Benefits and Costs of Policy to Reduce Stormwater Runoff

Annotated Bibliography

Sharon Khan

Environmental Economist

Waterkeeper Alliance

50 South Buckhout Street, Suite 302

Irvington, New York 10533

Phone: (914) 674-0622

Introduction

This document is an annotated bibliography of information required to
assess the benefits and costs of policy to reduce stormwater runoff. 
Part 1 highlights the benefits of stormwater regulations as shown in
recent case studies.  Part 2 is a note on the costs of regulation to
reduce stormwater runoff.  Part 3 exposes the flawed benefits
methodology that EPA used in its evaluation of its 2004 Economic
Analysis of Final Action for Effluent Guidelines and Standards for the
Construction and Development Category.

► Office of Management and Budget, 2003.  Circular A-4: Guidelines for
the Conduct of Regulatory Analysis and the Format of Accounting
Statements (Circular A-4), September 2003, White House Office of
Management and Budget, Washington, D.C.

When important benefits and costs cannot be expressed in monetary units,
BCA [benefit cost analysis] is less useful, and it can even be
misleading, because the calculation of net benefits in such cases does
not provide a full evaluation of all relevant benefits and costsമ

►EPA, 2000. Guidelines for Preparing Economic Analyses, September
2000, United States Environmental Protection Agency, National Center for
Environmental Economics.

A given policy may produce many different benefits, but it is seldom
possible to obtain a single, comprehensive value estimate for the
collection of effects.  This will often leave analysts with no
alternative but to address these effects individually, aggregating
values to generate an estimate of the total benefits of a policy
alternative.  

Part 1: Benefits of Reducing Stormwater Runoff

► EPA, 1995. Economic Benefits of Runoff Controls, Office of Wetlands,
Oceans and Watersheds, available at:   HYPERLINK
"http://www.epa.gov/owow/nps/runoff.html" 
www.epa.gov/owow/nps/runoff.html 

 “Environmental benefits are not the only valid reason for encouraging
developers to incorporate urban runoff controls into new residential and
commercial developments.  Increased property values can result from
aesthetically landscaped controls.  Both homeowners and developers have
realized benefits from beautification of areas adjacent to waterways and
detention ponds…The beauty of natural surroundings increases real
residential property values by up to 28 % while also enhancing the
quality of life.”

►National Association of Home Builders.  June 12, 2006.   $19-38
Billion in Green Home Building Expected in 2010.    HYPERLINK
"http://www.nahb.org/news_details.aspx?newsID=2745" 
www.nahb.org/news_details.aspx?newsID=2745 .

“Last year saw a 20% increase in the number of green home builders in
the U.S., according to the results of a new survey by McGraw Hill
Construction and NAHB.  The study also indicates that the number is
expected to grow by another 30% this year.”

► EPA, 2002. Economic Analysis of Proposed Effluent Limitation
Guidelines and New Source Performance Standards for the Construction and
Development Category.

Improved stormwater quality would save the nation $3.2 to $17.0 million
per year in drinking water treatment costs and $14 million per year in
flood insurance costs.

► Aponte Clarke, G and Stoner, N., 2004. Stormwater Strategies, The
Economic Advantage, available at:   HYPERLINK
"http://www.forester.net/sw_0101_stormwater.html" 
www.forester.net/sw_0101_stormwater.html .

 

EPA found that reduced stormwater runoff could save the commercial and
shellfish industries $17 to $30 million.

1.1 Benefits of Reduced Stormwater Runoff into the Chesapeake Bay

► Morgan and Owens, 2001.  Benefits of water quality policies: the
Chesapeake Bay.  U.S. EPA NCEE.

 The monetized annual boating, fishing, and swimming benefits of water
quality improvements in the Chesapeake Bay range from $357.9 million to
$1.8 billion.  […]  The population in the Bay region has increased
from 11.8 million in 1979 to 15.1 million people in 1997 (Chesapeake Bay
Program, 1999b).  This growth in population has put more stress on the
Bay, from both increased use and from activities like construction. 
[…]  Suburban sprawl is ranked as one of the top threats to the
recovery of the Bay (Chesapeake Bay Program, 1999a).

