas of the
country.
    In comparison, EPA's RUSLE model and sediment basin removal
calculation results for the 11 indicator cities ranged from a low
effluent concentration of 2,992 mg/L in Albany, New York (using the low
slope estimate) to a high of 79,585 mg/L in Denver, CO (using the high
slope estimate). For average slope value, which is the basis for the
load reduction, water quality improvement and benefits estimates
contained in today's proposal, concentration values ranged from a low
of 4,937 mg/L in Albany, New York to a high of 61,286 mg/L in Denver
Colorado, with a median of 34,357mg/L. These results are presented in
the record (see DCN 41138).
    EPA is concerned about the significant difference between its RUSLE
modeled results and the basin influent and discharge data from vendors,
the state of Oregon, DMR data from King County and available studies,
and the effect this could have on EPA's estimates of loadings,
monetized benefits, and projected water quality impacts. EPA assumes
this difference is a reflection of both those parameters in RUSLE for
which EPA used its professional judgment (e.g., cover, practices and
slope length), and the possibility that the measured valued reported in
the literature are not representative of average influent and sediment
basin effluent concentrations for the range of storm events likely to
occur for the duration of the construction project.
    To address this concern, EPA conducted a sensitivity analysis to
explore the potential impacts on its loadings analysis by revising
several of the RUSLE assumptions. EPA changed its assumptions for the C
factor and revised the slope length estimates to be consistent with the
USDOT reference. For C, EPA assumed that half of the site was in bare
soil conditions (with a C of 1) while the other half of the site had a
C of 0.12 for sites with less than 5% slope or 0.06 for sites with
greater than 5% slope. For slope lengths, EPA fit a curve to the USDOT
data for maximum slope lengths for 30 inch silt fence and determined
slope lengths for each model site based on the STATSGO average slope
present. Using these assumptions, estimated load reductions for Option
2 were 6.2 billion pounds and estimated load reductions for Option 3
were 11.1 billion pounds. This represents a 77% reduction for Option 2
and a 78% reduction in estimated removals for Option 3, as compared to
EPA's primary analysis. EPA solicits comments on this sensitivity
analysis.
    EPA notes that this sensitivity analysis does not capture the full
range of uncertainty in its RUSLE based analysis as compared to
available data. For example, looking just at Seattle, WA, one of EPA's
11 indicator cities, for which data are also available in Horner,
Guerdy, and Kortenhoff, 1990, the measured influent value of 17,500 mg/
L is about a factor of seven lower than EPA's calculated average
influent value of 125,593 mg/L, while for the effluent, the measured
value is 626 mg/L, which is about a factor of 57 below EPA's calculated
effluent value of 36,422 mg/L. During the SBREFA outreach, URS

(on behalf of the National Association of Homebuilders) used
alternative values for C, P, slopes and slope length and calculated
sediment erosion rates that were lower by a factor of about 100 than
EPA's estimates. EPA requests comment on all aspects of its RUSLE
analysis and the sensitivity analysis.
    EPA requests comment on all aspects of its modeling approach,
particularly its input values. Additionally, EPA is interested in any
other sources of sediment basin influent and effluent concentration
data from construction sites. This data should also include information
on the location of the site, site characteristics, weather patterns
(specifically the volume and intensity of storms) and the timing of
sampling with respect to storm events.

X. Methodology for Estimating Costs to the Construction and Development
Industry

    In developing today's proposed rule, EPA has used numeric models to
estimate the costs of compliance with potential regulatory approaches.
This approach was used to estimate the incremental costs associated
with the regulatory options at the state and national level.
    In order to estimate costs to different segments of the industry,
EPA developed nine model project types. These nine model project types
are: Small, medium and large transportation; small, medium and large
residential; and small, medium and large non-residential. Small
projects are those less than 10 acres, medium projects are 10 or more
but less than 30 acres, and large projects are 30 or more acres. Using
the NOI data discussed in Section VI.D, EPA developed a national
distribution of construction projects and determined the median project
size (in acres) of each of the nine model project types. Using
estimates of the annual quantity of acres of new developed land
determined from the NLCD data (discussed in Section VI.B.), EPA
determined the number of model projects in each of the nine categories
in each state (excluding Alaska, Hawaii and U.S. territories). Detailed
results of this analysis are discussed in the Development Document.
    For estimating baseline conditions, EPA evaluated each state's
erosion and sediment control requirements to determine the size of
sediment basins currently required in each state. For each of the model
projects within each state, EPA calculated the size of the sediment
basin that would be required. When a state's sediment basin
requirements were based on containing runoff from a specific size of
storm (such as runoff from the 2-year, 24-hour storm), EPA used one
indicator city in each state and obtained rainfall data from various
NOAA sources (see discussion on rainfall data in Section VI.F). EPA
used the rainfall data for each indicator city for all model projects
within a given state. To determine runoff quantities, EPA calculated a
runoff coefficient for each state (see discussion in the Development
Document for detailed information on these calculations). While EPA
acknowledges that using one indicator city to represent rainfall
conditions in an entire state is a somewhat simplified approach, it
does capture the range of precipitation that occurs across the country
and serves as a reasonable method of estimating the costs of the
regulatory options.
    For each of the regulatory approaches considered, EPA determined
the sediment basin volume (in cubic feet) that would be required for
each of the model projects in each state. Using data on sediment basin
costs, EPA estimated the increase in costs over baseline requirements
for each model project in each state. Using the number of model
projects in each state, EPA estimated the total costs due to larger
sediment basins in each state.
    For determining costs for options that include numeric effluent
limits, EPA obtained data from vendors of stormwater treatment systems.
The technology EPA used as a basis for estimating costs is chitosan-
enhanced sand filtration, one type of active treatment system.
Information in the record indicates other active treatment technologies
have comparable costs. Using data submitted by the vendors, EPA
determined a cost for treating stormwater for each of the model
projects that would be expected to be subject to the turbidity limit.
These costs include treatment chemical costs, labor costs and equipment
rental costs, as well as sediment disposal and monitoring costs.
However, EPA did not cost these items separately for each model project
type. Rather, EPA concluded from examining these data that the average
cost across all projects using chitosan-enhanced sand filtration is
$0.02 per gallon treated. This includes all of the costs that would be
incurred by the operator to install, operate, maintain and remove the
treatment systems. Using NOAA data on average annual rainfall for one
indicator city within each state, and using state-specific runoff
coefficients, EPA determined, for each state, the volume of stormwater
that would require treatment for each of the nine model projects. EPA
then estimated the costs for treating stormwater from each model
construction site within each state based on the $0.02 per gallon
estimate. EPA also included additional costs for installing storage
necessary to impound runoff from the 2-year, 24-hour storm event, if
this volume was greater than the sediment basin storage volume
currently required in each state. Using the number of model
construction projects within each state, EPA then determined the total
costs for treatment at the state and national level.
    Chapter 9 of the Development Document contains a more detailed
discussion of the EPA's costing approach.

