The Phase II regulations also provide waivers for construction activities disturbing between one and five acres of land in instances where:

  Activity occurs during a negligible rainfall period ( rainfall erosivity factor of less than five) , or   A Total Maximum Daily Load ( TMDL) or equivalent analysis addresses the pollutants of concern leading to a determination that storm water controls are not necessary for construction activity. ( 64 FR 68735) .

These waivers acknowledge that variance in regional factors such as climate, annual rainfall patterns, and existing hydrology affect the incidence and magnitude of storm water runoff.

The CGP is the vehicle through which the NPDES storm water regulations are implemented for construction activities. There is a national CGP issued by EPA which applies in those areas where EPA Regions 1, 2, 3, 5, 7, 8, 9 and 10 are the NPDES permitting authorities. In addition, EPA Regions 4 and 6 have their own version of the CGP which applies only in those areas where the respective Region is the 1 For sites with 10 acres or more of disturbed area, the CGP does require installation of temporary sediment basins.

1 3 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 NPDES permitting authority. Other NPDES programs also require permits, and as with most of these other programs, the NPDES storm water permits may be issued through one of EPA   s ten regions ( as described above) or through an authorized state/ territory NPDES permitting authority. At this time 44 states have NPDES permitting authority. 2 EPA itself issues storm water permits in nondelegated states,

on tribal lands, and in most territories.

EPA   s CGP currently covers large ( 5 acres or larger) construction activities; NPDES permitting authorities are expected to develop and issue storm water permits for small ( between 1 and 5 acres)

construction activities by December 8, 2002. EPA expects that the national CGP and the general permits currently in use by NPDES permitting authorities will be used as templates for the small construction permits. EPA   s CGP is valid for a five year period, after which time the permit will be reviewed and renewed for another 5 year period. The CGP was originally issued in 1992 and revised in 1998 and thus is due for renewal in 2003. EPA plans to incorporate the small construction activity permitting requirements into its national CGP at the time of the permit   s renewal.

1. 2 PURPOSE OF THE PROPOSED RULE The existing NPDES storm water regulations require construction site operators to manage construction site runoff, but do not require any specific level of control. One of the proposed regulatory options ( Option 2) would establish effluent limitation guidelines in the form of minimum standards for design and implementation of erosion and sediment controls used during the active phase of construction.

Existing compliance determination practices for construction site storm water controls rely principally on site inspections by local governments, however enforcement efforts are reported to be uneven nationwide, largely due to limited enforcement resources a the Federal, State and local levels.

Option 2 would also establish minimum requirements for conducting site inspections and providing 2 All states with the exception of Alaska, Arizona, District of Columbia, Idaho, Massachusetts, New Hampshire and New Mexico have some level of NPDES permitting authority. Even in those states with NPDES permitting authority, EPA may be responsible for issuing permits for activities conducted at federal facilities and/ or on tribal lands.

1 4 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 certification as to the design and completion of various aspects of those controls. These requirements could strengthen the current permit program. Another regulatory option ( Option 1) would establish the same site inspection and certification requirements, but without the ESC standards.

1. 3 INDUSTRIES AFFECTED BY THE PROPOSED C& D EFFLUENT GUIDELINES This report focuses on the major C& D industries potentially affected by the proposed ELG requirements. Table 1 1 identifies these industries according to both their North American Industry Classification System ( NAICS) and Standard Industrial Classification ( SIC) codes. 3 A detailed description of these C& D industries may be found in Chapter Two of this report.

3 The NAICS system recently replaced the SIC system.

1 5 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 Table 1 1. Industries Potentially Affected by Proposed Rulemaking Regulated Entities North American Industry Classification System Code ( NAICS) Standard Industrial Classification Codes ( SIC) a Land subdivision and development 23311 6552 Single family housing construction 23321 1521, 1531, 8741 Multifamily housing construction 23322 1522, 1531, 8741 Manufacturing and industrial building construction 23331 1531, 1541, 8741 Commercial and institutional building construction 23332 1522, 1531, 1541, 1542, 8741 Highway and street construction 23411 1611, 8741 Bridge and tunnel construction 23412 1622, 8741 Water, sewer, and pipeline construction 23491 1623, 8741 Power and communication transmission line construction 23492 1623, 8741 Industrial nonbuilding structure construction 23493 1629, 8741 All other heavy construction 23499 1629, 7353, 8741 Excavation contractors 23593 1794 Wrecking and demolition contractors 23594 1795 Source: U. S. Census Bureau 1997 Census of Construction a Some parts of the Standard Industrial Classification Codes are included in other North American Industry Classification Codes.

1. 4 OVERVIEW OF KEY DATA SOURCES A common data source used to support the development of many past ELGs is the CWA Section 308 industry survey. For this proposed rule, however, EPA determined that such a survey should not be undertaken. This determination necessitated the use of existing data sources, including academic literature, industry trade associations, and government data such as that provided by the U. S. Census Bureau. Major data sources are discussed in more detail where they are used to support sections of this analysis. This section provides an overview of several key sources and their importance to the economic analysis of the proposed C& D ELG.

1 6 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 Of primary importance in the development of this EA were the 1992 and 1997 Censuses of Construction, conducted by the U. S. Census Bureau. The Census provided information on the industry sectors potentially affected by the proposed rule, as well as characteristics of each sector such as employment and revenue levels. Also used were several other reports from the Census Bureau,

including: 4   Report C20   Housing Starts   Report C25   Characteristics of New Housing, ,

  Report C30   Value Put in Place, ,

  Report C40   Building Permits All of these reports contributed to the various economic models developed for this EA.

The U. S. Department of Agriculture   s ( USDA   s) Natural Resources Inventory ( NRI) was used to determine the amount of disturbed acreage caused by urbanization and new development. This information was important to the environmental assessment, the benefits assessment, and as a way to determine the rate of new development.

EPA also used data collected from permits issued by existing NPDES permitting authorities.

Currently, regulation of C& D activity is triggered when a builder/ developer files a notice of intent ( NOI)

with the permitting authority. Permitting authorities record these NOIs in order to track development within their jurisdiction. EPA obtained copies of NOI databases for NPDES approved states and for those non authorized states where EPA acts as the NPDES permitting authority. 5 The databases contained a wide variety of information, such as total site size, disturbed acreage, project type ( e. g. ,

residential, nonresidential) , and project ownership status ( public or private) . EPA planned to use this information to estimate the number of storm water starts. The databases, however, lacked the level of detail EPA needed to use the data to its full advantage. In addition, inconsistencies in the type of data 4 These reports are available at the following web address: http: / / www. census. gov/ const/ www/ .

5 NPDES permits are fully administered by EPA in six States plus Washington, DC. In other States EPA acts as the permitting authority for activities on Indian and/ or Federal lands only.

1 7 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 collected and coverage made it difficult to compare the databases with one another. Although EPA could not use these databases in the manner hoped, they were useful for generating rough estimates of the number of permits issued nationwide, as a check on the permit estimates reported by the Census Bureau.

EPA did not conduct further analysis on these databases prior to the proposal of this rule.

An additional source of information for the development of the economic analysis ( described in Section 4.2) was a series of focus groups held with representatives of the National Association of Home Builders ( NAHB) . These focus groups helped EPA understand the process of construction project development and provided estimates of data elements most helpful in building economic models. These estimates were particularly useful when national level data from other sources ( such as the Census Bureau) were not available.

Some of the data and methodologies used in the Phase II EA were also used in this rulemaking effort. These sources and methods were described in detail in Chapters Four, Five, and Six.

1. 5 REPORT ORGANIZATION This EA report is organized as follows:

! Chapter 2 contains the Industry Profile, which provides background information on the establishments and industry sectors potentially affected by the proposed rule.

! Chapter 3 summarizes the Proposed Effluent Guidelines Regulations and discusses the regulatory options considered by EPA.

! Chapter 4 , Economic Impact Analysis Methodology, explores the data, methodology, and analyses used in the determination of project, establishment, and market level impacts due to incremental storm water control costs incurred under the proposed regulation.

! Chapter 5 presents the impacts of the proposed rule for the model project, model establishment, and national market. This chapter also includes a discussion of other potential impacts of the proposed rule according to Executive Order 12866 including regional and social impacts.

1 8 ! Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 ! Chapter 6 contains information on the Initial Regulatory Flexibility Analysis ( IRFA) and the small business analysis under the Regulatory Flexibility Act ( RFA) as amended by the Small Business Regulatory Enforcement Fairness Act ( SBREFA) .

! Chapter 7 presents the Benefits Methodology by which EPA identifies, qualifies, quantifies, and where possible monetizes the benefits associated with reduced storm water runoff.

! Chapter 8 presents the Environmental Assessment and Benefits Analysis, which assesses the nationwide benefits of the proposed regulation following the methodology outlined in the previous chapter.

! Chapter 9 looks at the Costs and Benefits of the Proposed C& D ELG using the benefits assessment described in Chapter 8. Here, EPA presents an assessment of the nationwide costs and benefits of the proposed regulation pursuant to Executive Order 12866 and the Unfunded Mandates Reform Act ( UMRA) .

! Chapter 10 presents a discussion of UMRA.

1 9 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 CHAPTER TWO PROFILE OF THE CONSTRUCTION AND DEVELOPMENT INDUSTRIES 2.1 INTRODUCTION The construction and development ( C& D) industry plays an integral role in the nation   s economy, contributing approximately five percent of the Gross Domestic Product. Establishments in this industry are involved in a wide variety of activities, from land development and subdivision to homebuilding, construction of nonresidential buildings and other structures, heavy construction work ( including roadways and bridges) , and a myriad of special trades such as plumbing, roofing, electrical,

excavation, and demolition work. C& D activity affecting water quality typically involves site selection and planning, and land disturbing tasks during construction such as clearing, excavating and grading.

Disturbed soil, if not managed properly, can be easily washed off site during storm events. Storm water discharges generated during construction activities can cause an array of physical, chemical and biological impacts. EPA   s proposed effluent guidelines for the C& D industry seek to reduce the environmental and economic effects of storm water runoff from construction sites.

Several characteristics of the C& D industry affect the structure of this economic analysis:

  Individuals ( e. g. , homebuyers) are often the direct customers of the C& D industry. With individuals as the direct consumer it is necessary to address issues such as cost passthrough and the impacts of regulations on housing affordability.

  There are complex and varying relationships between developers and builders, resulting in a variety of different business models. Developers may undertake all site improvements and sell completed lots directly to builders, act as builders themselves and remain onsite to build out the development, or some combination of the two.

  The C& D industry is dominated by small businesses. As a result, EPA will carefully consider the impacts on small businesses in accordance with the Regulatory Flexibility Act, as amended by the Small Business Regulatory Enforcement Fairness Act ( SBREFA) .

  C& D activities are highly localized. This suggests that a regional approach to analysis is appropriate to account for varying market conditions.

2 1 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002   The standard industry definitions include a large number of establishments primarily engaged in remodeling activities, who are less likely to be involved in land disturbing activities.

The C& D industry as defined for this proposed rule is comprised of four main industry groups that will further affect the structure of this analysis:

  Land development and subdivision   Residential construction   Nonresidential construction   Heavy construction These four industry groups encompass those parts of the industry most likely to engage in land disturbing activities. Land disturbing activities are further described in the Development Document ( EPA, 2002a) and the impacts of these activities are described in the Environmental Assessment ( EPA,

2002b) .

2. 1 . 1 Recent Trends in the C& D Industry Between 1992 and 1997, the number of establishments with payroll in the C& D industries overall increased from 235,789 to 261,617, an increase of 11.0 percent ( see Table 2 1) . This overall modest increase masks some significant offsetting changes in establishment counts within individual industries, as defined under the North American Industrial Classification System ( NAICS) , i. e. :

  The number of establishments in the land development industry group ( NAICS 2331) decreased by 46.6 percent; 1 1 The decrease in the number of developers may have been a response to changes in tax laws and the Financial Institutions Reform, Recovery, and Enforcement Act ( FIRREA) of 1989 ( Pub. L. 101 73, August 9, 1989) and the 1993 implementing regulations. The objective of FIRREA and the implementing regulations was to correct events and policies that led to a high rate of bankruptcies in the thrift industry in the late 1980s. The regulations changed lending practices by financial institutions, requiring a higher equity position for most projects, with lower loan to value ratios, and more documentation from developers and builders. ( Kone, 2000) .

2 2 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002   There was a 13.5 percent increase in the number of establishments in residential and nonresidential construction ( NAICS 233, except 2331) ;

  The number of establishments in heavy construction increased by 14.5 percent;

  There was a 33.0 percent increase in the number of special trades contractor establishments, ( NAICS 235) , including a 31.2 percent increase among excavation contractors and a 59.6 percent increase among demolition contractors.