1.2 Benefits of Reduced Stormwater Runoff into Coastal Waters

► Dwight, R.H., Fernandez, L.M., Baker, D.B., Semenza, J.C., Olson,
B.H., 2004.  Estimating the economic burden from illnesses associated
with recreational coastal water pollution – a case study in Orange
County, California.

Illnesses associated with swimming in two California beaches
contaminated by urban runoff costs the public more than $3 million per
year.

► Hanemann, M., Pendleton, L., and Mohn, C., 2005.  Welfare Estimates
for Five Scenarios of Water Quality Change in Southern California: A
Report from the Southern California Beach Valuation Project.   
HYPERLINK "http://marineeconomics.noaa.gov/SCBeach/laobeach1.html" 
http://marineeconomics.noaa.gov/SCBeach/laobeach1.html .

Even minor changes in water quality at beaches in Southern California
can generate large economic impacts.  A day-long closure at Huntington
Beach would lead to a loss of recreational welfare well in excess of
$100,000.  Similarly, a minor improvement in beach water quality at
Malibu…would generate approximately $140,000 in welfare gains for
beach goers.  […]  Dramatic declines in water quality at clean
beaches, like Zuma Beach, would lead to the loss of millions of dollars
in beach goer welfare (in this case more than $5million); a summer time
closure of swimming waters at Huntington State Beach would result in
even greater losses (we estimate a loss of over $9 million in beach goer
welfare).  These values do not include lost expenditures, the subject of
another report.  […]  The Southern California Beach Valuation model is
a powerful tool that will allow policy makers to explore the potential
economic impacts of changes in water quality and beach access in
Southern California.”

1.3 Benefits of Reduced
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► Murray, C., Sohngen, B., and Pendleton, L., 2001.  Valuing water
quality advisories and beach amenities in the Great Lakes.  Water
Resources Research, Vol. 37, No. 10, Pages 2583-2590, October 2001.

 “…the average (across all visitors) seasonal benefits of reducing
one advisory is approximately $28 per visitor.”  “…it may be
possible to reduce beach advisories by altering sewage treatment
methods, eliminating combined sewer overflows, or altering land
management.”

► Shaikh, S., 2006. A Day at the Beach: Priceless? Available at:  
HYPERLINK "ftp://ftp.glerl.noaa.gov/webcast/2006/shaikh/20060224.ppt" 
ftp://ftp.glerl.noaa.gov/webcast/2006/shaikh/20060224.ppt .

A study of nine of Chicago’s Lake Michigan beaches estimated losses
from swim bans to be at least $17 million. 

1.4 Benefits from Low Impact Development

► International City/County Management Association and National
Association of Counties. 1999. Protecting Wetland, Managing Watersheds.
Local Government Case Studies. International City/County Management
Association and National Association of Counties, Washington, DC.

The Johnson County Streamway Park System was implemented as a
storm-water control program. The project created a county-wide greenways
network along area streams. Creating the greenways network cost less
than alternative storm-water control
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►EPA, June, 2001. National Management Measures to Protect and Restore
Wetlands and Riparian Ares for the Abatement of Nonpoint Source
Pollution. Appendix F.  EPA number 841B01001.

The Staten Island Bluebelt project helps control stormwater using
existing natural drainage systems, e.g., streams, ponds, and wetlands. A
benefit/cost study indicated that the project saves $50 million over a
conventional sewer-line approach.

►Palone, R., and Todd A., 1998. Chesapeake Bay Riparian Handbook: A
Guide for Establishing and Maintaining Riparian Forest Buffers.
Chesapeake Bay Program, Northeastern Area State and Private Forestry
Group, and the USDA Forest Service.

Maryland’s Tributary Strategies found that riparian buffers were more
effective than engineered approaches at reducing the nutrient content of
runoff. Building suitable riparian buffers costs $671,000 per year and
engineered techniques would cost $3.7 to $4.3 million per year.

The water utility in Fairfax County, Virginia estimates it saved
approximately $57 million in stormwater costs by maintaining forest
areas and riparian buffers.

