Clean Water Act: Proposed Revisions to EPA Regulations to Clean Up
Polluted Waters (Testimony, 06/28/2000, GAO/T-RCED-00-233).

Pursuant to a congressional request, GAO discussed proposed revisions to
Environmental Protection Agency (EPA) regulations to clean up polluted
waters, focusing on: (1) the reasonableness of EPA's economic analyses
for the Unfunded Mandates Reform Act of 1995 and the Regulatory
Flexibility Act; and (2) whether EPA's determinations under the two
proposed regulations were adequately supported.

GAO noted that: (1) limitations with EPA's economic analyses of the
proposed regulations for the Total Maximum Daily Load (TMDL) and the
National Pollutant Discharge Elimination System (NPDES) programs raise
questions about their reasonableness and about the determinations that
EPA has based on them; (2) of particular consequence, the outcomes of
the analyses were heavily influenced by a number of key assumptions; (3)
among the most important of these assumptions was that states are
essentially in full compliance with current regulations, or will be as a
result of existing statutory and regulatory requirements; (4) therefore,
EPA included in its estimate only the costs that would result from the
new requirements in the proposed regulations and not the costs of doing
TMDLs generally; (5) however, compliance with existing TMDL regulations
has been problematic, and future compliance in the absence of the
proposed regulation is uncertain; (6) GAO found similar uncertainties
with key baseline assumptions that affect the cost estimates associated
with the proposed NPDES regulation; (7) another key limitation of the
analyses was that they did not sufficiently recognize that the key water
quality data available to EPA to identify the number of waters not
meeting standards (and, hence, the number of TMDLs that will be needed)
are incomplete, inconsistently collected by states, and sometimes based
on outdated and unconfirmed sources; (8) as a result of these
limitations, EPA's cost estimates are subject to substantial
uncertainty; (9) under these circumstances, it would have been
appropriate for EPA to assess the effect of different assumptions on the
agency's cost estimates; (10) had it done so, the agency would likely
have produced a range of possible costs exceeding those included in its
analyses; (11) given the uncertainties surrounding EPA's cost estimates,
GAO disagrees with EPA that the agency's analyses adequately supported
its determinations under the Unfunded Mandates Reform Act of 1995 that
more detailed analyses of costs, benefits, and alternatives were not
needed for either of the proposed regulations; and (12) in the case of
the requirements for additional analyses under the Regulatory
Flexibility Act, case law supports EPA's determination that because its
proposed revisions to both regulations do not directly regulate small
entities, additional analyses were not required.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-RCED-00-233
     TITLE:  Clean Water Act: Proposed Revisions to EPA Regulations to
	     Clean Up Polluted Waters
      DATE:  06/28/2000
   SUBJECT:  Water pollution control
	     Pollution monitoring
	     Water quality
	     Environmental legislation
	     Economic analysis
	     Reporting requirements
	     Agency proceedings
	     Proposed legislation
	     Federal/state relations
	     Environmental policies
IDENTIFIER:  EPA Total Maximum Daily Loads Program
	     EPA National Pollutant Discharge Elimination System
	     EPA National Water Quality Inventory

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GAO/T-RCED-00-233

CLEAN WATER ACT Proposed Revisions to EPA Regulations to Clean Up Polluted
Waters

Statement of Peter F. Guerrero, Director, Environmental Protection Issues,
Resources, Community, and Economic Development Division

United States General Accounting Office

GAO Testimony Before the Committee on Agriculture, House of Representatives

For Release on Delivery Expected At 10: 00 am Wednesday, June 28, 2000

GAO/ T- RCED- 00- 233

1

Mr. Chairman and Members of the Committee: We are pleased to be here to
discuss our recent analysis of economic and compliance issues associated
with two recently proposed rulemakings by the Environmental Protection
Agency (EPA) intended to strengthen its Total Maximum Daily Load (TMDL)
program. The TMDL program is intended to ensure that the nation's waters
meet water quality standards. TMDLs are used to restore water quality by
identifying how much pollution a body of water can receive and still meet
its standards. The amount of pollution entering the water is then reduced to
that level.