Table 2 1 Number of Establishments in Construction and Development Industries, 1997 vs 1992 NAICS Industry 1992 1997 Pct. Change 233, exc. 2331 Building, developing, and general contracting, except land development and subdevelopment 168,407 191,101 13.5%

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

234 Heavy construction 37,180 42,557 14.5%

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

Subtotal 235,789 261,617 11.0%

a Includes NAICS 23593 ( Excavation contractors) and 23594 ( Wrecking and demolition contractors) . Figures may not add to totals due to rounding. Source: U. S. Census Bureau ( 2000a) .

2. 1 . 2 Data Sources Used Several data sources are used in this profile chapter to characterize the C& D industry. The primary data source is the 1997 Census of Construction ( herein referred to as Census) , conducted every five years by the U. S. Census Bureau. A second data source comes from the U. S. Small Business Administration ( SBA) . The SBA data is used because it provides firm level data that is necessary for economic modeling purposes and for the small entity analysis ( the Census data is reported at the level of the construction establishment, not the firm) . Table 2 2 compares the Census data with that from SBA in order to further clarify the differences and identify how each are used in this Economic Analysis. The majority of this chapter uses data from the 1997 Census to profile the C& D industry, since that source provides a greater level of detail on industry characteristics.

2 3 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 Table 2 2 Comparison of Major Data Sources Characteristic Data Source Census of Construction SBA Level of Detail Establishment a Firm b ( company) and establishment Source of Data Survey ( sent to approx. 130,000 establishments from a universe of 650,000) County Business Patterns SUSB report, which ultimately relies on administrative records data How the Data are Applied in this Analysis Industry level analysis to determine the number of potentially affected establishments Firm level analysis, for purposes of determining the number of potentially affected firms considered   small   by SBA size standards a The Census Bureau defines an establishment as   a relatively permanent office or other place of business where the usual business activities related to construction are conducted   ( ( U. S. Census Bureau, 2000a) . b A firm is considered to be an aggregation of the establishments owned by a single company; therefore, one firm may be comprised of several establishments.

2.1.3 Organization of this Chapter The purpose of this industry profile is to provide an overview of the C& D industries, describe their key characteristics and structure, and analyze current and historical trends. Section 2.2 describes the process that EPA used to identify and define the industry for the purposes of the proposed rule.

Section 2.3 presents characteristics of the C& D industry, including both industry and firm level data.

Section 2.4 discusses supply and demand factors in the C& D industry while Section 2.5 describes various economic and financial characteristics of the industry. Section 2.6 looks at key business indicators and ratios. Section 2.7 covers industry growth and trends, and Section 2.8 takes a brief look at international competition in the C& D industry.

2 4 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 2.2 INDUSTRY DEFINITION 2.2.1 Basis for Regulation The proposed rule will cover establishments within the construction sector ( NAICS 23) that disturb the land at construction sites of one acre or more. 2 These land disturbing activities may include site preparation and site clearing tasks such as tree removal, excavation, blasting, scraping, and grading,

and are generally accomplished with the aid of heavy equipment such as skidders, bulldozers, backhoes,

excavators, and graders. These activities may destabilize soils and create conditions that allow storm water to accumulate and flow across the site. This increase in storm water flow can cause erosion and lead to the transport of soil particles and attached pollutants, which eventually may be conveyed offsite and discharged into receiving waters. Both the increased flow and associated pollutant and sediment loads that result from land disturbing activities can negatively impact the biological, physical, and chemical characteristics of the receiving waters.

The proposed effluent guidelines will build upon the Phase I and Phase II storm water regulations promulgated under the National Pollutant Discharge Elimination System ( NPDES) , as well as upon EPA   s storm water construction general permit ( CGP) . The CGP is the vehicle through which Phase I regulations are being implemented, and upon revision in 2003 it will also reflect the Phase II regulations. The CGP also will be the vehicle through which the proposed rule is implemented. The proposed rule will also build upon current state and local storm water control requirements by adding increased specificity and consistency to these requirements. See Chapter Three for more information on the proposed rule. The methodology chapter provides further detail on the planned implementation of the proposed rule.

2 The Bureau of the Census classifies industries according to the North American Industrial Classification System, or NAICS. Under the NAICS, economic activity is first divided into twenty broad 2 digit industry codes. One of these is Construction ( NAICS 23) . Each 2 digit industry is further subdivided into 3 , 4 , and 5 digit level industries.

2 5 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 2.2.2 Industry Definition For the purposes of this economic analysis, the   C& D industries   are assumed to include those establishments within the construction sector ( NAICS 23) that may be involved in activities that disturb the ground at construction sites. This includes site clearing or site preparation activities such as tree removal, excavation, blasting, scraping, grading, etc. EPA believes that many establishments in NAICS 233 ( Building, developing, and general contracting) and NAICS 234 ( Heavy construction) are likely to engage in such activities on a regular basis. Establishments within selected 5 digit industries that are part of NAICS 235 ( Special trade contractors) may also engage in land disturbing activities. The latter may include NAICS 23593 ( Excavation contractors) and 23594 ( Wrecking and demolition contractors) .

However, as discussed in Section VI. A in the preamble of the proposed rule, Special trade contractors are typically subcontractors and not identified as NPDES permittees. Table 2 3 identifies the industries that may be covered by the proposed regulations.

2 6 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 Table 2 3 Industry Definitions for Construction and Development Industry Profile NAICS Code Industry Relevant SIC Codes a 233 Building, developing, and general contracting 2331 Land subdivision and development 23311 Land subdivision and development 6552 Land subdividers and developers, except cemeteries 2332 Residential building construction 23321 Single family housing construction 1521 General contractors   single family houses 1531 Operative builders ( partial) 8741 Management services ( partial)

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

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

23332 Commercial and institutional building construction 1522 General contractors   residential buildings, other than single family ( partial) 1531 Operative builders ( partial) 1541 General contractors   industrial buildings and warehouses ( partial) 1542 General contractors   nonresidential buildings except industrial buildings and warehouses 8741 Management services ( partial) 234 Heavy Construction 2341 Highway, street, bridge, and tunnel construction 23411 Highway and street construction 1611 Highway and street construction contractors, except elevated highways 8741 Management services ( partial)

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

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

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

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

2 7 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 As seen in Table 2 3, each NAICS industry is comprised of one or more industries defined under the former Standard Industrial Classification ( SIC) system. With the 1997 Census, the Census Bureau switched from reporting data on an SIC basis to an NAICS basis, thereby making it difficult to compare data from 1997 with that from the 1992 and earlier Census reporting periods. Within this economic profile the objective is to provide data at the most detailed level as possible, while still maintaining the ability to provide meaningful comparisons between 1997 and earlier Census periods. With this in mind,

most of the statistical tables contained in this profile reflect the following industry breakdown: 3 NAICS 233, except 2331 Building, developing, and general contracting, except land subdivision and land development NAICS 2331 Land subdivision and land development NAICS 234 Heavy construction NAICS 235 Special trades contractors a a Covered industries to include NAICS 23593 ( Excavation contractors) and NAICS 23594 ( Wrecking and demolition contractors) only, when possible.

2.3 INDUSTRY CHARACTERISTICS Several steps are used to define the number of C& D establishments that may be affected by the proposed regulations. First, EPA identifies all C& D establishments as defined above using data from the 1997 Census of Construction. Second, EPA estimates the number of establishments classified as C& D establishments that are primarily engaged in remodeling work, using data from the National Association of Home Builders ( NAHB) and the Joint Center for Housing Studies at Harvard University ( Joint Center) . Third, EPA estimates the number of establishments classified as C& D establishments that are engaged in C& D activities but are unlikely to disturb more than one acre of land, using data from Census and various secondary sources. Section 2.3.1 looks at the industry wide characteristics of C& D establishments, including number and size of establishments, employment, and geographic distribution of 3 Some detailed breakdowns may be available only at the 3 digit NAICS level, in which case separate data for NAICS 2331 cannot be provided and will be included with data for all of NAICS 233. NAICS 233, except 2331, includes data for both residential and nonresidential construction activities. Where more detailed data are available they are included in this profile. In some cases data at a more detailed NAICS level is available ( e. g. , 5 digit NAICS) but was considered too detailed to present in the body of this profile. The availability of such data is noted throughout the profile, and reference is made to Appendix 2A where such tables are presented.

2 8 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 establishments. Section 2.3.2 describes firm level data for the C& D industry. Section 2.3.3 describes the number of small entities, and section 2.3.4 looks at the number of entities in the C& D industry that disturb less than one acre during the normal course of business. The estimated number of potentially affected establishments is presented in Section 2.3.5.

2.3.1 Establishment Level Data This section presents data for all establishments within the C& D industry as defined in Section 2.2, based primarily on 1997 Census of Construction sources. Included is information on the number and size of establishments, geographic distribution, employment, payroll and benefits, and level of specialization.

<IP_ADDRESS> Number and Size of Establishments Data from the Census of Construction indicate there were a total of 261,617 establishments with payrolls in the C& D industries in 1997 ( i. e. , NAICS 233, 234, 23593, and 23594; see Table 2 4) . Of these, the largest number of establishments are in NAICS 233 ( Building, developing, and general contracting) . This subsector includes 199,289 establishments, representing 76.2 percent of all C& D establishments. Within NAICS 233, single family home construction ( NAICS 23321) accounted for the majority of establishments ( 138,849 out of 199,289 or 69.7 percent) .

Land development and subdevelopment ( NAICS 2331) accounted for 8,185 establishments or 3.1 percent of all establishments in the C& D industries. NAICS 234 ( Heavy construction) includes 42,557 establishments or 16.3 percent of the total. Of these, 27 percent are primarily highway and street construction contractors, another 27 percent are contractors that work on water, sewer, pipeline,

communications and power line projects, and 43 percent are engaged in other types of heavy construction ( All other heavy construction) . Within the special trades contractors subsector ( NAICS 235) , NAICS 23593 ( Excavation contractors) and 23594 ( Wrecking and demolition contractors) together account for 2 9 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 19,771 establishments, or 7.6 percent of the C& D industries total. Excavation contractors account for over 90 percent of these establishments.

Table 2 4 Number of Establishments in the Construction and Development Industry, Based on the 1997 Census of Construction NAICS Industry Establishments With Payrolls Number Percent of Total 233 Building, developing, and general contracting 199,289 76.2%

2331 Land development and subdivision 8,185 3.1%

23321 Single family residential building construction 138,849 53.1%

23322 Multi family residential building construction 7,543 2.9%

2333 Nonresidential construction 44,710 17.1%

234 Heavy construction 42,557 16.3%

235 a Special trade contracting 19,771 7.6%

SUBTOTAL 261,617 100.0%

a Covered industries include NAICS 23593 ( excavation contractors) and NAICS 23594 ( wrecking and demolition contractors) only.

Across the board, the C& D industries are dominated by small establishments. 4 As shown in Table 2 5, Census reports that some 60.6 percent of establishments with payrolls have fewer than 5 employees, 77.8 percent have fewer than 10 employees, and 87.1 percent have fewer than 20 employees. 5 Overall, only 1.1 percent of C& D establishments with payrolls have 100 or more employees. On average, establishments in NAICS 234 ( Heavy construction) are somewhat larger than those in the other NAICS, with a lower percentage of establishments appearing in each of the smaller establishment size classes.

4 Establishments are officially defined as   small   by the SBA according to size standards based on either number of employees or annual revenue ( 13 CFR 121) . Qualifying revenue levels differ among NAICS industries, and within the C& D industries there is a range of qualifying revenue levels, from $ 5.0 million for NAICS 23311 ( Land subdivision and development) to $ 27.5 million for the majority of industries within NAICS 233 and 234. A more detailed review of industry size distribution based on the SBA definitions will be presented as part of the Small Entity Impact Analysis.

5 And, as noted above, some 450,338 establishments in the C& D industries have no employees.

2 10 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 The preponderance of small establishments is equally apparent when analyzed on the basis of revenue size class. Overall in 1997, 37.1 percent of establishments with payrolls had annual revenues below $ 250,000; 54.7 percent had annual revenues below $ 500,000; and 69.6 percent had annual revenues below $ 1.0 million. These data are shown in Table 2 6. Only 9,118 establishments,

representing 3.5 percent of the total, had annual revenues in excess of $ 10.0 million. Section <IP_ADDRESS> contains more information on small entities in the C& D industry and the small business analysis is presented in Chapter Six of this EA.

In addition to the small establishments with payrolls, a large number of establishments   some 450,338 in 1997 6   operate with no paid employees and are not included in the totals in Tables 2 4 through 2 6. Available data suggests these establishments are very small relative to establishments with payrolls. While employer establishments in NAICS 233 and 234 had $ 517.7 billion in receipts for 1997,

nonemployer establishments had only $ 36.5 billion in receipts, which represents only 7 percent of the receipts of employer establishments.

6 Includes establishments in NAICS 233 and 234 only. Data on nonemployer establishments was not available at the 5 digit NAICS level for NAICS 235, thus information for NAICS 23593 and 23594 could not be separated from the rest of NAICS 2359 ( Other special trade contractors) . Including all nonemployer establishments in NAICS 2359 ( 339,521) , the total number of such establishments in the C& D industries is 789,859.