XI. Economic Impact and Social Cost Analysis

A. Introduction

    EPA's Economic Analysis (see Supporting Documentation) describes
the impacts of today's proposed rule in terms of firm financial
performance, firm closures, employment losses, and market changes. In
addition, the report provides information on the impacts of the
proposal on sales and prices for residential construction. The results
from the small business impact screening analysis support EPA's
implementation of the Regulatory Flexibility Act (RFA), as amended by
the Small Business Regulatory Enforcement Fairness Act (SBREFA). The
report also presents identified, quantified, and monetized benefits of
the proposal as described in Executive Order 12866.
    This notice includes related sections such as the cost-
effectiveness analysis in Section XII, benefits analysis in Section XV,
and benefit-cost analysis in Section XVI. In their entirety, these
sections comprise the economic analysis (referred to collectively as
the ``C&D economic analysis'') for the proposed rule. EPA's
Environmental Assessment provides the framework for the monetized
benefits analysis. See the complete set of supporting documents for
additional information on the environmental impacts, social costs,
economic impact analysis, and benefit analyses.
    The C&D economic analysis, covering subsectors that disturb land
(NAICS 236 and 237), uses information from, and builds upon, the 2002
proposed rule (67 FR 42644; June 24, 2002) and the 2004 withdrawal of
the proposed rule (69 FR 22472; April 26, 2004). In addition to CWA
requirements, EPA has followed OMB guidance on the preparation of the
economic analyses for federal regulations to comply with Executive

Order 12866. See section XIX of today's notice.

B. Description of Economic Activity

    The construction sector is a major component of the United States
economy as measured by the gross domestic product (GDP), a measure of
the output of goods and services produced domestically in one year by
the U.S. economy. Historically, the construction sector has directly
contributed about five percent to the GDP. Moreover, one indicator of
the economic performance in this industry, housing starts, is also a
``leading economic indicator,'' one of the indicators of overall
economic performance for the U.S. economy. Several other economic
indicators that originate in the C&D industry include construction
spending, new home sales, and home ownership.
    During most of the 1990s, the construction sector experienced a
period of relative prosperity along with the overall economy. Although
cyclical, the number of housing starts increased from about 1.2 million
in 1990 to almost 1.6 million in 2000, with annual cycles during this
period. (U.S. Census Bureau, ``Current Construction Reports, Series
C20--Housing Starts,'' 2000. http://www.census.gov/const/www). At the
beginning of the 21st century, the economy began to slow relative to
previous highs in the 1990s. This slower economic growth had a negative
impact on construction starts for new commercial and industrial
projects. Driven in part by low mortgage interest rates, consumer
spending for new homes continued to remain strong through 2005.
However, speculative buying and relaxed lending standards helped create
a market bubble that burst in 2006. Currently the housing market is in
an economic downturn, yet some near term future projections are for
renewed growth in housing starts in the third quarter of 2009. (Global
Insight, ``U.S. Economic Service, Executive Summary'' October, 2008.)
EPA acknowledges that future predictions can be highly uncertain and
that other projections may be less optimistic. Nonresidential
construction, which was weak during the first five years of the decade,
recovered to 2000 levels by 2007. (Global Insight, ``The Nonresidential
Picture: Will the Rescuer Need To Be Rescued?'' 2007. Global Insight,
``U.S. Economic Service, Executive Summary'' October, 2008.) However,
the construction industry is expected to experience declines for the
residential, non-residential, and non-building sectors for the near
future. The weakness in the construction industry will likely continue
until residential markets work through the current inventory of unsold
homes and credit markets and the general economy return to a better
condition (Global Insight, ``U.S. Economic Service, Executive Summary''
October, 2008.)
    The C&D point source category is comprised of activities that
disturb land. The category contains business establishments (the Census
Bureau uses the term ``establishment'' to mean a place of business;
``Employer establishment'' means an establishment with employees) that
are involved in building construction (NAICS 236) as well as heavy and
civil engineering construction (NAICS 237). As a starting point, Table
XI-1 shows the number of business establishments in the C&D category in
1992, 1997, and 2002. Only a portion of these establishments would be
covered by the proposed regulation, because some of these
establishments are house remodelers and others build on sites with less
than one acre of disturbed land each year. The NAICS classification
system changed between the issuance of the 1997 and 2002 Economic
Census.
    Table XI-1 shows a sharp decline in the number of developers
between 1992 and 1997. The decrease in the number of developers may
have been a response to changes in tax laws and the Financial
Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989
(Pub. L. 101-73, August 9, 1989) and the 1993 implementing regulations.
The objective of FIRREA and the implementing regulations was to correct
events and policies that led to a high rate of bankruptcies in the
thrift industry in the late 1980s. The regulations changed lending
practices by financial institutions, requiring a higher equity position
for most projects, with lower loan-to-value ratios, and more
documentation from developers and builders. (Kone, D. L. ``Land
Development 9th ed.'', Home Builder Press of the National Association
of Home Builders, Washington, DC, 2000).

          Table XI-1--Number of C&D Industry Establishments, 1992, 1997, and 2002, Economic Census Data
----------------------------------------------------------------------------------------------------------------
                                                         1992        1997        2002     Change  92- Change  97-
            NAICS                   Description          (No.)       (No.)       (No.)      97 (%)      02 (%)
----------------------------------------------------------------------------------------------------------------
236..........................  Construction of           168,407     191,101     211,629       13.50       10.70
                                Buildings, except
                                all other Heavy
                                Construction \a\.
237 except 2372..............  Heavy Construction,        37,180      42,554      49,433       14.50       16.20
                                except Land
                                Subdivision.
2372.........................  Land Subdivision.....       8,848       8,185       8,403       -7.50        2.70
                              ----------------------------------------------------------------------------------
    Total...........................................     214,435     241,840     269,465       14.10      11.30
----------------------------------------------------------------------------------------------------------------
\a\ In the 2002 NAICS classification framework, All Other Heavy Construction was assigned among NAICS 236, 237,
  and 238. To maintain relevant comparisons, 2002 All Other Heavy Construction data were reassigned back into
  NAICS 237 (Heavy Construction).
Figures do not necessarily add to totals due to rounding.
Source: U.S. Census Bureau (2005).

    Building upon Table XI-1, Table XI-2 shows the number of firms that
are expected to be covered under the C&D proposed regulation.
Construction establishments are relatively permanent places of business
where the usual business conducted is construction related.
Construction firms are an aggregation of construction establishments
owned by a parent company that share an annual payroll. EPA estimates
that for approximately 99 percent of construction firms there is only
one establishment, and those that do have more than one establishment
tend to be in the highest revenue categories.
    For Table XI-2, EPA subtracted out firms that are engaged in home
remodeling (NAICS 236118) from the total of about 269,000 firms in
2002, as they would not be subject to the proposed regulations. The
elimination of remodelers is based on the fact that remodeling and
renovation activities generally disturb less than one acre of land, if
at all. EPA requests comment on its methodology for removing remodelers
from the analysis. Thus, the total number of C&D firms would be
178,835.
    EPA used data from the Economic Census and other sources to define
an

average housing density for the nation as a whole (average number of
housing units per acre), then used this figure to identify firms to be
excluded from regulation based on their likelihood of disturbing less
than one acre on a per project basis. EPA believes that these estimates
(of firms unaffected by the proposed options) are conservative, meaning
that they potentially overestimate the actual number of firms that will
be affected. First, while the regulatory threshold applies to each
site, EPA excluded firms only if the estimated number of acres
disturbed in a whole year falls below the regulatory threshold. In
addition, the analysis was not adjusted for the portion of a site that
is potentially left undisturbed, such as open space and buffers.
Furthermore, EPA assumes that all of the housing units built by a firm
during a year are in a project covered by a single NPDES storm water
permit, while in reality the firm could build on several separate
sites. However, the Agency does not have information on the amount of
houses that are built within subdivisions, rather than on discrete
lots, by these firms. EPA requests comment on its methodology for
excluding firms that do not disturb more than one acre of land from the
analysis.
    Based upon these adjustments of the total number of firms, EPA
believes there currently are about 81,628 firms that would be covered
under the rule. However, the Agency has insufficient data to make any
further adjustments to the population of developers and builders
covered by the proposal. EPA solicits comment on the Agency's estimate
of the number of firms that would be covered under the proposal.