TMDLs were first required by the Clean Water Act in 1972. EPA first issued
regulations governing states' development of TMDLs in 1985 but did little to
ensure that states enforced them. In recent years, lawsuits alleging
inaction by EPA and the states have spurred increased attention to the
development of TMDLs by imposing judicial deadlines on some states.
Nonetheless, only about 1,300 of the up to 40,000 TMDLs estimated as needed
to clean up the nation's polluted waters were approved by EPA through fiscal
year 1999.

EPA's TMDL proposal is actually comprised of two parts. The first part (the
TMDL regulation) would add requirements to clarify and strengthen how waters
requiring TMDLs are identified, and would provide more specific requirements
as to how TMDLs are developed. Specifically, the proposal would include
requirements for implementation plans and other provisions intended to help
ensure that pollutant reduction allocations in a TMDL will be implemented so
that water quality standards will be attained and maintained.

The second part (the NPDES regulation) would revise EPA's National Pollutant
Discharge Elimination System program that controls the discharge of
pollutants from “point” sources of pollution (e. g., industrial
facilities and municipal wastewater treatment plants that discharge
pollutants through a pipe). The revisions would expand

2

EPA's authority to issue permits in certain circumstances. It would also
require new large or significantly expanding facilities to obtain offsetting
reductions in discharges from other facilities releasing pollutants into a
polluted body of water before these new or expanding facilities can begin
discharging into those waters. In addition, the revisions would allow, under
certain circumstances, the use of point source discharge permits to control
pollution from certain agricultural and silvicultural activities that have
generally been treated as “nonpoint” sources. These revisions
are intended to help states and EPA in developing and implementing TMDLs,
and hence were issued at the same time as the proposed TMDL regulation.

Certain statutes governing federal rulemaking activities generally require
EPA to evaluate the economic impacts of proposed regulations such as the two
proposals discussed at today's hearing. Specifically, the Regulatory
Flexibility Act requires an agency to prepare an “initial regulatory
flexibility analysis” if it determines that a proposed regulation will
have “a significant economic impact on a substantial number of small
entities” such as small businesses and small governmental
jurisdictions. In addition, if on the basis of a preliminary analysis an
agency determines that a proposed regulation includes a federal mandate that
may result in annual expenditures of $100 million or more by state, local,
and tribal governments in the aggregate, or by the private sector, the
Unfunded Mandates Reform Act of 1995 requires more detailed analyses of
costs, benefits, and alternatives. A similar directive is imposed on
agencies by Executive Order 12866.

On the basis of its economic analyses, EPA concluded that neither proposed
regulation would result in expenditures by governments and the private
sector in excess of $100 million in any one year, and therefore did not
conduct more detailed analyses under the Unfunded Mandates Reform Act. With
respect to the Regulatory Flexibility Act, EPA determined that because
neither proposed regulation directly regulates small entities, neither would
have a significant economic impact on a substantial number of small
entities. As requested by the House Committee on Transportation and
Infrastructure, our report assessed (1) the reasonableness of EPA's economic
analyses for the two

3

proposed regulations and (2) whether EPA's determinations under the Unfunded
Mandates Reform Act of 1995 and the Regulatory Flexibility Act were
adequately supported. 1

In summary, Mr. Chairman, we found the following:

4

5

consent decrees, and commitments states have made to EPA for developing
TMDLs within a specified time period.

The primary changes to the NPDES program include requiring new large (or
significantly expanding) dischargers to obtain an “offset” of up
to 1.5 times their proposed discharge before releasing pollutants into an
impaired water; giving states and EPA, under certain circumstances,
discretionary authority to require dischargers of stormwater from forestry
activities to have a NPDES permit; and giving EPA authority to designate
certain sources (including some animal feeding operations and aquatic animal
production facilities) as needing NDPES permits in cases where EPA develops
a TMDL. The proposed NPDES regulation would also provide EPA authority to
object to (and ultimately reissue) expired and state- issued permits that
have been administratively continued for dischargers to impaired waters in
NPDES- authorized states, where there is no TMDL or where the permit
contains limits that are inconsistent with a TMDL.