2 11 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 Table 2 5 Number of Small Establishments with Payrolls in the Construction and Development Industry, Based on Employment NAICS Industry Total Establishments with less than 5 employees Establishments with less 10 employees Establishments with less than 20 employees No. Percent of Total No. Percent of Total No. Percent of Total 233 a Building, developing, and general contracting 199,289 138,926 69.7% 172,079 86.3% 187,672 94.2%

234 Heavy construction 42,557 18,956 44.5% 26,802 63.0% 33,337 78.3%

235 b Special trade contractors 19,771 700 c 3.5% 4,690 23.7% 6,833 34.6%

TOTAL 261,617 158,582 60.6% 203,571 77.8% 227,842 87.1% than a Data below the 3 digit NAICS ( i. e. , for NAICS 2331 Land development and subdevelopment) not publishable. b Covers establishments in NAICS 23593 ( Excavation contractors) and 23594 ( Wrecking and demolition contractors) only. c Data for NAICS 23593 ( Excavation contractors) not included in this calculation because data did not meet publication standards. Figures may not add to totals due to rounding. Source: U. S. Census Bureau ( 2000a) .

Table 2 6 Number of Small Establishments in the Construction and Development Industry, Based on Value of Business Done NAICS Industry Total Establishments with less than $ 250,000 in business Establishments with less than $ 500,000 in business Establishments with less than $ 1 million in business No. Percent of Total No. Percent of Total No. Percent of Total 233 a Building, developing, and general contracting 199,289 83,536 41.9% 118,493 59.5% 147,917 74.2%

234 Heavy construction 42,557 13,364 31.4% 20,238 47.6% 26,726 62.8%

235 b, c Special trade contractors 19,771 269 1.4% 4,344 22.0% 7,385 37.4%

TOTAL 261,617 97,169 37.1% 143,075 54.7% 182,028 69.6%

a Data below the 3 digit NAICS ( i. e. , for NAICS 2331 Land development and subdevelopment) not publishable. b Covers establishments in NAICS 23593 ( Excavation contractors) and 23594 ( Wrecking and demolition contractors) only. c Figures may be low due to lack of sufficient data for NAICS 23593 ( Excavation contractors) and 23594 ( Wrecking and demolition contractors) for values under $ 250,000. Figures may not add to totals due to rounding. Source: U. S. Census Bureau ( 2000a) .

The overall average level of receipts among nonemployer establishments is $ 81,000 versus $ 1.98 million for establishments with payrolls. A recent study by the Joint Center for Housing Studies of 2 12 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 Harvard University indicates that a substantial number of the nonemployer establishments   at least 141,000 of those classified as general building contractors ( NAICS 233)   are actually remodelers ( Joint Center 2001) . 7 The Joint Center estimates do not account for nonemployer establishments outside NAICS 233 ( i. e. , NAICS 234 ( Heavy construction) or 235 ( Special trades) . As discussed further in Section 2.3.2, EPA has reviewed available data on such nonemployer establishments and concluded that most are unlikely to be affected by the proposed rules.

<IP_ADDRESS> Legal Form of Organization The Census Bureau defines construction establishments according to how they are organized legally, using the following classification scheme: ( a) corporations, ( b) proprietorships, ( c) partnerships,

and ( d) other. In 1997, a total of 173,602 C& D establishments with payrolls ( 66.4 percent of the total)

were organized as corporations ( see Table 2 7) . A further 64,733 ( 24.7 percent) were organized as proprietorships while 14,313 ( 5.5 percent) operated as partnerships and 8,969 ( 3.5 percent) operated under some other legal form of organization. Organization as a corporation is most prevalent in NAICS 2331 ( Land subdivision and development) , at 76.6 percent, and least prevalent in NAICS 235 ( Special trade contractors) , at 61.6 percent. See Appendix 2A for more detailed industry level data.

7 The estimate of 141,000 establishments is probably an underestimate. The Joint Center applied the percentage of establishments with payrolls known to be remodelers to the nonemployer establishments. In practice, remodelers probably account for a larger percentage of nonemployer establishments than employer establishments. As the report states,   ( o) ur procedures thus generate a conservative estimate of the number of businesses concentrating their activities in residential remodeling   ( ( Joint Center, 2001, p. 35) .

2 13 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 Table 2 7 Number of Establishments in the Construction and Development Industry with Payrolls, by Legal Form of Organization NAICS Description Corporations Proprietorships Partnerships Other Total Number Percent of Total Number Percent of Total Number Percent of Total Number Percent of Total Number Percent of Total 233 Building, developing, and general contracting, except land subdivision and development ( 2331) 124,475 65.1% 50,235 26.3% 9,827 5.1% 6,567 3.4% 191,104 100.0%

2331 Land subdivision and development 6,268 76.6% 327 4.0% 1,323 16.2% 267 3.3% 8,185 100.0%

234 Heavy construction 30,682 72.1% 8,401 19.7% 2,115 5.0% 1,359 3.2% 42,557 100.0%

235 a Special trade contractors 12,177 61.6% 5,770 29.2% 1,048 5.3% 776 3.9% 19,771 100.0%

TOTAL 173,602 66.4% 64,733 24.7% 14,313 5.5% 8,969 3.5% 261,617 100.0%

a Covers establishments in NAICS 23593 ( Excavation Contractors) and 23594 ( Wrecking and Demolition Contractors) only. Source: U. S. Census Bureau ( 2000a) .

2 14 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 <IP_ADDRESS> Geographic Distribution Figure 2 1 shows a geographic distribution of establishments by state. The largest concentrations of establishments are in California, New York, Texas, Florida, and Pennsylvania. Combined, these states account for approximately 25 percent of all C& D establishments nationwide.

Figure 2 1. Number of establishments in the C& D industries, by state, 1997.

<IP_ADDRESS> Employment In 1997, establishments with payrolls in the C& D industries employed a total of nearly 2.4 million workers. Table 2 8 shows a distribution of employment by NAICS industry. NAICS 2331 ( Land subdivision and land development) accounts for 41,827 employees ( 1.8 percent of the total) , the rest of 2 15 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 NAICS 233 ( Building, developing, and general contracting) accounts for 1.3 million employees, or 55.2 percent of the total. A total of 880,400 or 37.3 percent of the total are employed in NAICS 234 ( Heavy construction) , and NAICS 23593 and 23594 ( Excavation contractors and Wrecking/ demolition contractors) employ 135,057 ( 5.7 percent of the total) .

Table 2 8 Number of Employees in the Construction and Development Industries Establishments With Payrolls, 1997 NAICS Industry Number of Employees Percent of Total 233, except 2331 Building, developing, and general contracting, except land subdivision and land development 1,301,126 55.2%

2331 Land subdivision and land development 41,827 1.8%

234 Heavy construction 880,400 37.3%

235 a Special trade contractors 135,057 5.7%

TOTALS 2,358,410 100.0%

a Includes NAICS 23593 ( Excavation contractors) and 23594 ( Wrecking and demolition contractors) only. Source: U. S. Census Bureau ( 2000a) .

Construction is a seasonal activity in many parts of the country, and employment data from the industry bear this out. Figure 2 2 shows quarterly employment data for all NAICS in the C& D industries,

as well as the annual average. Overall, employment of construction workers was lowest in March at 1.59 million and highest in August at 1.83 million.

2 16 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 Figure 2 2. Seasonal trends for employment in the C& D industries, 1997.

<IP_ADDRESS> Payrolls and Benefits In 1997, the payrolls of all C& D industries totaled $ 76.8 million ( see Table 2 9) . Of this number $ 48.3 million ( 62.9 percent) went to construction workers and $ 28.5 million ( 37.1 percent) went to other 2 17 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 employees. 8 In addition, the C& D industries incurred $ 11.2 million in legally required fringe benefit expenditures and $ 6.5 million in voluntary fringe benefits, for a total of $ 17.6 million in fringe benefits. 9 Table 2 9 shows detailed data on payrolls and benefits for each of the C& D industries.

<IP_ADDRESS> Specialization Specialization in the C& D industries refers to the percent of establishment revenues earned from different types of construction activity. Specialization data provide some insight into the homogeneity of businesses classified within the same NAICS industry. When reporting to Census, an establishment self

reports its own degree of specialization by type of construction, based on the percentage of revenue earned from each type of construction work. Table 2 10 shows, as an example, the specialization of establishments in NAICS 23321 ( Single family home construction) across the   type of construction   categories defined by the Census Bureau, and the revenues earned by establishments in each specialization category. 10, 11 8 Construction workers include all workers up through the working supervisor level directly engaged in construction operations, such as painters, carpenters, plumbers, and electricians. Included are journeymen, mechanics, apprentices, laborers, truck drivers and helpers, equipment operators, and on site recordkeepers and security guards. Other employees include employees in executive, purchasing, accounting, personnel, professional, technical activities, and routine office functions.

9 Legally required contributions include Social Security contributions, unemployment compensation, workman' s compensation, and State temporary disability payments. Voluntary expenditures include life insurance premiums, pension plans, insurance premiums on hospital and medical plans, welfare plans, and union negotiated benefits.

10 Due to high degrees of variation of specialization and types of construction among NAICS sectors, detailed tables for each NAICS in the C& D industries are presented separately in Appendix 2B.

11 Because the Census Bureau only considers construction establishments to be specialized if they earn more than half of their revenues from one particular type of construction, the total value of construction work shown in these tables will not match industry totals, which cover all establishments, including those that are not specialized.

2 18 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 Table 2 9 Payrolls and Benefits for Employees in the Construction Industry ( Thousands of 1997 Dollars)

NAICS Industry Payrolls a Fringe Benefits ( All Employees)

Construction workers b Other employees c All employees d Legally required expenditures e Voluntary expenditures f Total fringe benefits g 233 Building, developing, and general contracting $ 23,135,832 $ 19,410,280 $ 42,546,112 $ 5,929,710 $ 3,011,115 $ 8,940,824 23311 Land subdivision and land development $ 254,247 $ 1,255,526 $ 1,509,773 $ 164,669 $ 71,648 $ 236,317 23321 Single family housing construction $ 7,739,858 $ 7,224,726 $ 14,964,583 $ 2,000,118 $ 623,079 $ 2,623,197 23322 Multifamily housing construction $ 1,022,265 $ 744,361 $ 1,766,627 $ 255,879 $ 76,644 $ 332,523 23331 Manufacturing and industrial building construction $ 3,322,347 $ 1,806,620 $ 5,128,967 $ 777,829 $ 446,522 $ 1,224,351 23332 Commercial and Institutional building construction $ 10,797,116 $ 8,379,046 $ 19,176,160 $ 2,731,214 $ 1,793,222 $ 4,524,436 234 Heavy construction $ 22,218,582 $ 8,073,267 $ 30,291,850 $ 4,665,757 $ 3,120,979 $ 7,786,736 23411 Highway and street construction $ 7,095,139 $ 2,432,488 $ 9,527,626 $ 1,507,465 $ 1,109,177 $ 2,616,641 23412 Bridge and tunnel construction $ 1,378,759 $ 468,401 $ 1,847,160 $ 344,821 $ 263,297 $ 608,117 23491 Water, sewer, , and pipeline construction $ 4,087,007 $ 1,435,273 $ 5,522,281 $ 844,394 $ 493,761 $ 1,338,155 23492 Power and communication transmission line construction $ 1,748,715 $ 638,717 $ 2,387,432 $ 374,145 $ 231,538 $ 605,683 23493 Industrial nonbuilding structure construction $ 2,734,020 $ 988,343 $ 3,722,363 $ 486,625 $ 302,813 $ 789,439 23499 All other heavy construction $ 5,174,943 $ 2,110,046 $ 7,284,989 $ 1,108,307 $ 720,394 $ 1,828,701 235 h Special trade contractors $ 2,940,440 $ 1,005,609 $ 3,946,050 $ 582,157 $ 329,925 $ 912,082 23593 Excavation contractors $ 2,525,857 $ 828,017 $ 3,353,874 $ 483,764 $ 283,952 $ 767,716 23594 Wrecking and demolition contractors $ 414,583 $ 177,592 $ 592,176 $ 98,393 $ 45,973 $ 144,366 TOTAL $ 48,294,854 $ 28,489,156 $ 76,784,012 $ 11,177,624 $ 6,462,019 $ 17,639,642 a Payrolls includes the gross earnings paid in the calendar year 1997 to all employees on the payrolls of construction establishments. It includes all forms of compensation such as salaries, wages, commissions, bonuses, vacation allowances, sick leave pay, prior to such deductions as employees' Social Security contribution, withholding taxes, group insurance, union dues, and savings bonds. b Construction workers include all workers up through the working supervisor level directly engaged in construction operations, such as painters, carpenters, plumbers, and electricians. Included are journeymen, mechanics, apprentices, laborers, truck drivers and helpers, equipment operators, and on site recordkeepers and security guards. c Other employees include employees in executive, purchasing, accounting, personnel, professional, technical activities, and routine office functions. d Sum of construction workers and other employees. e Legally required contributions include Social Security contributions, unemployment compensation, workman' s compensation, and State temporary disability payments. f Voluntary expenditures include life insurance premiums, pension plans, insurance premiums on hospital and medical plans, welfare plans, and union negotiated benefits. g Total fringe benefits represent the expenditures made by the employer during 1997 for both legally required and voluntary fringe benefit programs for employees. h Covers establishments in NAICS 23593 ( Excavation contractors) and 23594 ( Wrecking and demolition contractors) only. Source: U. S. Census Bureau ( 2000a) .