          Table XI-2--Number of Firms Covered by the Construction and Development Proposed Regulations
----------------------------------------------------------------------------------------------------------------
                                                                                Firms
                                                                                ---------------------
                   NAICS                                    Industry sector                             Percent
                                                                                Number    of total
----------------------------------------------------------------------------------------------------------------
2361.......................................                   Residential Building Construction
                                            --------------------------------------------------------------------
236115.....................................  New Single-family Housing Construction            33,609         41
                                              (except operative builder).
236116.....................................  New Multifamily Housing Construction (except       2,620          3
                                              operative builder).
236117.....................................  New Housing Operative Builder................     17,295         21
                                            --------------------------------------------------------------------
2362.......................................                  Nonresidential Building Construction
                                            --------------------------------------------------------------------
236210.....................................  Industrial Building Construction.............      1,610          2
236220.....................................  Commercial and Institutional Building             20,797         26
                                              Construction.
                                            --------------------------------------------------------------------
237........................................                Heavy and Civil Engineering Construction
                                            --------------------------------------------------------------------
237310.....................................  Highway, Street, and Bridge Construction.....      5,696          7
                                            --------------------------------------------------------------------
        Total.............................................................................     81,628
----------------------------------------------------------------------------------------------------------------
Source: Economic Analysis.

C. Method for Estimating Economic Impacts

    EPA has conducted economic impact analyses to determine the
economic achievability of each of the three ELG options presented in
this notice. An important aspect of the economic impact analysis is an
assessment of how incremental costs would be shared by developers and
home builders, home buyers, and society. This method is called ``cost
pass-through'' analysis or CPT analysis. Details of this method may be
found in Chapter 4 of the Economic Analysis.
    The economic analysis for the C&D proposal also uses another method
called partial equilibrium analysis that builds upon analytical models
of the marketplace. These models are used to estimate the changes in
market equilibrium that could occur as a result of the proposed
regulations. In theory, incremental compliance costs would shift the
market supply curve, lowering the supply of construction projects in
the market place. This would increase the market price and lower the
quantity of output, i.e., construction projects. If the demand schedule
remains unchanged, the new market equilibrium would result in higher
costs for housing and lower quantity of output. The market analysis is
an important methodology for estimating the impacts of the provision
proposed in today's notice. The economic analysis also reflects
comments in the October 2001 final report from the Small Business
Advocacy Review (SBAR) Panel submitted to the EPA Administrator as part
of the requirements under SBREFA. The SBAR Panel was convened as part
of the 2002 rulemaking effort and EPA considers the information in the
2001 report to still be relevant to today's C&D proposal. Small Entity
Representative (SERs) commenters questioned a number of the assumptions
in EPA's economic and loading analysis. After considering these
comments, EPA determined that it was appropriate to continue to rely on
its existing analysis for this proposed rule. EPA will continue to
consider the SER comments along with comments received on the proposed
rule and revise its analyses for the final rule as appropriate.
    EPA estimated the incremental compliance costs for the regulatory
options using an engineering cost model that accounts for cost factors
such as treatment costs, labor and operation and maintenance costs.
Because some of the erosion and sediment controls considered have
design requirements that take into account meteorological and soil
conditions, EPA developed compliance costs that take into account
regional differences.
    EPA estimated both the incremental compliance costs and the
economic impacts of each regulatory option at the project, firm, and
industry (national) level. The economic impact analysis considered
impacts on both the firms in the C&D industry, and on consumers who
purchase the homes, and buy or rent industrial buildings and commercial
and office space. In the case of public works projects, such as roads,
schools, and libraries, the economic impacts would accrue to the final
consumers, who, in most circumstances, are the taxpaying residents of
the community. The sections below summarize each modeling effort.