EPA estimated the annual costs to private entities and federal and state
governments in implementing the proposed NPDES regulation to be between
$17.2 million and $65.2 million per year (1999 dollars) from 1999 to 2015.
The major areas in which EPA estimated costs were for the construction
industry and other storm water dischargers to obtain offsets ($ 11.33
million to $41.76 million per year); for the silvicultural industry to
implement pollutant controls ($ 3.45 million to $12.93 million per year);
for animal feeding operations and aquatic animal production facilities to
implement pollutant controls ($ 1.92 million to $9.58 million per year); and
for federal and state governments' administrative costs ($ 0.515 million to
$ 0.964 million per year).

Limitations in EPA's Economic Analyses Raise Concerns About the Usefulness
of its Cost Estimates

We found limitations with EPA's economic analyses of the proposed
regulations for the TMDL and NPDES programs that raise questions about their
reasonableness and about the determinations that EPA has based on them. Some
of these limitations are common to both of the analyses. Such is the case,
for example, regarding EPA's use of water

6

quality data that are incomplete and in some cases unreliable. Other
limitations are more specific to the individual analyses. As a result of
these limitations, EPA's cost estimates are subject to substantial
uncertainty. Under these circumstances, it would have been appropriate for
EPA to assess the effect of different assumptions on the agency's cost
estimates.

EPA's Economic Analysis of the TMDL Proposal We identified several
limitations of EPA's economic analysis for the agency's proposed TMDL
regulation that raise questions about its usefulness for decision- making.
The most significant of these relate to EPA's assumption of full compliance
with existing regulations and the agency's use of key water quality data
that are of limited quality. Other limitations include the use of unverified
information, the exclusion of private sector costs and costs to other
federal agencies, and a limited analysis of benefits and discount rates.

7

future. In addition, EPA cited the fact all states have submitted
comprehensive schedules to EPA stating when they would develop TMDLs for
their impaired waters. Agency officials said this was further evidence that
full compliance was a reasonable expectation.

Nevertheless, it is clear that substantial noncompliance exists with current
TMDL regulations, and there is uncertainty as to if, and when, states will
achieve full compliance. Indeed, one of the stated purposes of the proposed
TMDL regulation is to strengthen the existing program. Among other things,
the proposed regulation would require states to develop TMDLs within 15
years of listing impaired waters, and would require reasonable assurance
that controls will be implemented so that water quality standards will be
attained and maintained.

Absent the proposed revisions to EPA's regulations, full compliance with the
existing program's requirements is uncertain. For example, only about 1,300
of the up to 40,000 TMDLs that EPA estimates are needed had been developed
by the end of 1999. Moreover, the litigation record indicates that not all
lawsuits have resulted in consent decrees; a few of the existing decrees
addressed only a subset of the waters in the state; and not all states have
pending lawsuits. Furthermore, the commitments that many states have made to
EPA to develop TMDLs within a certain time period are non- binding, and
their fulfillment will likely depend on the availability of state funding.
Given that funding for water quality management programs has been documented
to be significantly less than needed, and that TMDL development competes
with other priority activities (such as NPDES permitting and enforcement),
we believe it is uncertain as to when states will be able to develop all
needed TMDLs.

Uncertainties about compliance with existing regulations are addressed in
both the OMB's “Best Practices” (for conducting economic
analyses) and EPA's economic guidance. Both acknowledge that full compliance
is often not a reality and that the degree of compliance with existing
regulations can significantly affect the results of the

8

analysis. In addition, both documents state that an agency's economic
analysis should consider the way the world would look absent the proposed
regulation (referred to as the “baseline”) and that many factors
may influence this scenario- including the degree of compliance with
existing regulations. EPA's own guidance for conducting economic analyses
states that, if noncompliance is known, then the economic analyses should
consider both the costs of achieving full compliance with existing
regulations as well as the costs of achieving full compliance with proposed
regulations.