2 19 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 Specialized establishments in NAICS 23321 ( i. e. , those that earn 51 percent or more of revenues from one type of construction) may be specialized in either detached single family housing construction or attached single family housing construction. 12 The number of construction type specializations may depend on the NAICS, as some industry definitions encompass a broader set of construction activities ( see Appendix 2B) . Within NAICS 23321, establishments specialized 51 percent or more in detached,

single family housing construction performed construction work valued at $ 127.9 billion.

Establishments 100 percent specialized in detached, single family housing construction performed construction work worth $ 90.4 billion, or 64.4 percent of all work done by establishments with specialization in construction work. Similarly, for establishments specializing in construction of attached single family houses by 51 percent or more, the value of work was $ 12.5 billion, and 52.8 percent of the work ( $ 6.6 billion) was done by establishments with complete specialization in attached single family houses. Further analysis of the value of construction work performed by the C& D industries can be found in Section 2.7.1.

Table 2 10 Specialization within NAICS 23321 ( Single Family Home Construction) , Categorized by Value of Construction Work ( Millions of 1997 Dollars)

Type of Construction with Specialization Estabs. spec. 51 % or more Estabs. with 100 % spec. Estabs. with 90 to 99 % spec. Estabs. with 80 to 89 % spec. Estabs. with 70 to 79 % spec. Estabs. with 60 to 69 % spec. Estabs. with 51 to 59 % spec.

Single family houses, detached $ 127,870 $ 90,434 $ 14,615 $ 7,040 $ 6,600 $ 6,603 $ 2,574 Single family houses, attached, including townhouses and townhouse type condominiums $ 12,534 $ 6,623 $ 1,292 $ 877 $ 1,074 $ 1,693 $ 971 Source: U. S. Census Bureau ( 2000a) .

12 Although they may earn revenues from other types of construction ( e. g. , highway construction) they would no longer be classified in NAICS 23321 if they earned 51 percent or more of their revenue from such sources.

2 20 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 2.3.2 Firm Level Data The SBA Office of Advocacy contracts with the U. S. Census Bureau to produce firm level data for U. S. industries. Currently, distributions by employment size are available on an NAICS basis for 1998, and distributions by receipt size are available on an SIC basis for 1997.

The SBA data is based primarily on administrative records and is not generated in conjunction with, nor is it linked to, data collected through the Census of Construction. As a result, there may be minor inconsistences between data reported by SBA and that reported by the Census of Construction. 13 The SBA/ Census data, however, is the only firm level data available for C& D industries, so EPA is including it in this analysis because it is valuable to the economic modeling and the small entity analysis,

which applies at the firm, not the establishment, level. 14 <IP_ADDRESS> Number and Size of Firms Table 2 11 presents the number of firms with payrolls ( firms with paid employment) and number of establishments in the C& D industries in 1998. 15 These data indicate that a majority of firms operate a single establishment, and have fewer than 20 employees. Of the 215,301 C& D firms in 1998;

approximately 99 percent of these operate only one establishment, and 94 percent have fewer than 20 employees; less than 1 percent of firms have more than 500 employees. In 1998, there were 39,062 firms in heavy construction and these operated 40,091 establishments. More than 97 percent of the heavy 13 For example, the SBA data provide estimates of the number of establishments operated by C& D firms. These establishment counts, however, do not match those reported in the Census of Construction. This is partially due to differences in coverage ( the SBA data include administrative establishments while the Census of Construction does not) as well as differences in data collection methods.

14 For clarification, an establishment is defined as   a relatively permanent office or other place of business where the usual business activities related to construction are conducted   ( ( Census, 2000a) . A firm refers to the aggregation of all establishments owned by one company; therefore one firm may consist of several establishments.

15 " The data excludes non employer businesses, thus excluding many self employed individuals ( employment is measured in March so firms starting after March, firms closing before March and seasonal firms can have zero employment) . " SBA Office of Advocacy website, http: / / www. sba. gov/ advo/ stats/ data. html.

2 21 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 construction firms operate a single establishment and approximately 79 percent of heavy construction firms have fewer than 20 employees.

Table 2 11 Employer Firms and Establishments by Employment Size of Firm by NAICS Codes, 1998   SBA Data Industry NAICS Firms Establishments Total 0 < 20 < 500 500+ Total 0 < 20 < 500 500+

Building, developing, & general contracting 233 215,301 38,904 202,969 214,921 380 216,893 38,907 203,020 215,478 1,415 Land subdivision & land development 23310 11,192 2,829 10,618 11,101 91 11,369 2,832 10,628 11,179 190 Single family housing const. 23321 153,029 29,168 149,240 152,937 92 153,561 29,168 149,253 153,108 453 Multifamily housing const. 23322 8,054 1,405 7,413 8,027 27 8,091 1,405 7,414 8,041 50 Mfg & industrial building construction 23331 6,842 720 5,470 6,775 67 6,904 720 5,471 6,784 120 Commercial & institutional building construction 23332 36,355 4,782 30,240 36,158 197 36,968 4,782 30,254 36,366 602 Heavy construction 234 39,062 4,589 30,987 38,788 274 40,091 4,589 31,010 39,098 993 Highway & street const. 23411 10,884 1,493 8,265 10,806 79 11,268 1,493 8,273 10,901 367 Bridge & tunnel construction 23412 886 70 520 865 21 925 70 521 880 45 Water, sewer, & pipeline construction 23491 7,749 676 5,786 7,704 45 7,823 676 5,787 7,726 97 Power & communication transmission line construction 23492 3,170 404 2,464 3,133 37 3,305 404 2,465 3,157 148 Industrial nonbuilding structure construction 23493 641 52 411 575 66 709 52 411 583 126 All other heavy construction 23499 15,860 1,894 13,541 15,758 102 16,061 1,894 13,553 15,851 210 Excavation contractors 23593 23,209 4,310 22,145 23,201 8 23,240 4,310 22,145 23,223 17 Wrecking & demolition contractors 23594 1,336 247 1,094 1,329 7 1,344 247 1,094 1,332 12 Source: U. S. Small Business Administration ( 1998) , based on data provided by the U. S. Census Bureau.

<IP_ADDRESS> Firm Level Revenues Table 2 12 shows the number of employer firms and establishments, in 1997, based on NAICS industry and revenue size class. These data also show that a large number of firms in the C& D industries 2 22 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 are small. Approximately three quarters ( 75.2 percent) of the firms in the target industry sectors reported under $ 1.0 million in revenues for 1997 and nearly 94 percent of firms reported revenues under $ 5.0 million.

2 23 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 Table 2 12 Firms and Establishments with Payrolls by Revenue Size Class ( 1997) a ( SBA Data)

Description FIRMS ESTABLISHMENTS b Total Number of Firms < $ 1 Million < $ 5 Million < $ 7.5 Million < $ 25 Million < $ 100 Million Over $ 100 Million Total Establish  ments < $ 1 Million < $ 5 Million < $ 7.5 Million < $ 25 Million < $ 100 Million Over $ 100 Million Land Subdivision and Development 11,036 7,744 10,207 10,501 10,851 10,948 88 11,205 7,746 10,218 10,514 10,896 11,018 186 Single Family Housing Construction 149,130 123,414 145,305 146,917 148,634 148,975 155 149,823 123,420 145,339 146,962 148,736 149,161 661 Multifamily Housing Construction 6,911 5,128 6,347 6,518 6,791 6,877 34 7,009 5,129 6,354 6,527 6,810 6,910 99 Manufacturing and Industrial Building Construction 7,950 4,674 6,841 7,156 7,692 7,879 71 8,075 4,675 6,847 7,166 7,713 7,914 160 Commercial and Institutional Building Construction 38,195 22,518 32,523 34,085 36,964 37,882 313 39,044 22,526 32,560 34,133 37,075 38,124 920 Highway and Street Construction 10,778 5,683 8,681 9,291 10,320 10,679 99 11,117 5,683 8,689 9,302 10,349 10,758 359 Bridge and Tunnel Construction 875 287 583 638 788 847 28 915 288 584 640 795 859 56 Water, Sewer, and Pipeline Construction 7,916 4,475 6,861 7,245 7,768 7,883 33 8,075 4,476 6,864 7,251 7,791 7,938 137 Power and Communication Transmission Line Construction 2,781 1,572 2,411 2,546 2,729 2,770 11 2,837 1,572 2,412 2,548 2,738 2,789 48 Industrial Nonbuilding Structure Construction 3,941 2,786 3,612 3,713 3,860 3,909 32 4,023 2,787 3,617 3,720 3,874 3,936 86 All Other Heavy Construction 12,973 9,110 11,873 12,213 12,697 12,863 111 13,594 9,118 11,920 12,279 12,814 13,087 507 Excavation Contractors 22,046 19,093 21,659 21,820 22,002 22,038 8 22,072 19,093 21,661 21,823 22,005 22,055 17 Wrecking and Demolition Contractors 1,270 840 1,165 1,204 1,249 1,261 9 1,285 840 1,166 1,205 1,252 1,271 14 TOTAL 275,802 207,324 258,068 263,847 272,345 274,811 992 279,074 207,353 258,231 264,070 272,848 275,820 3,250 a Data are for 1997. SBA does not report revenue size class data in NAICS format and will not do so until the 2002 Economic Census is published. These figures were calculated using percentages provided in the Census Bureau   s NAICS to SIC bridge, which is available at www. census. gov/ epcd/ ec97brdg. HTM. b The number of establishments reported here may differ from the number reported in previous tables due to the different sources used ( see Table 2 2 and accompanying text for further discussion) . Earlier tables are based on data from the 1997 Economic Census; Table 2 12 is based on 1997 data from SBA/ Census and was converted from SIC to NAICS for the purposes of this analysis. Source: SBA 1998 2 24 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 2.3.3 Number of Small Entities Small entities are defined by the SBA according to size standards based on either number of employees or annual revenue ( 13 CFR 121) . For all of the C& D industries, the size standards are based on annual revenues. Table 2 13 presents the SBA revenue thresholds for the C& D industry, which range from $ 5.0 million for NAICS 233110 ( Land subdivision and land development) to $ 27.5 million for the majority of NAICS 233 ( Building, developing, and general contracting) and NAICS 234 ( Heavy construction) . An estimated 189,805 C& D businesses, representing 99.5 percent of all businesses in the C& D industry, fall below the SBA defined revenue thresholds for this industry and therefore may be qualified as small businesses. Table 2 13 shows the total estimated number of businesses and total small businesses in the C& D industry; the number of potentially affected small businesses is developed in Chapter Six.

Table 2 13 Number of Firms and Establishments Above and Below SBA Thresholds for Small Business Definition: Based on Data from SBA NAICS SBA Revenue Threshold ( million $ ) Total Estimated Number of Businesses Estimated Number of Small Businesses Small Businesses as a Percent of Total 233210: Single family Housing Construction $ 27.5 138,732 138,583 99.9%

233220: Multifamily Housing Construction $ 27.5 7,534 7,491 99.4%

233310: Manufacturing and Industrial Building Construction $ 27.5 7,257 7,050 97.1%

233320: Commercial and Institutional Building Construction $ 27.5 37,220 36,681 98.6%

TOTAL   190,743 189,805 99.5%

a For those industries with a $ 27.5 million SBA cutoff, the table shows the number of firms and establishments with revenues below $ 25.0 million ( the next closest SBA data break point) . For industries with a $ 11.5 million SBA cutoff, figures shown are for firms and establishments with revenues below $ 7.5 million. Source: SBA 1998; also see Chapter Six, Tables 6 2 and 6 3 2 25 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 2.3.4 Entities Not Covered by the Proposed Rule Not all establishments and firms that fall within the industry definitions outlined in the previous sections will be affected by the proposed rule. The proposed rule will apply only to those NPDES

permitted establishments engaged in activities that disturb land. EPA believes that some entities will be excluded from regulatory coverage because they are primarily engaged in remodeling activities that will not result in land disturbance. Others will be excluded because they are generally not the primary NPDES permit holder. As discussed in Section VI. A in the preamble of the proposed rule, Special trade contractors are typically not identified as NPDES permit holders and thus will not likely be covered by the proposed rule. In this section EPA estimates the number of establishments that fall into these categories. The resulting estimates are brought together in Section 2.3.5 to derive the number of establishments covered under each option of the proposed rule.