Detailed information on the data, models, methods, and results of the
economic impact analyses are available in the Economic Analysis.
1. Model Project Analysis
    EPA estimated project-level costs and impacts for a series of model
projects. The models establish the baseline economic and financial
conditions for model projects and assess the significance of the change
in cash flow that results from the incremental compliance costs. EPA
used the model project analysis to indicate whether typical projects
affected by the proposed regulations would be vulnerable to abandonment
or closure. The Agency developed nine model projects based on
consideration of size and construction categories. The construction
categories were: Residential; commercial & industrial building; and
transportation. These three categories were broken out further into
small (one acre or more, but less than ten acres), medium (ten acres or
more, but less than thirty acres) and large (thirty acres or more)
projects.
    Based on a review of NOI data, each model of the nine project types
was assigned an average number of acres. Implicit in the model project
analysis is the assumption that each project is undertaken in its
entirety by a single entity acting as both developer and builder. EPA
recognizes that in practice there may be several parties with financial
investment, planning, and construction roles in a particular land
development and construction project. For example, on some projects a
developer may acquire the land, conduct the initial engineering and
site assessments, and obtain the necessary approvals. The land may then
be sold to another developer or builder who will undertake the actual
construction work. Projects are also sometimes undertaken by a
consortium of firms or individuals, through various types of limited
liability partnerships (LLP). While it is important to acknowledge this
variation, for modeling purposes EPA has simplified this aspect and
assumed only a single entity is involved from beginning to end,
referred to below as a ``developer-builder.'' This approach measures
the direct impact of the rule on permit holders expected to incur
compliance costs. EPA acknowledges that a portion of these costs will
likely be passed along to small builders. The ability of permitees to
pass costs through to other builders will vary based on market
conditions. These effects are addressed as part of the sensitivity
analysis in Appendix 8-1 of the RFA Chapter in the Economic Analysis.
Some of these small builders may also be copermitees who are required
to be in compliance with these standards. To the extent that they are
copermittees, they are not accounted for in the firms incurring costs.
However, all costs have been attributed to firms. Allocating costs over
a broader number of firms may or may not increase the estimated
impacts, but spreads the same costs over a larger number of firms. EPA
requests comment about this economic modeling approach.
    Land development and construction typically occurs in a series of
stages or phases. The model projects developed by EPA incorporate
assumptions concerning the costs incurred and revenue earned at each
stage. EPA has modeled all of the projects to reflect three principal
development stages:
    (1) Land acquisition. The starting point is usually acquisition of
a parcel of land deemed suitable for the nature and scale of
development envisioned. The developer-builder puts together the
necessary financing to purchase the parcel. When lenders are involved,
they may require certain documentation, such as financial statements,
tax returns, appraisals, proof of the developer's ability to obtain
necessary zoning, evaluations of project location, assessments of the
capacity of existing infrastructure, letters of intent from city/town
to install infrastructure, environmental approvals, etc. To satisfy
these needs, the developer may incur costs associated with compiling
these data.
    (2) Land development. The developer-builder obtains all necessary
site approvals and prepares the site for the construction phase of the
project. Costs incurred during this stage are divided among ``soft''
costs for architectural and engineering services, legal work, permits,
fees, and testing, and ``hard'' costs such as land clearing, installing
utilities and roads, and preparing foundations or pads. The result of
this phase is a parcel with one or more finished lots ready for
construction.
    (3) Construction. The developer-builder undertakes the actual
construction of the buildings. A substantial portion of this work may
be subcontracted out to specialty subcontractors (foundation, framing,
roofing, plumbing, electrical, painting, etc.). In the case of a
housing subdivision, marketing often begins prior to the start of this
phase, hence the developer-builder may also incur some marketing costs
at this time. Housing units may come under agreement at any time prior
to, during, or after completion of construction. Marketing costs are
part of the baseline costs. EPA determined that no incremental
marketing costs would be imposed by today's proposed rule.
    EPA conducted an analysis of the multiplier that determines how
direct compliance costs translate into the change in the cost of the
final product, or finished construction project. EPA developed
estimates of the project-specific costs and revenue at each stage of
project development as part of this baseline scenario. The general
approach used in establishing the baseline scenario is to assume normal
returns on invested capital and normal operating profit margins to
arrive at the sales price for the final product (for example, completed
new single-family homes in a residential development, or office space
in a new office park). This produces a more accurate estimate of the
costs of complying with the proposed regulation than the costs of
installing and operating the technology alone. These are not the same
assumptions that are used in the firm level analysis to follow,
particularly for economic impacts.
    EPA analyzed the impact of today's proposed rule by adding in the
regulatory costs at the appropriate stage of the project life cycle. An
important consideration for assessing who ultimately bears the
financial burden of a new regulation is the ability of the regulated
entity to pass the incremental costs of the rule on to their customers.
If the developer-builder can pass all of their costs through to the
buyer, the impact of the rule on developer-builders is negligible and
the buyer bears all the impact. Conversely, if they are unable to pass
any of the cost to buyers through higher prices, then they must assume
the entire cost. For the economic impact analysis EPA uses three pass-
through cases: Zero cost pass-through; full cost pass-through; and
partial cost pass-through (85% for residential and 71% for non-
residential).
    Under the first case, the zero (0%) cost pass-through assumption,
the incremental regulatory costs are assumed to accrue entirely to the
builder-developer, and appear as a reduction in per-project profits.
The sale price of the constructed unit and surrounding lot remains the
same as the asking price in the baseline. Using the full (100%) cost
pass-through assumption, all incremental regulatory costs are passed
through to end consumers. Under this approach, the compliance costs are
also adjusted to reflect the developer's cost of debt, equity, and
overhead. Consumers experience the impact of the proposed regulatory
options in the form of a higher price for each new building or housing
unit. For the partial cost pass-

through case, firms are assumed to pass on part of the compliance
outlay to other parties. For the partial cost pass-through case, EPA
assumes a cost pass-through rate of 85% for residential sectors and 71%
for non-residential and non-building sectors. This is the expected
average long-term level of cost pass-through based on observed response
of market supply and demand to changes in prices for new construction.
For more on the method used for determining the level of cost pass-
through see Section 3.5 of the Economic Analysis, Analysis of Social
Cost of the Economic Analysis. When a sector is stressed, cost pass-
through will tend to be below this long-term average (i.e., more costs
being borne by builders). Conversely, when a sector is booming, most
costs are likely to be passed through.
    Information in the record indicates that builders do pass through
much of the regulatory costs to customers. This is supported by the
academic literature and industry publications. However, the financial
impact analysis also calculates results under the two bounding cases,
no cost pass-through for firms and full cost pass-through for
customers, to assess the ability of these groups to absorb the impact
of the regulation under a worst case scenario. The two bounding cases
also provide an approximation of the sensitivity of impact estimates to
the partial cost pass-through assumptions used for the primary case.
EPA requests comment on the partial cost pass-through assumptions used
for the primary case.
    EPA notes that under certain conditions developers might also
attempt to pass regulatory costs back to land sellers. For example, in
a depressed market, builders may argue successfully that a regulatory
cost increase would make a particular project unprofitable unless the
land costs can be reduced. If the land seller is convinced that a
residential subdivision project would not proceed, they may be willing
to accept a lower price for undeveloped land. The ability of developers
to pass such costs back would likely depend on the sophistication of
the land owner, their experience in land development projects,
knowledge of the local real estate market, and, in particular, their
understanding of the regulations and their likely cost. While evidence
of cost pass-back to land owners exists for fixed and readily
identifiable regulatory costs such as development impact fees, it is
unclear whether a builder's claim that costs would be higher due to
construction site control regulations would induce land owners to make
concessions. EPA requests comment on the likely success of developers
attempting to pass regulatory costs for incremental storm water
controls back to land owners.
2. Model Firm Analysis
    EPA analyzed the impacts of the regulations at the level of the
firm by building financial models of representative construction firms.
Model firms are broken out by revenue ranges for each of the NAICS
sectors aligning with the principal C&D business segments expected to
be affected by the regulation (See Table XI-2). These revenue range and
sector breakouts are based on data reported by the Statistics of U.S.
Business (SUSB) and the Economic Census. Within each business sector
and revenue range model firms are further differentiated based on
median, lower quartile, and upper quartile measures of baseline
financial performance and condition (i.e., capital returns, profit
margins, levels of debt and equity to capital, etc.). Firms in the
upper quartile have better than normal financial metrics, while the
metrics for firms in the lower quartile are worse than normal. Baseline
financing costs (cost of debt and equity) was varied over revenue
ranges, with firms in higher revenue ranges having access to more
favorable terms. However, the financial data was not sufficiently
disaggregated to allow financing terms to vary over the three
quartiles. These model firms are used in combination with compliance
cost estimates to examine the potential for financial stress, firm
closures, employment effects, and increased barriers to the entrance of
new firms to the industry. EPA did not base its analysis, as it has for
many past ELGs, on firm-specific data because it did not have time
under the court imposed deadline to survey the industry and gather such
data.
    The financial statements for the model firms are constructed to
capture two business condition cases for the firm-level analysis:
General Business Conditions case that reflects the financial
performance and condition of C&D industry businesses during normal
economic conditions; and Adverse Business Conditions case that is meant
to reflect financial performance during weak economic conditions. The
two business condition cases are differentiated by the baseline
operating financial circumstances of the model firms as well as other
important factors in firm financial performance, including cost of debt
and equity capital.
    Compliance costs for a given regulatory option are assigned to the
model firms, by sector and revenue size category, based on an estimate
of ``annual in-scope acreage per dollar of revenue'' for the various
model firms. The compliance costs for a given regulatory option were
converted to a per-acre basis based on project size, type of
construction and other compliance cost-related characteristics such as
state and/or climatic region, depending on the option being considered.
Since affected acreage is the principal driver of compliance costs, the
number of projects and in-scope project acreage associated with a given
level of firm revenue will be the primary basis on which compliance
costs are assigned to the model firms. The basis for estimating number
of projects and in-scope project acreage for model firms will vary by
sector and principal construction activity. The estimated per-acre
compliance costs for the areas subject to the proposed turbidity limits
range from $1,135 to $16,535, with a median value of $7,501.
    EPA assigns the per acre compliance costs to each model firm based
on an estimate of the acreage developed per million dollars of
construction value for the model firm. For residential construction,
the acreage per million dollars was derived from the Census Bureau's
Census of Housing. For nonresidential construction, information on
project acreage and estimated project value from Reed Construction Data
is used to derive an average number of acres developed per million
dollars of value (Reed Construction, March 2008; see DCN 51017). Using
each model firm's acreage to revenue relationship, costs are then
assigned to firms based on the number of in-scope firms in each revenue
range category. EPA requests comment on its approach for assigning
compliance costs to model firms.
    EPA was then able to assess the impact of the annual compliance
costs on key business ratios and other financial indicators.
Specifically, EPA examined impacts on the following measures: (1) Costs
to Revenue Ratio, (2) Pre-Tax Income to Total Assets Ratio, (3)
Earnings before Interest and Taxes (EBIT) to Interest Ratio, and (4)
change in business value. The first is a simple screening level measure
which is important for measuring the impact on small entities. The
second and third are financial measures reported by Risk Management
Associates (RMA) for median, lower and upper quartiles by sector and
business size that were used in constructing the baseline financial
statements for the model firms. The change in business value measure is
based on application of compliance