►Lerner, S. and Poole, W., 1999. The Economic Benefits of Parks and
Open Space: How Land Conservation Helps Communities Grow Smart and
Protect the Bottom Line. Trust for Public Land. San Francisco, CA.

Proposed development in Sterling Forest on the New Jersey-New York
border would have decreased water quality so severe that a $160 million
filtration plant would have been necessary. Instead, a partnership
between state and
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琠敨映牯獥⹴ഠ

►Natural Resources Defense Council, 2001. Stormwater Strategies:
Community Responses to Runoff Pollution.

The City of Syracuse established the Skaneateles Lake Watershed Program
as part of a program of “filtration avoidance” for its water source.
The City estimates that the $10 million watershed plan will save between
$45 and $60 million that a water-treatment facility would have cost.

Part 2: Costs of Regulations to Control Stormwater Runoff

►Hammitt, J.K., 2005. Estimating the Costs of Regulation, Harvard
School of Public Health.  Presented at Analyzing Regulations: Health,
Safety and the Environment, April 15, 2005.  Washington, DC.

Estimating costs is much more easily accomplished than estimating
benefits because actual market values can be
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► EPA, 2004. Economic Analysis of Final Action for Effluent Guidelines
and Standards for the Construction and Development Category, March 2004,
United States Environmental Protection Agency, Office of Water.

EPA found that the cost to the developer of improved stormwater controls
for the single family home ranges from $44 to $107.

	

	Table 2: Adapted from Table 5-12, EPA, 2004a

Option 1	Single-family	Multi-family	Commercial	Industrial

Cost per unit to developer	$44.66	$17.66	$0.01	$0.01

Option 2	Single-family	Multi-family	Commercial	Industrial

Cost per unit to developer	$107.05	$43.65	$0.03	$0.04

Option 4	Single-family	Multi-family	Commercial	Industrial

Cost per unit to developer	$65.98	$27.57	$0.02	$0.03



► EPA, Region III, Chesapeake Bay Program Office, 2003.  Economic
Analyses of Nutrient and Sediment Reduction Actions to Restore
Chesapeake Bay Water Quality.

“…the average cost per household for the 4.9 million urban
households in the 

watershed by 2010 is expected to be small, ranging from $12 in Tier 1 to
$85 in Tier 3.  These estimates assume that all costs are borne by urban
households.  However, federal and state cost share funds or other
cost-saving opportunities might reduce these costs (page XV).”

Part 3: Problems with EPA’s use of the National Water Pollution
Control Assessment Model (NWPCAM) to estimate benefits of stormwater
runoff in its 2004 Economic Analysis of Final Action for Effluent
Guidelines and Standards for the Construction and Development Category

Incomplete Resource Coverage

►EPA, 2004. Estimation of National Economic Benefits Using the
National Water Pollution Control Assessment Model Version 2.1 to
Evaluate Regulatory Options for the Construction and Land Development
Industry, April 2004, United States Environmental Protection Agency,
Office of Water, Engineering and Analysis Division.

NWPCAM does not include coastal waters, the Great Lakes and other large
lakes like Lake Champlain, or major estuaries such as the Chesapeake
Bay.

►EPA, 2000. A Benefits Assessment of Water Pollution Control Programs
Since 1972: Part 1, The Benefits of Point Source Controls for
Conventional Pollutants in Rivers and Streams, Final Report, January,
2000, Environmental Protection Agency, Office of Water, Office of
Policy, Economics, and Innovation, January 2000, p. 7-1.

“A key area for improvement in terms of resource coverage is to extend
the analysis to include coastal and estuarine waters.  These resources
are critical because a substantial share of the United States population
resides near the Nation’s coastal and estuarine waters and uses these
water resources for recreational activities.  They are also a critical
source of habitat, ecological diversity, and biological production. 
Including a broader coverage of lakes and smaller streams will also be
an important enhancement to the NWPCAM and will support a more complete
assessment of benefits.” 

►EPA, 2004. Economic Analysis of Final Action for Effluent Guidelines
and Standards for the Construction and Development Category, March 2004,
United States Environmental Protection Agency, Office of Water, p. 7-6.