<IP_ADDRESS> Establishments Engaged in Remodeling Two sources provide information on the potential number of C& D establishments that are actually remodelers. In an article published in Housing Economics, NAHB economists estimated that in 1997 approximately 45,952 establishments in the residential building industry were involved in remodeling activities only ( Ahluwalia and Chapman, 2000) . This count is based on analysis of Census microdata on establishments, receipts, and source of receipts. Establishments were classified as remodelers in this study if they earned 100 percent of revenues from remodeling activities.

The Joint Center for Housing Studies at Harvard University recently published a report focused solely on the remodeling industry ( Joint Center, 2001) . This report classified establishments that derive at least half of their revenues from remodeling activities as remodelers. When defined in this manner,

the study found that 62,400 establishments classified as general contractors/ builders in 1997 were actually remodelers.

Both of these estimates are based on establishments classified by Census as general contractors/ builders. The Joint Center study goes further to identify establishments classified in various special trades ( e. g. , Carpentry, Plumbing) that are primarily engaged in remodeling, but these estimates 2 26 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 do not include those considered part of the C& D industries ( i. e. , NAICS 23593 Excavation contractors and 23594 Wrecking and demolition contractors) . 16 NAHB does not address the issue of special trades contractors in their report. Neither report estimates the number of establishments in NAICS 234 ( Heavy construction) that may be engaged primarily in remodeling activities; however, EPA does not expect that establishments in the heavy construction sector would be engaged in remodeling activities.

Following review of these studies, EPA used the estimate from the Joint Center study as the best estimate of the number of remodelers included in statistics of the C& D industries. This study defines remodelers as establishments that earn at least 50 percent of revenues from remodeling activity ( and thus earn less than 50 percent from building activity) . EPA concludes that these establishments, when engaged in building activity, are unlikely to disturb more than one acre of land and would therefore not be covered by the proposed rule.

<IP_ADDRESS> Establishments That Are Not NPDES Permttees EPA has included in the universe of potentially affected establishments all establishments in NAICS 23593 ( Excavation contractors) and 23594 ( Wrecking and demolition contractors) because such establishments engage in land disturbing activities. In reality, however, establishments in these industries generally act as subcontractors on C& D projects and are hired by developers or general contractors to perform specific tasks. EPA does not believe that such establishments generally appear as NPDES permittees or copermittees. Therefore, while these establishments are included among the universe of potentially affected establishments ( and appear below in Table 2 14) , EPA has not included them in the subsequent economic impact analysis chapters ( i. e. , Chapters Four, Five, and Six) .

16 The Joint Center study does provide an estimate for the number of remodelers classified in   miscellaneous special trades   ( ( NAICS 2359) , which includes NAICS 23593 and 23594, but several other industries as well. The number of remodelers classified primarily in NAICS 23593 and 23594 may not be large, however, since the total number in NAICS 2359 is only 6,600.

2 27 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 2.3.5 Number of Potentially Affected Entities EPA took several steps to adjust the number of affected entities to account for regulatory coverage and data availability. Previous sections estimated that the total number of establishments in the C& D industry is 261,617 ( see Table 2 4) . Subtracting the 62,400 remodeling establishments estimated in Section 2.3.4 from this figure yields a potentially affected universe of 199,214 establishments. EPA subtracted the 62,400 residential remodeling establishments from the single family and multifamily building construction industries ( NAICS 23321 and NAICS 23322) , based on their respective shares of residential building establishments.

In preparing its economic impact analysis, EPA concluded that data limitations on land developers ( NAICS 2331) would preclude retaining this as a separate industry for purposes of regulatory analysis. 17 Rather than excluding establishments in this industry category ( which would potentially underestimate the number of affected entities and associated impacts) EPA distributed them among the four building construction industries ( single family, multifamily, commercial, and industrial construction) , based on each industry   s share of total establishments. 18 Table 2 14 reflects this allocation, which was done after removing those establishments engaged primarily in remodeling.

EPA has further adjusted the population of affected establishments to account for differences in regulatory coverage. As described in Chapter Three, the proposed rule considers three erosion and sediment control ( ESC) options. Option 1 would apply to sites that disturb one acre or more of land,

while Option 2 would apply to sites that disturb five acres or more of land. Option 3 is a no regulation option, meaning that no sites or establishments would be affected.

EPA used data from the Census Bureau and other sources to define an average housing density for the nation as a whole ( average number of housing units per acre) , then used this analysis to identify classes of establishments that would be excluded based on their likelihood of disturbing less than one acre ( Option 1) or five acres ( Option 2) on a project basis. EPA believes these estimates to be 17 Specifically, EPA could not obtain equivalent financial data with which to build financial models of the land development industry.

18 EPA provides further justification for and details about this step in the analysis in Chapter Four.

2 28 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 conservative in terms of identifying establishments unaffected by the proposed rule. First, while the regulatory threshold applies to each site , EPA excluded establishments if the estimated number of acres disturbed in a year is below the regulatory threshold. In addition, the analysis was not adjusted for the percent of sites normally left undisturbed. 19 Based on this analysis, EPA assumed that establishments in the single family building construction industry ( NAICS 2331) that complete between 1 and 4 housing units each year would be excluded under Option 1. Under Option 2, EPA also assumed that establishments in the single family building construction industry ( NAICS 2331) that complete between 5 and 9 housing units, as well as establishments in the multifamily building construction industry ( NAICS 2332) that complete between 2 and 9 housing units each year, would be excluded. Chapter Four contains further detail on the data sources and method used to make this adjustment.

Table 2 14 shows the distribution of establishments potentially affected under Option 1 and 2,

following the redistribution of land developers ( NAICS 2331) and adjustment for small builders exempt from the site size limitations of each option. Due to limited data, the number of establishments in NAICS 234 ( Heavy construction) and NAICS 235 ( Special trades) affected under each option could not be refined further, so no adjustments are made to these establishment counts. Moreover, as discussed in Section XII of the preamble of the proposed rule, special trade contractors are not included in Chapter 5,

Economic Impact Analysis Results of this report. Special trade contractors are typically subcontractors and are not NPDES permittees. Therefore, these contractors would not be directly affected by the proposed rule.

19 For example, an establishment that completes 15 houses per year is estimated to account for 5.6 acres of converted land, based on the average housing density of 2.67 new single family housing units per acre. EPA would include this establishment among those covered under Option 2, even though the actual area disturbed may well fall below 5 acres once open space, buffers, and other   undisturbed   areas are factored in. . Furthermore, as noted, EPA assumes that all of the housing units are covered by a single NPDES permit while in reality the establishment might operate on more than one site, none of which exceeds the 5 acre threshold.

2 29 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 Table 2 14. Number of Affected Establishments in the Construction and Development Industry NAICS Industry Option 1 Option 2 Number Percent of Total Number Percent of Total 23321 Single family residential building construction 34,070 22.9% 21,362 15.9%

23322 Multi family residential building construction 4,603 3.1% 2,699 2.0%

23331 Manufacturing and industrial building construction 7,742 5.2% 7,742 5.8%

23332 Commercial and institutional building construction 39,810 26.8% 39,810 29.7%

234 Heavy construction 42,557 28.6% 42,557 31.8%

235 a Special trade contracting 19,771 13.3% 19,771 14.8%

Potentially affected establishments 148,553 100.0% 133,941 100.0%

a Includes NAICS 23593 ( Excavation contractors) and 23594 ( Wrecking and demolition contractors) only. Figures may not add to totals due to rounding. Source: U. S. Census Bureau ( 2000a) and EPA estimates.

2.4 MARKET SUPPLY AND DEMAND The sections below discuss the supply and demand factors that affect the residential,

nonresidential, and heavy construction industries. This discussion provides insight into the dynamics of the construction market and provides a basis for many of the key assumptions used in the economic impact models.

2 30 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 2.4.1 Characteristics of Construction Supply This section discusses the factors that influence supply in the C& D industry. Topics include number and value of residential, nonresidential, and heavy construction projects; barriers to entry in the industry; and supply trends ( the latter primarily for the residential construction market) .

<IP_ADDRESS> Residential Building Number of Projects The Census Bureau operates three data collection programs that track and report output measures relevant for the C& D industry:

  The Building Permits Program collects monthly information on building permits issued for new private residential construction.

  The Survey of Construction collects information on residential units started, sold, and completed each month. Several data series are produced from this program. These include:

  Housing Starts ( Series C20)   Provides monthly data on the number of housing starts, including number of housing units authorized, started, and authorized but not yet started.

  New One Family Houses Sold ( Series C25)   Provides monthly data on units sold and for sale, average and median sales prices, and price distribution of units sold. This series also produces the Price Index of New One Family Houses Sold.

  Characteristics of New Housing ( Series C25A)   Compiles and publishes data annually on housing prices and physical characteristics such as size of unit, number of bathrooms, type of heating system, and type of exterior wall.

  Housing Completions ( Series C22)   This series, , published monthly, provides data on the number of housing units completed in a month and on those under construction.

2 31 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002   New Residential Construction in Selected Metropolitan Areas ( Series C21)   Provides quarterly data by metropolitan area on units authorized, started, and completed. 20   The Value Put in Place program publishes estimates of the value of construction work performed each month.

Combined, these data programs produce vast amounts of information on construction industry output. This profile focuses on building permits, since the activities most likely to be influenced by the proposed effluent guidelines regulations are those that take place early in the development process. The following discussion and supporting tables provide further details about the building permits data collection program.

The Building Permits Program collects data on private residential construction authorized by building permits based upon reports submitted by local building permit officials. 21 The data include the number of permits authorized by type 22 and the value of permits. These reports are provided in response to a mail survey using Form C 404   Report of Building or Zoning Permits Issued and Local Public Construction.   The mail survey covers a sample of 8,500 permit issuing places from a universe of 19,000 in the U. S. 23 Approximately 96 percent of all privately owned housing units are built in areas that require building permits.

20 Census has discontinued publication of this series. The last year for which data were published was 1998.

21 Census discontinued collection of data on nonresidential construction authorized by building permits in 1995 due to budget cuts. EPA has used historical data from this series to create projections of nonresidential building activity beyond 1995. See Section <IP_ADDRESS>.

22 Private residential construction is classified as: single family homes, 2 family buildings, 3 4 family buildings, or 5 or more family buildings. Data collection for other types of construction ( including nonresidential housekeeping, nonresidential buildings, and demolition and razing) was discontinued in 1995.

23 All permit issuing places in the most active MSAs and all CMSAs are selected with certainty for the sample. The remaining places are stratified by State into two strata based on the number of housing units authorized in 1989, 1990, 1991, and 1992. In each State, all places that authorized housing units during the period greater than or equal to a predetermined number of units were selected with certainty. The other places were selected at the rate of 1 in 10.

2 32 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 Figure 2 3 shows monthly data from January 1994 through July 2000 on the number of housing units authorized by building permit. The data in this chart represent seasonally adjusted annual averages.

Seasonal adjustment eliminates the effect of changes that normally occur at about the same time and with about the same magnitude every year. 24 As seen, the seasonally adjusted annual rate of building permits issued shows a steady rise over the recent period. From an average of between 1.3 and 1.5 million units per year over the 1994 to 1997 period, the rate then rose through the 1998 to 2000 period. The rate appears to have reached a peak in January 2000 when it hit 1.7 million units, and has since fallen steadily back to approximately 1.5 million units per year.

24 This includes the influence of factors such as normal or average changes in weather conditions, differences in the lengths of the months, and differences in the composition ( trading day variation) of the months. The seasonally adjusted annual rate is the seasonally adjusted monthly rate multiplied by 12. The seasonally adjusted annual rate for a particular month, for example July, can be interpreted to mean that if the only changes which occur in building permits from July through June of the following year were the normal seasonal changes described by the seasonal indexes, then the total building permits in that 12 month interval would equal the seasonally adjusted annual rate for July. The seasonally adjusted annual rate has the advantage of facilitating comparisons with previous annual building permit figures as well as with the seasonally adjusted annual rates for prior months. The seasonally adjusted annual rate is neither a forecast nor a projection; rather it is a description of the rate at which building permits are issued in the particular month for which it is calculated.

2 33 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 The total number of new housing units authorized in 1997 was 1,441,136. Of these, 1,062,396 or 73.7 percent were for single housing units. 25 Table 2 15 shows the number of new privately owned housing units authorized by building permit, allocated to Census region and subregion.

1994 1995 1996 1997 1998 1999 2000 1,100 1,200 1,300 1,400 1,500 1,600 1,700 1,800 ( ' 000)

Figure 2 3. New Privately Owned Housing Units Authorized, Seasonally Adjusted Annual Rate, U. S.

Source: U. S. Census Bureau ( 2000e) , Series C 40, Building Permits.

25 A   housing unit   consists of a room or group of rooms intended for occupancy as separate living quarters by a family, by a group of unrelated persons living together, or by a person living alone. Separate living quarters are those in which the occupants live and eat separately from other persons in the building and have direct access from the outside of the building or through a common hall. In accordance with this definition, each apartment unit in an apartment building is counted as one housing unit.