costs to the model firm financial statements, both as the estimated
absolute dollar change in value and the fraction of firms whose net
business value becomes negative because of compliance outlays. The
impacts of the compliance costs were examined by calculating the values
of each ratio with and without the compliance costs.
    In previous effluent guidelines rulemakings, EPA has sometimes
varied levels of cost pass-through and sometimes assumed no cost pass-
through. In practice, the actual level of cost pass-through is
difficult to estimate and changes over time. For example, when a
particular industry faces severe economic distress, as with the current
homebuilding industry, it is less likely that producers will be able to
pass through as significant a portion of compliance costs. When an
industry is healthy, higher levels of cost pass-through are likely.
Also, the larger share of an industry subject to the regulatory
requirements in question, the greater the ability of individual firms
to pass through compliance costs, as they will have less competition
from unregulated producers. For this analysis, EPA used both the
partial and no cost pass-through scenarios, to assess potential
economic impacts on the industry under the primary analysis and upper
bound scenarios. Full cost pass-through would have no impact on the
firms.
3. Housing Market Impacts
    EPA developed models to assess the potential impacts of the
regulations on the national housing market. Buyers of new
nonresidential properties will also be impacted as costs are passed
through to them. However, they account for a minority of the
construction projects considered and EPA assumes that this group of
customers is not as vulnerable to changes in prices as are households
in the market for new homes. Therefore, impacts to purchasers of new
nonresidential construction sites were not highlighted as part of the
financial impact assessment and are accounted for on a more general
basis as part of the analysis of impacts on the national economy.
    To analyze the impacts of compliance costs on housing
affordability, EPA estimated the level of income that would be
necessary to purchase both the median and lower quartile priced new
home without the proposed regulation, and the change in income needed
to purchase the median and lower quartile priced new home under each of
the regulatory options. The Agency then used income distribution data
to estimate the change in the number of households that would qualify
to purchase the median and lower quartile priced new home under each of
the regulatory options. In this way, EPA attempted to estimate the
number of households that may not be able to afford the exact same new
home they could under baseline conditions. The housing market analysis
was performed at the level of the metropolitan statistical area (MSA)
to account for regional differences in housing prices and income. The
housing market analysis uses the full cost pass-through assumption, to
estimate the worst-case impacts on new single-family home buyers.
    When assessing the impact of the rule on housing affordability, EPA
acknowledges that even those buyers who are able to afford the median
valued single-family home at the new price may still experience an
impact. Many households would continue to qualify to purchase (or rent)
a housing unit of approximately the same price (or rent) as before the
C&D regulation, but would instead experience a reduction in some
desirable housing attributes instead. This analysis looks not only at
the affordability effect at the median-priced housing unit but also
considers the impact on housing affordability at lower housing prices,
specifically the impact on households that can afford the lower
quartile priced home. Focusing on housing prices below the median
provides important insight into the regulation's impact on housing
affordability accounting for the likely greater number of households at
the income levels that just qualify to purchase/rent lower price units.
EPA requests comment on its approach to assessing impacts of the rule
on housing affordability.
4. Impacts on the National Economy
    The market model generates an estimate of the change in the total
value of construction produced by the industry, i.e., industry output.
Two effects of the regulation are acting on the market value of
construction output. First, the cost of construction increases, leading
to a price rise and an increase in market value of final projects.
Second, the quantity of houses sold is reduced because of the higher
price due to compliance costs. The net effect on market value may be
either positive or negative, depending on whether the elasticity of
demand for housing is less than or greater than 1. There are also
secondary impacts in other markets, caused by the shift in consumer
spending, necessitated by the increased housing costs, from other goods
to housing.
    Markets vary in the level of activity, structure of the industry,
and ultimately cost pass-through potential, from state-to-state and
region-to-region. The modeling approach used for the national impact
analysis captures such regional variation in the impacts of the
proposed regulatory options by estimating partial equilibrium models at
the state level for four major building construction sectors (single-
family, multi-family, commercial, and industrial). The analysis of
state- and national-level economic impacts is based on estimating
changes to economic output, employment, and welfare measures that
result from the estimated baseline market equilibrium to the estimated
post-compliance market equilibrium for each construction sector in each
state.
    A partial equilibrium analysis assumes that the proposed regulation
will only directly affect a single industry; in this case, the four
major construction sectors considered. Holding other industries
``constant'' in this way is generally appropriate since the compliance
costs of the proposed regulatory options are expected to result in only
marginal changes in prices and quantities and the rule does not
directly affect the other industries (HUD, 2006; see DCN 52015).
    For the partial equilibrium analysis, EPA uses estimated
elasticities of market supply and demand to calculate the impact of
incremental costs on the supply curve and, thus, on prices and
quantities of construction products under post-compliance conditions.
    Economic impacts in the directly affected construction industry can
trigger further shifts in output and employment losses in the set of
broader U.S. industrial sectors as these changes pass through the
economy. The U.S. Department of Commerce uses input-output techniques
to derive ``multipliers'' which indicate, for a given change in one
industry's output, how output and employment in the whole U.S. economy
will respond. EPA has applied the multipliers from the Regional Input-
Output Modeling System, version 2 (RIMS II) to the change in output
estimated from the market model to estimate some of the anticipated
impacts on national output and employment. EPA is also using the
Regional Economic Models, Inc. (REMI) Economic Geography Forecasting
and Policy Analysis Model to derive a more comprehensive estimate of
the potential long-term effects on the national economy. The REMI model
uses a similar set of industry sector multipliers, but also
incorporates econometric and general equilibrium models to derive a
more refined

estimate of the impacts on national output and employment.