NWPCAM 2.1 was designed to address the following water quality
parameters: biochemical oxygen demand, total organic nitrogen, ammonia,
nitrate-N and nitrite-N, total organic phosphorus, ortho-phosphate,
algae chlorophyll, dissolved oxygen, chlorides, total suspended solids,
and fecal coliform bacteria (EPA, 2004).  Yet EPA’s 2004 analysis only
addressed the benefits of reduced total suspended solids (TSS), because
“inadequate data and modeling constraints prevented quantification or
monetization of any categories [of benefits] beyond the sediment effects
considered in the NWPCAM.” 

Outdated Case Study

NWPCAM uses willingness to pay values from a study published in 1993 by
Richard Carson and Robert Mitchell titled The Value of Clean Water: The
Public’s Willingness to Pay for Boatable, Fishable and Swimmable Water
Quality.  The willingness to pay values are derived from survey results
from a contingent valuation study conducted in 1983.  The study is
outdated in time, public perceptions, and academic rigor.  The study was
not designed to provide the data necessary to value the 2004 proposed
stormwater policies.  Furthermore, the survey results have been found to
be inconsistent with the economic theory of rational choice.  

	

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The willingness-to-pay estimates developed by Mitchell and Carson…
used in this study are rather dated, and their resource and service
coverage is incomplete.  They estimate the freshwater in-place water
quality benefits accruing to households, expressly excluding commercial
in-place and withdrawal benefits. Although updating the estimates to
account for the relationship between income and growth and
willingness-to-pay has been possible, it is not clear how other factors
have affected willingness-to-pay over the last 14 years.

Inconsistent with Economic Theory

►OMB, 2003. Guidelines for the Conduct of Regulatory Analysis and the
Format of Accounting Statements (Circular A-4), September 2003, White
House Office of Management and Budget.

 The analytic results should be consistent with economic theory using
both internal (within respondent) and external (between respondent)
scope tests such as the willingness-to-pay is larger (smaller) when more
(less) of a good is provided. (OMB Circular A-4, 2003.)

►NOAA, 1993. Report of the NOAA Panel on Contingent Valuation, January
1993, United States Department of Commerce, National Oceanic and
Atmospheric Administration.

►EPA, 2002. Environmental and Economic Analysis for Concentrated
Animal Feeding Operations (CAFO).  Referenced in EPA (2004) Economic
Analysis of Final Action for Effluent Guidelines and Standards for the
Construction and Development Category, March 2004, United States
Environmental Protection Agency, Office of Water.

The Carson and Mitchell (1993) survey response data is inconsistent with
economic theory: it exhibits a glaring inconsistency with rational
choice, identified as a major problem with contingent valuation
methodology in 1993 by the National Oceanic and Atmospheric
Administration NOAA Blue Ribbon Panel on Contingent Valuation. 

Willingness-to-pay values should increase with the quantity or quality
of the good, assuming that “more of something regarded as good is
better so long as an individual is not satiated” (NOAA, 1993).  Carson
and Mitchell’s water quality ladder ranked water quality levels as
boatable, fishable and swimmable, boatable describing the lowest quality
of water and swimmable describing the highest.  Rational choice behavior
indicates that one would pay more for swimmable water than for boatable.
 But this is not the case with the Carson and Mitchell results. 
Willingness-to-pay values (WTP) were highest for boatable water quality,
as shown in Table 1, below.

Table 1:  Carson and Mitchell’s Willingness-to-Pay Values

Adjusted Annual Household Values for Best Estimate of National Water
Quality Benefits

(1983 $)

Water Quality Improvement	Mean WTP

Swimmable: WTP to raise all sub-swimmable water quality to swimmable	$78

Fishable: WTP to raise all sub-fishable water quality to fishable	$70

Boatable: WTP to maintain boatable water quality	$93

Source: adapted from Carson and Mitchell (1993) and EPA (2002)



NOAA finds that such apparent inconsistencies render the study
defective.