2 34 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 Table 2 15 New Privately Owned Housing Units Authorized by Building Permits in Permit Issuing Places in 1997, by Region Region Sub Region Total 1 Unit 2 Units 3 and 4 Units 5 Units or More Number of Structures with 5 Units or More Northeast New England 41,110 35,838 904 687 3,681 236 Middle Atlantic 100,776 75,312 4,278 2,347 18,839 963 Total Region 141,886 111,150 5,182 3,034 22,520 1,199 Midwest East North Central 209,213 154,513 8,168 8,401 38,131 3,118 West North Central 90,628 65,510 4,472 2,910 17,736 1,105 Total Region 299,841 220,023 12,640 11,311 55,867 4,223 West Mountain 179,632 134,403 2,548 3,675 39,006 3,098 Pacific 183,913 132,670 4,590 5,180 41,473 2,902 Total Region 363,545 267,073 7,138 8,855 80,479 6,000 South South Atlantic 392,540 291,564 5,070 5,605 90,301 5,839 East South Central 79,979 61,863 2,264 1,933 13,919 1,106 West South Central 163,345 110,723 2,556 2,850 47,216 2,760 Total Region 635,864 464,150 9,890 10,388 151,436 9,705 TOTALS 1,441,136 1,062,396 34,850 33,588 310,302 21,127 Source: U. S. Census Bureau ( 2000a) .

2 35 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 Value of Projects The same Census program that compiles and reports data on the number of housing units authorized by building permit also compiles data on the value of permits issued. The value reported in the permits data refers to the value of structures and site improvements covered by the building permit,

but excludes land costs.

The total value of residential building permits issued in the U. S. in 1997 was $ 141.0 billion. Of this, $ 121.2 billion, or 86.0 percent, was accounted for by single family housing units.

Table 2 16 shows the value of new privately owned housing units authorized by building permits in 1997, by Census region and subregion. The South region accounted for $ 55.9 billion ( 39.6 percent of the total) , followed by the West with $ 40.7 billion ( 28.8 percent) , the Midwest with $ 30.3 billion ( 21.4 percent) , and the Northeast with $ 14.1 billion ( 10.0 percent) .

2 36 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 Table 2 16 New Privately Owned Housing Units Authorized Valuation for Regions ( Millions of 1997 Dollars)

Region Sub Region Total 1 Unit 2 Units 3 and 4 Units 5 Units or More Northeast New England $ 4,737.7 $ 4,423.8 $ 59.3 $ 49.0 $ 205.5 Middle Atlantic $ 9,399.5 $ 8,142.4 $ 232.4 $ 134.3 $ 890.4 Total Region $ 14,137.2 $ 12,566.2 $ 291.7 $ 183.3 $ 1,095.9 Midwest East North Central $ 21,688.0 $ 18,858.2 $ 584.1 $ 516.4 $ 1,729.4 West North Central $ 8,573.9 $ 7,292.4 $ 294.3 $ 184.1 $ 803.3 Total Region $ 30,261.9 $ 26,150.5 $ 878.3 $ 700.4 $ 2,532.6 West Mountain $ 17,426.3 $ 15,038.7 $ 225.4 $ 245.8 $ 1,916.4 Pacific $ 23,299.2 $ 19,693.7 $ 389.6 $ 410.3 $ 2,805.6 Total Region $ 40,725.5 $ 34,732.4 $ 615.0 $ 656.1 $ 4,722.0 South South Atlantic $ 35,206.7 $ 29,973.8 $ 301.1 $ 341.9 $ 4,590.0 East South Central $ 6,840.6 $ 6,042.5 $ 106.1 $ 66.3 $ 625.7 West South Central $ 13,832.4 $ 11,729.1 $ 111.8 $ 109.6 $ 1,881.9 Total Region $ 55,879.7 $ 47,745.4 $ 518.9 $ 517.8 $ 7,097.6 TOTAL $ 141,004.4 $ 121,194.5 $ 2,304.0 $ 2,057.7 $ 15,448.2 Figures rounded from thousands reported by Census. Source: U. S. Census Bureau ( 2000a) .

<IP_ADDRESS> Nonresidential Building Census discontinued the collection of data on nonresidential construction authorized by building permits in 1995 due to budgetary restraints. To fill this data gap, EPA has used historical ( pre 1995) data on nonresidential starts to establish a relationship between residential and nonresidential starts from which current nonresidential activity can be estimated.

2 37 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 Number and Value of Projects EPA analyzed data from 1980 through 1994 on the number of nonresidential building permits,

number of residential building permits, the value of nonresidential buildings put in place, and a time trend to estimate a statistical relationship that could be used to predict the number of nonresidential permits issued in 1997. 26 Table 2 17 shows, for each region and subregion, the results from EPA   s analysis. EPA used a linear regression of nonresidential building permits on the remaining three variables to estimate the number of permits.

The value of nonresidential building projects is reported by Census in the Value Put in Place data series. Table 2 17 also shows the value of nonresidential projects constructed in 1997 by region and subregion.

26 EPA assumes that there is a one to one correspondence between permits and projects for nonresidential construction activity. Therefore, the predicted number of nonresidential permits issued in 1997 is assumed to also be the predicted number of nonresidential projects for that year.

2 38 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 Table 2 17 Estimated Number of Nonresidential Building Permits for 1997, by Region Region Sub Region Nonresidential Permits ( estimated) Value Put in Place ( millions of dollars)

Northeast New England 26,936 $ 1,034 Middle Atlantic 51,530 $ 2,482 Total Region 78,466 $ 3,516 Midwest East North Central 62,193 $ 8,606 West North Central 30,374 $ 1,745 Total Region 92,568 $ 10,351 West Mountain 27,696 $ 2,187 Pacific 51,408 $ 6,736 Total Region 79,105 $ 8,922 South South Atlantic 124,452 $ 6,098 East South Central 20,340 $ 3,228 West South Central 31,093 $ 4,624 Total Region 175,886 $ 13,950 TOTALS United States 426,024 $ 36,739 Figures may not add to totals due to rounding. Source: U. S. Census Bureau ( 2000a) .

As shown in Table 2 17, the number of nonresidential building projects authorized by permits in 1997 is estimated at 426,024. The South had the highest number of nonresidential permits in 1997, with 175,886, or 41.3 percent of the total. The Northeast had the fewest nonresidential permits issued, with only 78,466, or 18.4 percent of the total.

The total value of nonresidential building projects constructed in 1997 was $ 36.7 billion. As with nonresidential permits, the South had the highest value put in place, with $ 13.9 billion ( 38.0 percent of total value put in place) while the Northeast had the lowest value of projects put in place with $ 3.5 billion ( 9.6 percent of total) .

2 39 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 <IP_ADDRESS> Heavy Construction Heavy construction encompasses both building and nonbuilding construction activities, although 95 percent of the work performed by establishments in NAICS 234 ( Heavy construction) is classified as nonbuilding construction. The largest component of heavy construction work is highway and street construction. These activities account for one third of the value of construction work completed by the heavy construction industries. When highway and street construction is combined with bridge and tunnel construction, the total value of work climbs to $ 53.3 billion, or 41.7 percent of the industry total. Heavy construction activities excluding roads, bridges, and tunnels ( e. g. , airport runways, sewers and water mains, transmission lines) account for the remaining 58.3 percent of construction value, but there is little data providing further detail on such activities. As a result, this section focuses principally on road,

highway, bridge, and tunnel construction.

The Federal Highway Administration ( FHWA) publishes the most detailed report on highway,

bridge, and transit systems in the United States. The 1999 Report to Congress, Status of the Nation   s Highways, Bridges and Transit: Conditions and Performance ( C& P Report) includes not only information on the condition of these systems, but details on capital expenditures and improvements as well. The sections below summarize some of this data.

Number of Projects Table 2 18 summarizes information from the C& P Report on the number of miles of highway,

urban, and rural roads in the U. S. , as well as the number of lane miles represented Highway lane

mileage has increased by an average of only 0.3 percent annually over the period 1987 1997. Although the report and Table 2 18 show the annual capital and maintenance expenditures on this roadway system,

nowhere in the report ( nor in any other data reviewed for this analysis) does FHWA present the number of projects funded or number of miles of new road completed. As a result, EPA lacks current estimates of the number of highway, road, bridge or transit construction projects that potentially would disturb land.

2 40

  Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 The number of rural highway road miles ( as distinguished from lane miles ) declined by an average of 0.2 percent annually between 1987 and 1997. During the same period, urban highway road

miles grew by an average of 1.7 percent annually. The decline of rural road mileage and comparative growth in urban road mileage may be due, at least in part, by the expansion of existing urban roadways indicated by the figures above for lane mileage growth trends. Some areas that were previously classified as rural may also have been reclassified as urban during that 10 year period based on population growth. 27 Table 2 18. Highway Statistics Statistic 1997 Data 1987 1997 Average Annual Growth ( percent) a Total Rural Highway Miles Total Urban Highway Miles Total Highway Miles 3.11 million 0.84 million 3.95 million  0.2 1.7 Total Rural Highway Lane Miles Total Urban Highway Lane Miles Total Highway Lane Miles 6.37 million 1.89 million 8.26 million 2.1 0.3 Total Highway Expenditures ( All Govts. )

Total Highway Capital Outlay ( All Govts. )

Total Highway Capital Outlay Per Lane Mile Total Highway Capital Outlay Per Road Mile b $ 101.3 billion $ 48.7 billion $ 5,914 $ 12,329 $ 12,360   Not provided a Not provided for all statistic categories. b Range calculated by EPA as described in text. Source: FHWA 1999, various tables.

27 The C& P Report defines   rural   areas as areas with a population under 5,000. .   Urban   areas are those with a population greater than or equal to 5,000.

2 41 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 Value of Projects The C& P Report presents highway and road expenditures by all levels of government ownership.

Expenditures are further classified as capital and non capital. Non capital expenditures include maintenance and service outlays. 28 Maintenance activities are not expected to disturb significant amounts of land. Capital outlays refer to activities such as land acquisition and other right of way costs;

preliminary and construction engineering; new construction, reconstruction, resurfacing, rehabilitation, and restoration of roadways, bridges, and other structures; and installation of guardrails, fencing, signs, and signals. Capital outlays are further classified according to whether they support system preservation,

system expansion, or system enhancement. Definitions for these are as follows:

  System Preservation   capital improvements on existing roads and bridges; includes reconstruction, resurfacing, pavement restoration/ rehabilitation, widening of narrow lanes and shoulders, bridge replacement and bridge rehabilitation; does not include routine maintenance costs ( these costs are captured by   non capital expenditures   ) .

  System Expansion   construction of new roads and bridges, as well as costs associated with adding lanes to existing roads; includes all of   New Construction,     New Bridge,     Major Widening,   and most costs associated with   Reconstruction  Added Capacity.     System Enhancement   includes safety enhancements, installation of intelligent transportation systems, and environmental enhancements.

Based on a review of these definitions, EPA concludes that the activities classified as capital outlays are most likely to result in land disturbances. In 1997, capital outlays totaled $ 48.7 billion. Table 2 20 provides a more detailed breakdown of these expenditures.

Another 1999 FHWA report, Our Nation   s Highways , shows that 6.9 percent of total state disbursements 29 for highways in 1998 went to new road and bridge construction. Another 36.3 percent went to other capital improvements on existing highways. Between 1995 and 1997, expenditures ( from all jurisdictions) for system expansion grew at a faster rate than expenditures for either system 28 Maintenance outlays cover spot patching, crack sealing ( roads and bridge decks) , and maintenance/ repair of route markers, signs, guardrails, fencing, signals, and lighting.

29 Total state disbursements were $ 80.5 billion in 1998. This figure includes Federal Aid for highways.

2 42 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 preservation or system enhancements. The C& P report shows that in 1997, 47.6 percent of capital outlays went toward system preservation; 8.0 percent went toward system enhancement; 15.6 percent went toward new roads and bridges; and another 28.8 percent went toward other system expansion.

The FHWA data does not report the mileage of new roads constructed versus the mileage lost ( removed or taken out of commission due to condition) . Some data is available for capital outlays by improvement type ( such as new road construction, resurfacing, etc. ) . This information is presented in Table 2 19. 30 30 The data in Table 2 19 is based on a sample of direct State expenditures on particular improvements. FHWA then used this state data to estimate a national average for roads under jurisdiction of all governmental units ( local, state, federal) and for all roadway systems. The   Total, State Arterials & Connectors   is based on the direct State expenditures data;   Total, Arterials and Collectors, All Jurisdictions   is estimated based on the State data. . FHWA reports that there is very little information on expenditures for local functional class roads. FHWA assumed that the expenditure patterns for local functional class roads more or less followed the expenditure patterns for arterials and collectors and used this assumption to estimate the total capital outlay by all government units for all road systems ( arterials, collectors, and local functional class roads) . These expenditures are accounts of governmental unit spending , not of construction contractor spending, though it may be assumed that since the majority of roads are owned by some government unit ( local, state, federal) , any costs incurred by the construction contractor would ultimately be paid for with government funds.