D. Results

1. Firm-Level Impacts
    EPA has estimated the economic impacts of the proposed rule at the
firm level by estimating the number of firm closures, the number of
lost jobs, and the decrease in firms' profits. The economic impact
analysis at the firm level looks at two cases. The first assumes that
none of the incremental costs would be passed through to the final
consumer, i.e., zero cost pass-through. The Agency used this assumption
for the economic impact analysis, because it presents the worst-case
scenario (i.e., the largest impacts to the firm). The second case
assumes partial cost pass-through, and EPA believes this is more
reflective of typical circumstances based on EPA's review of the
academic literature and its discussions with industry officials who
indicate that under normal business conditions most costs are passed
through to the final consumer and are not absorbed by firms in the
industry.
    EPA analyzed economic impacts at the firm level. The firm is the
entity responsible for managing financial and economic information.
Moreover, the firm is responsible for maintaining and monitoring
financial accounts. For the C&D category, most of the business
establishments, as defined by the Census Bureau, are firms. Likewise, a
small number of establishments are entities within a larger firm. A
small percentage of firms have multiple establishments and some firms
are regional or national in scope.
    Table XI-3 presents one economic indicator, the relationship of
compliance cost to firms' annual revenue. A comparison between costs
and revenues is typically done prior to any consideration of the pass-
through of costs to buyers. Firms whose costs exceed 1% of revenue are
only 4.5 percent of the approximately 82 thousand in-scope firms for
the most costly option. Furthermore, firms whose costs exceed 3% of
revenue are significantly less than 1% for all options considered for
proposal.

                           Table XI-3--Cost to Revenue, Assuming No Cost Pass-Through
----------------------------------------------------------------------------------------------------------------
                                              Costs exceeding 1% revenue          Costs exceeding 3% revenue
                                         -----------------------------------------------------------------------
                                                                  Percent of                          Percent of
                 Option                   Number  of  Percent of     firms     Number of    Percent      firms
                                             firms     firms  in-  incurring     firms     of firms    incurring
                                                         scope       costs                 in-scope      costs
----------------------------------------------------------------------------------------------------------------
Option 1................................           0         0.0         0.0           0         0.0         0.0
Option 2................................         774         0.9        12.1          33         0.0         0.5
Option 3................................       2,475         3.0        18.0         146         0.2         1.1
----------------------------------------------------------------------------------------------------------------
Source: Economic Analysis.

    Table XI-4 presents two additional economic indicators that measure
the potential decrease in firms' financial fitness. These indicators
are presented using the partial cost pass-through case, which
represents the firms' expected ability to pass costs through to buyers.
These two indicators were also assessed using the no cost pass-through
assumption as one of the revisions made to the adverse analysis case
discussed below.

 Table XI-4--Firms Expected To Incur Financial Stress, Assuming Partial
                            Cost Pass-Through
------------------------------------------------------------------------
                                          Option 1   Option 2   Option 3
------------------------------------------------------------------------
     Firms Estimated To Incur Deterioration in Measures of Financial
                               Performance
------------------------------------------------------------------------
Number Incurring Effect................         17        147        445
% of All In-scope Firms................        0.0       0.18        0.5
% of Firms Incurring Cost..............        0.5        2.3        3.2
------------------------------------------------------------------------
     Firms Whose Net Business Value Becomes Negative as a Result of
                               Compliance
                          (Potential Closures)
------------------------------------------------------------------------
Number Incurring Effect................         18        103        389
% of All In-scope Firms................        0.0       0.13        0.5
% of Firms Incurring Cost..............        0.6        1.6        2.8
Number of Jobs.........................      1,087     11,359     25,266
% of In-scope Firm Employees...........        0.5        1.8        2.7
------------------------------------------------------------------------
Source: Economic Analysis.

    Deterioration of firm financial performance is based on assessing
the impact of costs on two financial measures (Pre-Tax Income/Total
Assets and Earnings before Interest and Taxes/Interest). EPA estimated
the fraction of firms in the various sector and revenue ranges whose
financial indicators decline below the lower quartile for these two
measures, as reported by Risk Management Associates (RMA). For each
sector and revenue category, whichever of the two measures have the
greatest decline is used to represent the impact on financial
performance. For additional information on EPA's analysis of the change
in financial position, see Section 3.3.4, Estimating the Change in
Model Firm Financial Performance and Condition, from the Economic
Analysis.
    The second economic indicator is firm closures and resulting job
loss, by regulatory options. These numbers represent the impact on
firms with thin profit margins who are most vulnerable to impacts from
costs increases, and they do not represent the effects of a reduction
in the overall quantity of

construction activity as a result of the C&D rule. Both phenomena can
result in job losses, but they are two separate measures of job losses
and are not necessarily wholly additive or overlapping. Construction is
a highly competitive industry that is characterized by many small firms
with a relatively high turnover and low barriers to entry. Firms
routinely expand and contract their workforce in response to work load
and as a result many workers laid off when a firm closes are rehired by
new and other existing more financially healthy firms. Therefore, job
losses due to firm closures are in many cases a temporary displacement
of the workforce. By contrast, job losses due to market contraction
result from an overall reduction in the volume of construction and can
be considered a more lasting effect until market conditions change
again. For more information on job losses due to market contraction,
see Section 3.5 Analysis of Social Cost in the Economic Analysis.
    The C&D industry has historically been a relatively volatile
sector, and is subject to wider swings of economic performance than the
economy as a whole. EPA has used historical financial and census data
for the C&D industry to discern long-term trends within the market
fluctuations. EPA based its primary economic analysis on data that
reflects average long-term performance rather than a temporary high or
low. The industry is currently experiencing a period of weakness, which
will persist until residential markets work through the current
inventory of unsold homes, and credit markets and the general economy
return to a better condition. There continues to be considerable
uncertainty regarding how much the market for new construction will
contract or how far real estate values will decline, before the
construction industry begins to recover. EPA realizes that the rule
will be promulgated during a low period for the industry, and there may
be concerns that additional compliance costs, associated with the rule,
could have a greater than normal impact on C&D firms and potentially
slow the industry recovery. Again using historical census and financial
data for the industry EPA identified periods of weakness for various
industry sectors and used them to develop a secondary analysis that
represents potential impacts of additional compliance costs during a
period of adverse economic circumstances. Three key assumptions EPA
used to represent adverse conditions for the industry were that there
would be a contraction in overall market activity, firms would finance
projects under less favorable terms and no costs incurred by the firm
as a result of compliance would be passed through to the buyer. Table
XI-5 below shows the results of the adverse analysis case. The number
of firms experiencing impacts reflects the market contraction, so they
are not directly comparable to the primary analysis case, since they
represent differing levels of regulated activity. However, a comparison
of the percentage of in-scope firms experiencing impacts and firms
incurring costs that experience impacts illustrate the relative
difference between the two cases. With regard to Option 2, the
percentage of firms in-scope incurring financial stress in the adverse
case is three and a half times the percentage in the primary economic
analysis and the percentage of in-scope firms at risk of closure in the
adverse case is seven times the percentage in the primary economic
analysis. There are also corresponding increases in short-term
employment losses. However, even with the greater impacts seen under
the adverse analysis case, the percentage of total firms experiencing
financial hardship, under any of the metrics considered, does not
exceed one percent of total in-scope firms or 12 percent of firms
incurring costs, for the proposed option. Another important
consideration for the adverse analysis case is that under the no-cost
pass through assumption, there are no secondary impacts on small
builders or affordability effects for buyers. For additional
information on the adverse impact analysis case, see Chapters Three and
Five of the Economic Analysis.