…[W]e do not know yet how to reason about values without some
assumption of rationality, if indeed it is possible at all.  Rationality
requirements impose a constraint on the possible values, without which
damage judgments would be arbitrary.  [It is also] difficult to find
objective counterparts to verify the values obtained in response to
questionnaires.  Therefore, some form of internal consistency is the
least we would need to feel some confidence that the verbal answers
correspond to some reality.

Obsolete Science

►EPA, 2004. Proceedings of Session VI: Methodological Advances in
Stated Preference Valuation: Valuation of Ecological Benefits: Improving
the Science Behind Policy Decisions, October 2004, United States
Environmental Protection Agency, National Center for Environmental
Economics and National Center for Environmental Research.

Viscusi, K., Huber, J., Bell, J., 2004. The Value of Regional Water
Quality Improvements, June 2004, Harvard Law and Economics Discussion
Paper No. 477.

EPA and others find that the water quality ladder which Carson and
Mitchell presented to its survey respondents does not represent the
indicators of water quality that are used to evaluate improvements in
water quality today (EPA, 2004; Viscusi K., Huber, J., Bell, J., 2004.)

This unidimensional water quality index [ladder] assumes that there is a
hierarchy of quality levels in terms of whether the water is drinkable,
swimmable, fishable, or boatable.  Thus, water that is drinkable also
meets acceptability criteria for all lower ranked uses.  Unfortunately,
this hierarchical characterization is problematic, as these categories
of uses do not reflect our current scientific understanding of the
empirical ordering of water quality.  That is, if one examines the
pattern of quality levels across states, there is almost no evidence of
such a hierarch. (Viscusi, et al., 2004).

The use categories of water have grown more complex since 1983.  For
example, the original category of fishable water quality referred only
to sport fishing.  Now, the category includes concern for human fish
consumption that is constrained by toxic pollutants.

“…our CV [contingent valuation] scenario did not address the
possible impact of long-lived toxicants such as PCB’s and heavy
metals… Households may be willing to pay substantial amounts to
control the release of such toxicants… (Carson and Mitchell, 1993).”


►RTI International, 2005.  The National Water Pollution Control
Assessment Model (NWPCAM) Current Developments and What the Future Will
Hold.  Presentation for the Environmental Protection Agency’s National
Center for Environmental Economics, January 25, 2005.

To address these issues, a pilot study has been commissioned to replace
the willingness to pay data from Carson and Mitchell (1993) with new
data from a Harvard-Duke (Viscusi-Huber) Benefits Estimation Methodology
(RTI International, 2005).

Invalid Assumptions

► EPA, 2004. Economic Analysis of Final Action for Effluent Guidelines
and Standards for the Construction and Development Category, March 2004,
United States Environmental Protection Agency, Office of Water.

In the 2004 analysis, EPA expected reduced TSS to contribute to 22
sub-categories of benefits (EPA, 2004, Table 7-1) but EPA only monetized
six using the Carson and Mitchell study:

	

1) Improve water quality for recreational use, particularly fishing;

	2) Reduced costs to treat drinking water;

	3) Reduced costs to treat cooling/process water;

	4) Improve the aesthetic appearance of rivers and lakes;

	5) Improve water clarity and reduce associated loss in property values;
and

	6) Bequest, existence, and similar non-use aspects of water quality.

Yet Carson and Mitchell state that their 1983 survey was designed to
clearly distinguish between drinking water benefits and freshwater
benefits (boating, fishing, and swimming): “We did not intend the
respondents to take any of the commercial in-stream or withdrawal
benefits […] into account and it is unlikely, given the wording of the
CV [contingent valuation/willingness-to-pay] scenario, that they did
so” (Carson and Mitchell, 1993).  

EPA admits that: “given the format of the Mitchell-Carson survey, it
is difficult to know what respondents were valuing in terms of specific
environmental changes.  Those identified as monetized are categories
that individuals may have considered in their responses to the survey
(EPA, 2004, p. 7-6).”

 This excerpt and the remaining excerpts in Part A are taken from
Appendix 3 of ECONorthwest’s 2004 Technical Memo on the Economic
Analysis of Ecosystem Services in the Lents Area.

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