2 43 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 Table 2 19. Highway Capital Outlay by Improvement Type, 1997 ( Billions of Dollars)

Expenditure Item System Preservation System Expansion System Enhancemen t Total New Roads & Bridges Existing Roads Direct State Expenditures on Arterials and Collectors Right of Way Engineering New Construction Relocation Reconstruction Added Capacity Reconstruction No Added Capacity Major Widening Minor Widening Restoration & Rehabilitation Resurfacing New Bridge Bridge Replacement Major Bridge Rehabilitation Minor Bridge Work Safety Traffic Management/ Engineering Environmental and Other Total, State Arterials & Collectors 2.6 1.1 1.0 0.8 2.5 3.4 1.7 1.5 0.7 15.2 0.9 0.8 3.1 0.6 5.4 1.5 1.3 1.7 2.6 1.8 8.9 0.4 1.2 0.4 0.5 2.5 2.4 5.1 3.1 1.7 3.7 1.0 1.8 0.8 2.5 3.4 0.6 1.7 1.5 0.7 1.2 0.4 0.5 32.1 Total Expenditures on Arterials and Collectors, All Jurisdictions ( estimated) a Highways and Other Bridge Total, Arterials and Collectors 13.7 4.9 18.5 5.3 0.8 6.0 11.2 11.2 3.1 3.1 33.2 5.6 38. . 9 Total Capital Outlay on All Systems ( estimated) b Highways and Other Bridges Total Capital Outlay, All Systems 17.1 6.1 23.2 6.6 1.0 7.6 14.0 14.0 3.9 3.9 41.7 7.0 48.7 Percent of Total Expenditures 47.6% 15.6% 28.8% 8.0% 100.0%

a Improvement type distribution was estimated based on State Arterial and Collector data. b Includes expenditures for arterials and collectors as well as for local functional class roads. Sources: Highway Statistics 1997, Table SF12 A and unpublished FHWA data; all FHWA 1999 Exhibit 6 13 2 44 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 <IP_ADDRESS> Characterization of Supply This section discusses the characteristics of supply in the C& D industry such as market structure,

barriers to entry, and supply trends.

Market Structure Section 2.3 summarized information about the size distribution of developers and builders, based on employee and revenue size criteria. As shown there, the industry consists predominantly of small firms and sole proprietorships who generally operate on a localized basis within a specific geographic market. Anecdotal information indicates that a large number of small firms focus on niche markets that are not as easily accessible to the large scale builders ( Housing Zone, 2001) .

While the majority of firms are small, a small number of large operators do control a sizeable share of the market. In its special report on homebuilding, for example, Census reports that just over 100 builders, representing only 0.3 percent of all establishments, accounted for 90,772 new single family homes, or 18.4 percent of the total. This represented an average of 865 homes per builder ( see Table 2

20) . 31 Assuming an average sales price of $ 200,000, builders in this size class would have average revenues of $ 173 million, substantially above the overall industry average of $ 1.0 million. At the top of the industry are builders like Pulte Corporation ( $ 3.8 billion in housing revenues) , Kaufman and Broad ( $ 3.7 billion) , and Centex Corporation ( $ 3.3 billion) who operate nationwide and wield considerable market power. 32 Discussions with representatives of the homebuilding industry suggest there are at least two common business models in the industry. Most projects are managed by either a single land developer who sells improved lots to individual builders, or feature a developer builder who both develops the land and builds on it ( some developers may sell some lots and retain others to build on themselves) . Figure 2

4 illustrates these two alternatives.

31 These data are based on a subset of builders that are 100 percent specialized in new single family home construction.

32 http: / / www. housingzone. com/ topics/ pb/ build/ giants2000/ 2000400. asp accessed 3/ 9/ 01.

2 45 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 Table 2 20 Selected Statistics for Establishments by Single Family Housing Starts Size Class: 1997 [ Detail may not add to total because of rounding ]

Source: U. S. Bureau of the Census, Construction Sector Special Study Table 3a. ( http: / / www. census. gov/ ftp/ pub/ const/ www/ starts. pdf) Number of Housing Starts Establishments Starts Starts per Establishment No. % of Total No. % of Total 0 3,736 11.0% 0 0.0% 0.0 1 4 14,781 43.6% 33,363 6.8% 2.3 5 9 6,557 19.3% 42,175 8.6% 6.4 10 24 5,411 16.0% 79,226 16.1% 14.6 25 99 2,608 7.7% 109,258 22.2% 41.9 100 499 720 2.1% 138,000 28.0% 191.7 500+ 105 0.3% 90,772 18.4% 864.5 Total 33,918 100.0% 492,792 100.0% 14.5 Barriers to Entry In the economics literature, barriers to entry are considered to exist when it is difficult for a new firm to enter an existing market. According to academics who have studied the homebuilding industry,

there are two types of barriers to entry for new homebuilding firms   entry costs and input cost differentials ( Landis, 1986) .

  Entry cost differentials are the additional costs a new homebuilder must incur to participate in a given market. These costs may be manifested in the form of local development fees, abnormally high land costs, or abnormally high wages. In the short run, entry cost barriers raise the cost of building and keep builders who are unable or unwilling to pay the extra costs out of the market. In the long run, builders produce at less than their optimal scale ( i. e. , to the left of the lowest point on their marginal cost curve) to avoid holding unsold inventory in a downturn. Thus, entry barriers flatten the industry average cost curve by increasing builders   exposure to   cyclical risk.   In addition, these barriers tend to reduce the advantage of high volume builders over the long term ( Landis, 1986) .

2 46 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002   Input cost differentials are exhibited when new homebuilders must pay higher prices for inputs than existing firms, or when they are prevented from accessing necessary inputs. Usually, input price differentials are a temporary phenomenon but some forms of regulation can create permanent price differentials.

The existence of entry costs also increases the importance of up front financing for home building projects. The builder must invest more funds earlier in the project to overcome the entry barrier.

Firms with established credit may be able to borrow some of this up front financing, while less well

established firms must use their own capital. In either case, the opportunity costs of the investment are larger so regulatory delays and environmental compliance requirements become more burdensome ( Landis, 1986) . Much of the cost of building regulation is the interest that accrues on invested funds while permits and variances are negotiated. Luger and Temkin ( 2000) estimate that the costs of delay for a 25 unit subdivision rise from $ 3,692 per month in the approvals stage to $ 13,400 per month in the construction phase.

Similar issues confront non residential and heavy construction contractors. Non residential projects are generally larger than residential projects, so builder financing and carrying costs are proportionately larger. Since fewer firms can take on large projects, the opportunity for incumbent firms to maintain barriers to entry is also greater. Most heavy construction is carried out under government or utility contracts where competitive bidding is required. This may tend to level the playing field for entering firms who can overcome the basic qualification requirements.

2. 4 . 1 . 5 Supply Trends This section provides a brief overview of trends in homebuilding practices that could potentially influence baseline ESC practices or the adoption of ESC options proposed by EPA under the effluent guidelines.

The National Governors Association ( NGA) recently published a report examining a concept they have termed New Community Design ( NCD) . According to the report, NCD encompasses many of the concepts popular in residential design today: New Urbanism, Traditional Neighborhood Development, compact development, livable communities, master planned communities, and neo

2 47 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 traditional design. NCD has been described as   neighborhoods of housing, parks, and schools within walking distance of shops, civic services, jobs, and transit   a modern version of the traditional town   ( Peter Calthorpe, as quoted in Hirschhorn and Souza, 2001, p. 9) . This and other types of design such as low impact development ( LID) have garnered new found attention in recent years, and continue to be key topics for development professionals. Both NCD and LID are discussed in more detail below.

New Community Design NCD is a development design philosophy aiming to create a walkable, multi purpose community structure that decreases dependency on automobiles, takes advantage of public transportation,

incorporates parks and other green spaces, and uses existing infrastructure. A community based on NCD incorporates residential, commercial, and institutional facilities. Residential communities are a blend of single and multi family housing, and often blend commercial and retail facilities with housing units as well. According to the NGA report, approximately one third of potential homebuyers would prefer an NCD community versus a traditional, sprawl based development   provided that the option existed.

Currently less than one percent of total housing construction is based on NCD principles. This means that the option to live in a NCD community versus a traditional sprawl community does not exist for many potential homebuyers. NGA identifies the following factors as limiting the adoption of NCD and similar concepts:

  Local zoning codes make it difficult for mixed use communities to get approved.

  Lenders favor single use residential projects, strip malls, and suburban office parks. This favoritism   causes conventional real estate analyses to discount the long term returns of NCDs, making them difficult to finance   ( ( Hirschhorn and Souza, p. 13) .

  Conventional developers and builders have expertise in single use projects and, as a result, continue doing what they are already familiar with. In many cases these individuals are not able, or prepared, to deal with the increase in up front costs arising from the increased intensity at the planning and design stage of a NCD project.

A survey by the Canada Mortgage and Housing Corporation compared the costs and benefits of a conventional development ( 4,505 dwellings) with an NCD alternative ( 6,875 dwellings) . The incremental savings resulting from the NCD alternative, on a per housing unit basis, were as follows:

roads, $ 3,054; storm water management, $ 1,499; transit, $ 1,330; water, $ 1,099; policing, $ 1,016; and 2 48 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 sanitary services, $ 975. The total infrastructure savings for the NCD alternative are $ 61.5 million ( Hirschhorn and Souza, p. 36) . The NGA report offers one solution to the lagging supply of NCD construction: implement parallel building codes. Such parallel building codes may serve to   level the playing field   with conventional subdivision development while still allowing conventional development to take place.

Low Impact Development LID is a development design strategy that aims to protect the natural pre development hydrological function of a site. True LID shares many features with NCD, such as smaller lot sizes and the addition of greenspace to the site plan. However, whereas NCD focuses on mixed use development,

LID at this time focuses primarily on residential development, although LID concepts may be easily applied to other types of development ( e. g. , commercial, mixed use) .

The primary goals of LID are to: ( 1) minimize development impacts by reducing impervious surfaces, maintaining natural site drainage, reducing curb and gutter construction, and reducing clearing and grading; ( 2) create dispersed runoff controls on individual lots utilizing swales, flatter slopes, rain gardens, etc. ; ( 3) maintain pre development hydrology; and ( 4) encourage pollution prevention and runoff management by individual property owners ( Coffman et al. , 1998) .

Conventional site design relies on storm water controls that collect and convey runoff away from the property as quickly as possible. This type of design relies on pipes, paved surfaces, drainage ditches,

and gutters as well as traditional best management practices ( BMPs) such as ponds and sediment basins.

Such conventional design actually amplifies hydrologic changes ( increased volume, runoff frequency,

and discharge rate) as   natural storage is lost, the amount of impervious surfaces in increased, the time of concentration is decreased, runoff travel times are decreased and the degree of hydraulic connection is increased   ( ( Prince George   s County, 1999) . In addition, while many conventional storm water control techniques are designed to   maintain the peak runoff discharge rate at predevelopment levels for a particular design storm event,   only the runoff rate is controlled, leaving the runoff volume, frequency,

and duration to increase unchecked ( Coffman et al. , 1998) .

2 49   Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 As with any relatively new technology or approach, 33 there are many concerns surrounding the effectiveness, costs, and benefits of LID as compared with conventional site design. Developers and builders want to know how using LID techniques will affect financing and their bottom line, while consumers want to know how it will affect their ability to purchase a new house, as well as their resale value.

Many in the construction industry have found that they face lower development costs with LID than with conventional   curb and gutter   design. . A presentation at a 1999 Storm Water Workshop for the Florida Keys Carrying Capacity Study ( FKCC; sponsored by the U. S. Army Corps of Engineers,

Jacksonville Division) demonstrates how LID can lower overall development costs. Table 2 21 reproduces the construction cost table presented for a residential development in Maryland.

Table 2 21. Construction Cost Comparison for Low Impact Development Cost Element Conventional Development Low Impact Development Grading/ Roads $ 569,698 $ 426,575 Storm Drains $ 225,721 $ 132,558 SWM Pond/ Fees $ 260,858 $ 10,530 Bioretention/ Micro $ 252,124 Total $ 1,086,277 $ 821,787 Unit Cost $ 14,679 $ 10,146 Lot Yield 74 81 Source: Coffman, 1999 As shown above, construction costs associated with development were estimated to be nearly $ 250,000 lower for a LID development plan than for a conventional plan. In addition, the LID design actually increased lot yield from 74 lots to 81 lots. This is only one example of reduced construction costs and/ or increased lot yield achievable though LID design.

33 The term   relatively new   is used quite loosely here. . LID technologies have been in use for some time, although such designs are just now beginning to gain mainstream acceptance.

2 50 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 The major additional cost developers incur when choosing LID ( as well as NCD) , is the increased time and effort often needed at the design stage of a project. The additional planning time is used to assess site hydrology, design runoff controls for each lot, and other considerations.