               Table XI-5--Adverse Impact Analysis Results
------------------------------------------------------------------------
        Impact analysis concept           Option 1   Option 2   Option 3
------------------------------------------------------------------------
Firms with Costs Exceeding 1 Percent of
 Revenue:
    Number of Firms....................          0        698      2,233
    % of Firms In-Scope................       0.0%       0.9%       3.0%
    % of Firms Incurring Cost..........       0.0%      12.0%      17.9%
------------------------------------------------------------------------
Firms with Costs Exceeding 3 Percent of
 Revenue:
    Number of Firms....................          0         30        132
    % of Firms In-Scope................       0.0%       0.0%       0.2%
    % of Firms Incurring Cost..........       0.0%       0.5%       1.1%
------------------------------------------------------------------------
Firms Incurring Financial Stress:
    Number of Firms....................         51        479      1,534
    % of Firms In-Scope................       0.1%      0.64%       2.0%
    % of Firms Incurring Cost..........      1.75%       8.3%      12.3%
------------------------------------------------------------------------
Firms with Negative Business Value
 (Potential Closures):
    Number of Firms....................         88        662      2,164
    % of Firms In-Scope................       0.1%      0.88%       2.9%
    % of Firms Incurring Cost..........      3.03%      11.4%      17.4%
------------------------------------------------------------------------
Source: Economic Analysis.

    Since EPA expects that the effluent guidelines requirements will be
implemented over time as states revise their general permits (EPA
expects full implementation within five years of the effective date of
the final rule, currently required to be promulgated in December 2009,
which would be 2014), EPA has used macroeconomic forecasts of
construction activity to assess when the industry is likely to return
to its long-term trend (Global Insight, ``Housing and Construction'',
2008) (Global Insight, ``U.S. Economic Service, Executive Summary''
2008). Based on these forecasts, EPA anticipates that the industry
activity will have recovered to

the long-term trend during the period when the rule is being
implemented.
2. Impacts on Governments
    EPA has analyzed the impacts of today's proposed rule on government
entities. This analysis includes the cost to governments for compliance
at government-owned construction project sites (construction-related).
For construction-related costs, EPA assumed that 100 percent of the
incremental compliance costs that contractors incur at government-owned
construction sites are passed through to the government. EPA also
estimated the additional administrative costs that government entities
would incur for reviewing the additional monitoring reports associated
with the turbidity monitoring requirements of Options 2 and 3. Table
XI-6 shows the costs that government entities are expected to incur at
federal, state, and local levels.

               Table XI-6--Total Costs by Government Unit
                            [Millions 2008 $]
------------------------------------------------------------------------
                                          Option 1   Option 2   Option 3
------------------------------------------------------------------------
                            Compliance Costs
------------------------------------------------------------------------
Federal................................       $2.3      $34.0      $66.5
State..................................        4.4       68.1      128.2
Local..................................       25.1      390.7      735.8
------------------------------------------------------------------------
                          Administrative Costs
------------------------------------------------------------------------
Federal................................        0.0        0.0        0.0
State..................................        0.0        0.1        0.2
Local..................................        0.0        0.6        1.0
------------------------------------------------------------------------
                               Total Costs
------------------------------------------------------------------------
Federal................................        2.3       34.0       66.5
State..................................        4.4       68.2      128.4
Local..................................       25.1      391.3      736.8
                                        --------------------------------
    Total..............................       31.8      593.5      931.7
------------------------------------------------------------------------
Source: Economic Analysis.

    These additional government costs are not expected to have a
significant impact on state and local governments as they account for
less than a tenth of a percent of state government revenues and less
than a tenth of a percent of estimated local government revenues. For
additional information on the effect of the rule on government entities
see the UMRA analysis in Chapter 9 of the Economic Analysis.
3. Community-Level Impacts
    EPA has estimated community-level impacts based upon the
incremental costs of the proposed rule at the household level. The
household impacts are those that would affect local communities in
terms of the costs of housing. EPA's analysis considers the impacts on
the price of housing based on the increase/decrease in the median price
per house. Table XI-7 shows the change by selected option in the price
per house. It is important to note that these costs would not apply to
all new houses built in the U.S., but rather only to those houses that
are part of construction projects that are subject to the given
regulatory option. Approximately 3 percent of total annual home sales
are expected to be in projects subject to Option 1, 8 percent to Option
2 and 13 percent to Option 3. When considering only newly-built homes,
approximately 21 percent of sales are expected to be in projects
subject to Option 1, 52 percent to Option 2 and 90 percent to Option 3.
The table also provides estimates of the expected change in monthly
payments under each option for the median and lower quartile priced
home. The monthly mortgage payments were calculated using the median
and lower quartile priced house for each Metropolitan Statistical Area
(MSA) in the country. For the MSA's, the weighted average median price
for a home is $322,000, the 5th percentile is $110,000, and the 95th
percentile is $560,000. For the lower quartile priced home, the
weighted average is $201,000, the 5th percentile is $66,000, and the
95th percentile is $404,000. The U.S. Census does not report lot sizes
for the upper or lower quartile. However, housing census data indicates
that lower-priced homes have a greater likelihood of having a smaller
lot size (U.S. Census Characteristics of New Housing, 2006). To account
for this factor, EPA performed the affordability analysis for the
lower-quartile price home twice, using both the median lot size for all
single family homes and the median lot size for attached single family
homes.

   Table XI-7--Change in Monthly Mortgage Payment for New Single-Family
                                  Home
                        [Full cost pass-through]
------------------------------------------------------------------------
                                          Option 1   Option 2   Option 3
------------------------------------------------------------------------
                  New Single-Family Median Priced Home
------------------------------------------------------------------------
Price Change New Single-Family Home on        $330     $2,100     $2,242
 Median Sized Lot......................
Baseline Mortgage Payment ($/month)....     $1,971     $1,971     $1,971
New Mortgage Payment ($/month).........     $1,972     $1,985     $1,986

% Change...............................      0.05%      0.70%      0.75%
------------------------------------------------------------------------

    New Single-Family Lower Quartile Priced Home on Median Sized Lot
------------------------------------------------------------------------
Price Change New Single-Family Home on        $330     $2,100     $2,242
 Median Sized Lot......................
Baseline Mortgage Payment ($/month)....     $1,358     $1,358     $1,358
New Mortgage Payment ($/month).........     $1,359     $1,372     $1,373
% Change...............................      0.04%      1.01%      1.09%
------------------------------------------------------------------------
  New Single-Family Lower Quartile Priced Home on Median Sized Lot for
                       Attached Single-Family Home
------------------------------------------------------------------------
Price Change New Single-Family Home on        $118       $738       $803
 Median Sized Attached Lot.............
Baseline Mortgage Payment ($/month)....     $1,358     $1,358     $1,358
New Mortgage Payment ($/month).........     $1,359     $1,363     $1,364
% Change...............................      0.01%      0.36%      0.39%
------------------------------------------------------------------------
Source: Economic Analysis.

