Swamp Stomp

Volume 13, Issue 51

An Analysis of the USEPA’s Economic Analysis of Proposed Revised Definition of Waters of the United States.

By: Marc Seelinger, Jr.

The EPA’s Economic Analysis of Proposed Revised Definition of Waters of the United States overlooks several important costs of the proposed redefinition and is a little too eager in its assessment of the purported benefits. Its analysis is, at best, incomplete and provides only a partial summary of the likely costs inherent in such a regulatory change. Particularly given the importance and magnitude of the proposed change, a more thorough analysis should be conducted prior to moving forward with any changes.

One of the most important shortcomings of the analysis is its reliance on largely anecdotal data for much of its cost-benefit analysis. Dozens of times throughout the report, the data used in various cost/benefit scenarios are derived from what “the agencies believe… [to be] a close approximation” of whatever the relevant data is. Reliable and verifiable data, rather than the “feelings” or “beliefs” of a nameless, faceless bureaucracy should form the foundation of an economic analysis. It is hard to find the report credible when so much of it depends on so little. Equally troubling is the EPA’s reliance on data (when it does use data) that is anecdotal or significantly out of date. The best example of this is in Section 7, under Estimate of Permit Application Costs, where the agency used data from a 1999 estimate to determine the likely change in permit application costs as a result of the rule change. In the same section, under Estimate of Compensatory Mitigation Costs, “phone inquiries” and the Internet formed the basis for an estimate of state-specific per-acre costs of wetland mitigation. One only hopes they did not use Wikipedia. So, much of the data which forms the foundation of the analysis is questionable, at best.

One of the leading benefits of this action, which is cited repeatedly throughout the report, is that questions of jurisdiction will be clarified and the EPA will not have to spend as much time litigating jurisdictional issues. It is true that economic activity is more likely to thrive when regulatory activity is more predictable and stable. However, given the scope of this rule and the tendencies of the current administration, entities subject to this regulation could rightly wonder whether this change is the final ruling (at least for the foreseeable future) or whether it is merely setting the precedent for larger regulatory changes down the road. So, rather than curtailing uncertainty, it is just as likely that this change will contribute to additional uncertainty and risk in the market. The analysis never addresses this issue, but it does suggest that there are significant ambiguities in the rule change that undercut this clarification benefit. The analysis notes that it is unclear how expanded jurisdiction will affect MS4 and oil spill permit costs and that there is even some ambiguity as to how many “Other Waters” would be affected. So, there is significant doubt about the size and scope of one of the primary benefits of this action.

The report also glosses over many of the costs that will arise as a result of this change. Regulation, by its very nature, constrains economic activity. The report pretends to believe that by expanding the list of what is subject to regulation, businesses will be able to become more productive because they will now have a better idea of what is subject to regulation (i.e. almost everything) and what is not. Yet, if a business was previously not subject to regulation and it must now subject itself to the regulatory regime, this is going to impact its bottom line in several different areas. First, there are the visible costs, things like permit application fees and mitigation expenses. There is also significant time involved in procuring permits for things like development projects. However, there is also a whole suite of invisible costs (or “opportunity costs”) that this regulation takes out of the economy. Whatever time and expense is spent complying with this regulation is time and money that cannot be spent on other projects. If a developer has to spend 12 months and $1 million to secure the necessary permits he needs to begin a project, that is 12 months and $1 million that he cannot dedicate to another project (or something equally as profitable). This is probably the single greatest harm that this rule change creates. The real damage to the economy is not in the additional processing fees developers have to pay or in the additional headaches the new rules create, but in the projects that never happen, the profits that are never generated, and the jobs that are never created. Whatever time and money is wasted redesigning a project to comply with the new rules crimps economic growth by decelerating business growth. This is an area that is almost completely unaddressed by the analysis. If this rule significantly increases that amount of time it takes to complete a project, then that slows down the rate at which businesses are able to generate profits and grow. As the report also notes, as more projects become subject to the Clean Water Act, more of them will also have to submit to consultation with other federal agencies to ensure compliance with the Endangered Species Act and the National Historic Preservation Act. So, there is also a regulatory multiplier effect built into this rule change. More projects will become subject to more regulation and will then become subject to additional regulation, prolonging compliance time and expense. This is a very significant drag on economic growth and one which the analysis barely addresses.

This rule change also imposes significant costs on state and local government agencies which are responsible for developing state water quality standards. In addition to re-evaluating their existing standards to ensure that they are compliant with the new rule, these agencies will also be responsible for monitoring and sampling additional waters. However, most states are still experiencing significant budgetary stress, and most states have made significant cuts to their environmental regulatory agencies. As a result, many of these state agencies are already under-funded. At this point in time, implementing this rule change would, in effect, be asking these state agencies to do more with less. As the outlook for the budgets of these agencies is quite dim, few of them will likely see staffing levels increase in the near future. Assuming this change goes into effect, these agencies will be responsible for continuing to monitor everything they were monitoring before while adding an unknown number of additional waters to their monitoring responsibilities. The only foreseeable result is a deterioration in quality. It will not be possible to maintain the same level of quality with such a broadening of jurisdiction without increasing staff levels. As that is unlikely to happen, the environmental quality of these areas will be put at risk. The EPA’s analysis does not account for this degradation in monitoring quality at all. This is significant as the stated goal of this rule change is to protect the waters subject to the EPA’s jurisdiction, yet the opposite is likely to occur.

There are several severe shortcomings in the EPA’s economic analysis of this rule change. The analysis overestimates the likely benefits of the change, while down-playing or (in many cases) omitting significant costs. This change will likely create significant costs for developers and project managers while requiring devastating changes at state and local government agencies. The analysis is imprudently optimistic about this rule change. The public would be better served by a more careful and reasoned analysis of the likely economic damage created by this change.