Conservation oriented design   creates significant upfront costs and raises questions of financial viability   ( Mammoser, 2000, p. 45) . These costs can increase more if structures are built using environmentally

friendly materials, which have generally higher   first cost   compared to more traditional materials. . As noted by Mammoser, ( 2000) , potential lenders may be wary of financing a LID project. As more LID projects prove successful and profitable, however, lenders may become more accepting of such   alternative   forms of development and perceive them as no more risky   and perhaps less risky   than conventional developments.

2.4.2 Characteristics of Construction Demand This section describes the factors and characteristics of demand in the C& D industry. The major demand factors addressed are: housing demand and demand elasticity, the impact of regulation on demand for housing, and demand for nonresidential and heavy construction.

<IP_ADDRESS> Demand Factors Affecting Construction and Development Activities According to a recent study ( Luger and Temkin, 2000) , market demand is one of the three major factors taken into consideration by a builder/ developer when deciding whether or not to propose a development. Market demand includes the types and quantities of housing units the public wants, and is affected by general macroeconomic conditions, demographics, and consumer tastes. Other factors that may affect demand for C& D activities include inflation ( Henderschott, 1980) , transaction costs ( i. e. ,

costs associated with purchasing a new home/ facility) ( Haurin and Chung, 1998) , expected length of tenure ( Haurin and Lee, 1989) , mortgage loan to house value ( Haurin and Lee, 1989) , and borrowing constraints ( Linneman et al. , 1997; Zorn, 1993) . Changing demographics tend to have a fairly large effect on the type of residential housing demanded ( i. e. , single family versus multifamily) ( Hirsch, 1994;

Eppli and Childs, 1995) .

2 51 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 <IP_ADDRESS> Housing Demand and Elasticity As discussed above, housing demand is largely determined by macroeconomic factors,

demographics, and consumer tastes. Changes in the age of family formation, the size of families, and their perceived needs for space will affect the market   s demand for houses of various sizes and styles.

Geographic shifts in economic activity and changes in worker mobility affect where people wish to live.

As these market factors evolve, an increasing number of buyers find that existing housing does not meet their desires. In other words it becomes an imperfect substitute for new housing ( Landis, 1986) . As an illustration, the average size of new homes has been increasing in the U. S. , even as family sizes have diminished or remained unchanged. In 1995, the average size of a new home was 2,095 square feet. By 1999 the average had risen more than 6 percent, to 2,225 square feet ( Census, 2000c) . Existing housing does, however, act as a check on the prices of new housing ( Landis, 1986) since it serves as the default alternative.

Demand for new construction may be viewed as the outcome of a four way household decision process in which households decide whether to buy an existing home, buy a newly constructed home,

improve their current home, or do nothing. In light of demographically driven demand and the existence of near substitutes, it is not surprising that empirical studies find a somewhat inelastic demand for new housing ( DiPasquale, 1999) . Price is not the strong determining factor in housing markets that it is in more commodity like markets. Luger and Temkin ( 2000) report that this inelasticity is more pronounced in the higher end housing markets.

Demographic trends are local as well as national phenomena. Different parts of the country grow at different rates and as the size and make up of the local population changes so do housing tastes and preferences. Location is a key aspect of housing demand, perhaps more significant than price. As a result, demand for homes in favorable locations is far stronger than demand for homes in less desirable locations. Strong demand in certain regions or neighborhoods will be reflected in a less elastic demand curve.

2 52 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 <IP_ADDRESS> Impact of Regulation on Housing Demand Increased regulations may exert upward pressure on housing prices which may, in turn, price some potential homebuyers out of the market due to income constraints. Luger and Temkin ( 2000) give the following example: if regulations on the construction industry increase the price of a house by $ 10,000, a household would need $ 2,500 more in annual income to still qualify for the house. The authors define   excessive   regulation as those regulations that are   beyond what is essential   to accomplish set environmental or developmental goals, or those delays that are longer than what should be necessary to accomplish a fair review of plans ( Luger and Temkin, 2000) . Table 2 22 illustrates this effect.

Table 2 22. Impact of Regulatory Driven Delays on Housing Affordability Parameters No Delay/ No Excessive Regulation With Delays and Excessive Regulation House Price PITI Payment a ( per month)

Income Needed to Qualify for Mortgage $ 175,000 $ 1,377 $ 55,000 $ 185,000 b $ 1,437 c $ 57,500 a Principal, Interest, Tax, Insurance Payment. Assumes an 80 percent, 30 year conventional mortgage at 8 percent interest, using tax and insurance data from New Jersey. b Assumes $ 10,000 in regulatory costs added to the home price. c Calculated using typical mortgage spending limit equal to 30 percent of gross income. Source: Luger and Temkin 2000, pages 10 11.

Housing demand, especially in the higher end market, tends to be fairly inelastic. This inelasticity results in the appearance of a multiplier effect with regard to regulatory costs and sales price.

In other words, a one dollar increase in costs to the builder will translate into a more than one dollar cost to the consumer ( if costs are passed forward as they tend to be with inelastic markets) . Estimates for the magnitude of this multiplier range from two to six, with the average being approximately four ( Luger and Temkin, 2000) . The potential impact of this proposed rule on housing prices is discussed and analyzed in Chapters Four and Five.

2 53 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 <IP_ADDRESS> Trends in New Homes Sold Table 2 23 shows the number of new one family houses sold and for sale from 1981 through 1999, including the median number of months from start to sale, average sales prices, and median sales price.

Table 2 23 New One Family Houses Sold and For Sale Year Total ( Thousands) Median Months Start to Sale Average Sales Price Median Sales Price 1981 436 5.1 $ 83,000 $ 68,900 1982 412 3.9 $ 83,900 $ 69,300 1983 623 2.9 $ 89,800 $ 75,300 1984 639 3.4 $ 97,600 $ 79,900 1985 688 3.9 $ 100,800 $ 84,300 1986 750 3.6 $ 111,900 $ 92,000 1987 671 3.9 $ 127,200 $ 104,500 1988 676 4.0 $ 138,300 $ 112,500 1989 650 4.3 $ 148,800 $ 120,000 1990 534 4.5 $ 149,800 $ 122,900 1991 509 4.4 $ 147,200 $ 120,000 1992 610 3.5 $ 144,100 $ 121,500 1993 666 3.6 $ 147,700 $ 126,500 1994 670 3.8 $ 154,500 $ 130,000 1995 667 4.3 $ 158,700 $ 133,900 1996 757 4.2 $ 166,400 $ 140,000 1997 804 3.7 $ 176,200 $ 146,000 1998 886 3.5 $ 181,900 $ 152,500 1999 907 3.3 $ 195,800 $ 160,000 Source: Bureau of the Census ( 2000c) .

2 54 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 <IP_ADDRESS> Nonresidential Demand Characteristics Demand characteristics affecting the nonresidential and heavy construction sectors are similar to those affecting the residential sector. General economic conditions, interest rates, and past industry activity all have an effect on current demand. According to a recent press release by CMD ( 2001b) , the demand and supply cycles in construction are highly localized, and at any given time different cities across the nation are at different points in their own cycles. For example, as of October, 2001, office markets in Washington D. C. , San Diego, Los Angeles, and several areas in New York were experiencing increasing office vacancies, but new construction was still occurring. In markets such as Dallas,

Jacksonville, Tampa, and Salt Lake City, however, there has been low or even negative demand growth.

While buildings in progress are still being completed, new construction starts have slowed dramatically.

The industrial market was still fairly stable in October and had not yet begun showing signs of substantial decline ( CMD, 2001b) .

As with residential construction, general population growth should ensure that demand for all building types will continue to rise in the future ( CMD, 2001b) . The rate at which demand increases,

however, is certainly variable and may not be the same for all markets in all portions of the United States.

For the commercial building market in particular, past building activity has affected demand through recent years. The Economic Recovery Tax Act of 1981 fueled a commercial building boom that ultimately generated severe excess capacity in the market ( CMD, 2001a) . This caused a decrease in demand for new commercial construction throughout the late 1980s and into the 1990s as the market worked to absorb some of the excess commercial space. The growth in the technology sector in the late 1990s spurred another boom in the office market. According to CMD ( 2001a) , approximately 20 million square feet of office space was built between 1998 and 2000 as a result of increased demand from this one sector. Vacancy rates increased once again as the year 2000 brought the decline of the technology sector and associated economic downturn.

For the commercial and industrial sectors, increasing vacancy rates tend to be followed by a decrease in new construction activity as the market tries to absorb the over supply of space. The demand for new construction in these sectors is heavily influenced by the performance of other sectors, as evidenced by the technology sector example above. A   boom   in one industry necessitates the 2 55 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 acquisition of new space for expansion; if the market does not have a ready supply of the type of space needed, then new construction increases. At the same time, a   bust   in a given industry will free up space in the market, and until the space is absorbed, new construction will slow. As with residential construction, lower interest rates may increase construction activity, while higher rates will tend to slow activity.

<IP_ADDRESS> Heavy Construction Demand Characteristics The heavy construction industry ( NAICS 234) is defined by the U. S. Census Bureau to include those establishments that are   engaged in the construction of heavy engineering and industrial projects ( except buildings) such as highways, power plants, and pipelines   ( ( U. S. Census Bureau, 2000f) . Heavy construction projects are characterized by their linear nature, as many projects are spread along a horizontal, rather than vertical, plane ( Ringwald, 1993) . Since the definition of heavy construction projects excludes buildings, these projects are much more weather sensitive than building construction and there are fewer days suited for heavy construction projects nationwide, especially in the northern states ( Ringwald, 1993) . The general trend in heavy construction through the 1990s was toward the rehabilitation of existing infrastructure ( Ringwald, 1993) .

In addition, the majority of heavy construction projects ( and the majority of the value of construction work) is performed for public, rather than private, owners ( Ringwald, 1993; U. S. Census Bureau, 2000f, p. 5) . As Table 2 24 shows, more than 50 percent of the value of construction work in NAICS 234 occurs under government owned projects, compared with less than 25 percent of the value in NAICS 233 ( Building, developing, and general contracting) and NAICS 235 ( Special trades) . This division of project ownership sets the heavy construction sector apart from the other major construction sectors.

For heavy construction firms, work done for a public entity generally entails different contractual requirements than work done for private entities. When the project owner is a public entity such as a city, state, or federal government, at least 50 percent of the contract related jobs are generally performed by the prime contractor, or conversely, less than half of the work under a given contract will be 2 56 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 subcontracted to other firms ( Ringwald, 1993) . This practice provides a public owner with more easily enforceable specifications, since the majority of the work is done by the primary contractor ( Ringwald,

1993) . On the other hand, 80 to 100 percent of the work on a privately owned project may be subcontracted to firms other than the prime contractor ( Ringwald, 1993) .

The negotiated contracts often used in private sector construction are not as common in the public arena. This is because a private owner generally has to prove the cost effectiveness of the contract only to the owner   s satisfaction, whereas a public owner may be called on to demonstrate the cost

effectiveness of such contracts to large numbers of taxpayers ( Ringwald, 1993) . For this reason, most heavy construction contracts let by public entities are competitively bid. Often, local law or agency regulations require the use of competitive bidding for public projects. There is a sense that such a system provides fairness in the awarding of contracts, as well as providing value to the taxpayers ( ASCE, 2000) .

2 57 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 Table 2 24. Value of Construction Work by Project Ownership ( 1997, $ thousands)

1997 NAICS code Description Owned by Federal Government Owned by State/ Local Govts. Total Govt. Owned Govt. Owned as Percent of Total Privately Owned Privately Owned as Percent of Total Total Private and Government 233 Building, developing, and general contracting $ 14,362,134 $ 43,472,528 $ 57,834,664 15.2% $ 323,806,944 84.8% $ 381,641,608 234 Heavy Construction $ 8,845,515 $ 60,368,420 $ 69,213,936 54.1% $ 58,627,664 45.9% $ 127,841,600 235 Special Trade Contractors a $ 559,910 $ 2,179,346 $ 2,739,258 17.2% $ 13,171,513 82.8% $ 15,910,771 TOTAL $ 23,767,559 $ 106,020,294 $ 129,787,858 24.7% $ 395,606,121 75.3% $ 525,393,979 a Covers establishments in NAICSs 23593 ( Excavation contractors) and 23594 ( Wrecking and demolition contractors) only. Source: U. S. Census Bureau ( 2000f) , 1997 Census of Construction . Figures may not add to totals due to rounding.

2 58 Economic Analysis of Construction and Development Proposed Effluent Guidelines May 2002 2.5 ECONOMIC AND FINANCIAL CHARACTERISTICS 2.5.1 Value of Work Done For the C& D industries, the Bureau of Census defines the value of construction work as the combined value of completed work on new construction, additions, alterations, reconstruction, and maintenance and repair. In addition, the Census defines the value of business done as the sum of the value of construction work plus other business receipts, which include: receipts from retail and wholesale trade, rental of equipment, manufacturing, transportation, legal service, insurance, finance, rental of property and other real estate operations, and other non construction activities. While the value of construction work is a good indicator of economic performance specifically related to C& D activity, the value of business done measure provides a better overall indicator of the economic performance of establishments in the C& D industries.