    The increase in mortgage payments attributable to the proposed
options compared to the estimated mortgage payment for the median price
of a new house in the U.S., currently about $1,971, is a small
percentage of the overall payment. For these costs, the average monthly
mortgage payment would increase by $1, $14, and $15 per month for
Options 1, 2, and 3, respectively. For the analysis, EPA assumes that
buyers finance approximately 80% of the home purchase price using a 30-
year conventional fixed rate mortgage with an interest rate of 7.39%.
    EPA also estimated how the change in home prices would affect
mortgage availability. EPA estimated that 2,195 prospective new home
purchasers would no longer qualify to purchase a new median priced home
affected by the rule, and 3,243 would no longer qualify to purchase a
new lower quartile priced home affected by the rule. Most impacted home
buyers, except those at the low end of the income distribution, would
still be able to purchase newly built homes, but not as expensive a
home as they could afford without the regulation. EPA has attempted to
characterize how the potential increase in mortgage payment may affect
housing affordability. However, this approach only looks at two
specific points along the spectrum of housing prices and therefore does
not represent the total number of households that would have to make a
different homebuying decision as a result of the rule. EPA is
interested in developing an analysis reflective of the number of
households that would likely be adversely affected by the proposed
regulation, and solicits comment on appropriate methodology and any
data that would be required to conduct such an analysis. For more
information on the affordability analysis see Section 3.4, Analysis of
Regional-Level Housing Affordability Impacts, of the Economic Analysis.
4. Foreign Trade Impacts
    As part of its economic analysis, EPA has evaluated the potential
for changes in U.S. trade (imports, exports) of C&D related goods and
services. A significant component of the U.S. C&D category operates
internationally, and, in addition, numerous foreign firms that
participate in this category also operate in the U.S. EPA judged that
the potential for U.S. C&D firms to be differentially affected by the
proposed rule is negligible. The proposed rule will be implemented at
the project level, not the firm level, and will affect projects within
the U.S. only. All firms undertaking such projects, domestic or
foreign, will be subject to the proposed rule. U.S. firms doing
business outside the U.S. will not be differentially affected compared
to foreign firms, nor will foreign firms doing business in the U.S.
    This proposed rule could theoretically stimulate or depress demand
for some construction-related goods. To the extent that the proposed
rule acts to depress the overall construction market, demand for
conventional construction-related products may decline. This decline
may be offset by purchase of goods and services related to erosion and
sediment control. Overall, EPA does not anticipate that any shifts in
demand for such goods and services resulting from the proposal would
have a significant implication for U.S. and foreign trade.
5. Impacts on New Firms
    The construction sector is a relatively fluid industry, as
documented in the industry profile, with low barriers to entry and
considerable entry and exit activity from year to year. As a result,
the potential employment losses or capital idling effects of weakness
in a specific firm are likely to be offset by changing levels of
activity in other existing firms or entry of new firms into the local
market. EPA conducted an analysis to assess the impacts on new firms
that choose to enter the C&D point source category. This analysis uses
a method called ``barrier to entry''. EPA examined the ratio of
compliance costs to current and total assets to determine if new market
entrants could find it more difficult to assemble the capital
requirements to start a project than would existing firms. The
methodology is conservative, because it doesn't 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. In addition,
existing firms would need to meet the same requirement, and therefore
would not obtain a competitive advantage over new entrants. For more
information on the analysis see Section 3.3.6 Assessing Potential
Barriers to Entry of New Businesses to the C&D Industry from the
Economic Analysis.
    For the proposed regulatory option (Option 2), the increase in
financing requirement varies from approximately 2.7 percent to 7.7
percent of baseline assets depending on the firms size and business
sectors. This comparison assumes that the new firm's compliance outlay
would be financed and recorded

on its balance sheet. To the extent that the compliance outlay is
financed and recorded not on the firm's baseline sheet but as part of a
separate project-based financing for each individual project, this
comparison is likely to be overstated, perhaps substantially. EPA does
not consider the increase in financing requirements to pose a
significant barrier to entry for potential businesses and projects.
6. Social Costs
    EPA's analysis of social costs for each option contains four costs
components: (1) Firm compliance costs; (2) incremental increase in
government administrative costs; and (3) deadweight loss (loss of
economic efficiency in the construction market). When summed, these
three cost categories comprise the total social costs for each option.
    EPA has conducted a social cost analysis for each option. The
Economic Analysis provides the complete social cost analysis for the
proposed regulation. The firm-level estimate compliance cost, however,
does not account for the potential affect of the proposed options on
the quantity of construction activity/units performed in the various
C&D markets. Compliance costs for each proposed option have the effect
of increasing builder/developer costs, which can cause a leftward shift
in the market's supply curve. Part of the increased costs may raise the
price of new housing, with the balance of increased costs being
absorbed by the builder, depending on the relative elasticities of
supply and demand. The resulting shift in market equilibrium may also
reduce the quantity of construction units produced in a given market.
    EPA has estimated a state-by-state linear partial equilibrium
market model for each C&D building sector to estimate this potential
market effect on the quantity of output. The estimated change in the
quantity of output produced in each C&D market segment is then used to
not only adjust the firm-level resource cost of compliance, but also to
compute the economic value of the reduction in C&D output, and estimate
the total loss of consumer and producer surplus, referred to as the
deadweight loss. Table XI-8 shows the change in cost due to the
quantity effect (i.e. reduction in market activity), the dead weight
loss, and their combined effect on total costs.

                Table XI-8--Total Social Cost of Options
                           [Millions of $2008]
------------------------------------------------------------------------
                                          Option 1   Option 2   Option 3
------------------------------------------------------------------------
Total Costs, Unadjusted for Quantity          $132     $1,891     $3,797
 Effect................................
    Change in Costs Due to Quantity            0.1          7         17
     Effect............................
    Total Costs, Adjusted for Quantity         132      1,884      3,780
     Effect............................
Total Dead Weight Loss.................        0.0        3.5        8.4
Additional Government Administrative           0.0        0.7        1.2
 Costs.................................
Total Social Cost of the Regulation....        132      1,888     3,789
------------------------------------------------------------------------
Source: Economic Analysis.

7. Small Business Impacts
    Section XIX.C of today's document provides EPA's Regulatory
Flexibility Analysis (RFA) analyzing the effects of the rule on small
entities. For purposes of assessing the economic impacts of today's
proposed rule on small entities, small entity is defined by the U.S.
Small Business Administration (SBA) size standards for small businesses
and RFA default definitions for small governmental jurisdictions. The
small entities regulated by this proposed rule are small land
developers, small residential construction firms, small commercial,
institutional, industrial and manufacturing building firms, and small
heavy construction firms.
    Table XI-9 shows the impacts of the proposal using the one percent