9

Costs to the Private Sector. EPA did not include the costs that certain
private sector entities will likely incur as a result of the proposed
regulations because, according to agency officials, these costs would be
incurred anyway under existing regulations and/ or these entities will
voluntarily implement controls. However, the proposed regulation includes
new provisions that emphasize TMDL implementation by requiring
implementation plans and “reasonable assurance” that pollution
control activities will achieve their intended result. As a result of
states' implementation of the reasonable assurance requirement, nonpoint
sources such as farms will likely incur costs to control discharges to
waters that they may not have incurred under existing regulations. Officials
from the U. S. Department of Agriculture (USDA) told us that they believe
the private sector will incur additional costs as a result of the proposed
regulation.

Costs to Other Federal Agencies. EPA did not include costs that other
federal agencies might incur as a result of the proposed regulation. Of
particular note, USDA officials told us that their workload may increase as
a result of the proposed regulation for such activities as providing
technical support to EPA, states, and farmers.

Analysis of Benefits. EPA did not quantify (and monetize) the proposed
regulation's benefits and, as a result, its analysis does not indicate
whether the expected benefits of the regulation outweigh expected costs. EPA
officials said that because the proposed regulation was not economically
significant (i. e., would not have an annual effect on the economy of $100
million or more) they did not believe they were required to quantify the
benefits of the proposed regulation. Instead, qualitative benefits were
briefly mentioned in the proposal for the regulation. Although EPA's
proposed regulation may well have benefits, without a monetary estimate of
both the benefits and costs, one cannot confirm that the regulation is
economically justified (i. e., that it would have positive net benefits).

Executive Order 12866 states that agencies shall assess both the benefits
and costs of significant regulatory actions, regardless of whether the
regulation is economically significant. EPA's proposed regulation was deemed
significant by the agency because it

10

addressed “novel legal or policy issues.” In addition, OMB
officials told us that, ideally, federal agencies should assess both
benefits and costs of proposed regulations to compare the net benefits of
alternative regulatory actions.

11

of impaired waters requiring TMDLs because so few waters have been assessed.
EPA's estimate does not include the additional costs to firms required to
obtain offsets or permits as additional impaired waters are identified.

12

purchase offsets, and any delay in time required to purchase offsets could
impose additional costs on the firm.

Private Sector Costs. EPA's analysis does not account for the added costs to
the private sector associated with more aggressive implementation by states
of their existing authority. According to EPA, states will avail themselves
of all existing authorities before using burdensome and costly NPDES
permits. If this were true, this would create an added incentive for the
states to implement their existing authorities more aggressively.
Accordingly, more aggressive implementation would impose control costs on
silvicultural, animal feeding, and aquatic production operations that would
result from the proposed regulation.

Omitted Silvicultural Activities. EPA's estimate of the cost of applying
best management practices for silviculture is based primarily on the volume
and acres of timber harvested in counties with impaired waters. Although the
proposed regulation states that a postharvest activity, such as preparing
the site for replanting, may cause significant adverse impacts on water
quality, EPA did not estimate the costs of controlling pollution from these
activities. Also, the cost of controlling discharges associated with pest
and fire control activities were not included.

Benefits. EPA did not quantify (or monetize) benefits associated with the
NPDES proposed regulation. The agency briefly discussion the proposal's
benefits in the preamble to the regulation. As in the case of the TMDL
regulation, although the proposed regulation may well have benefits, one
cannot confirm that it is economically justified (i. e., that it would have
positive net benefits) without a monetary estimate of both the benefits and
costs.

13

would have been appropriate. In particular, given the uncertainty associated
with future listings of impaired waters and, hence, the number of TMDLs
needed, we believe that assessing the effect of additional future listings
on the number of NPDES permits and associated costs would have been useful.
Had such sensitivity analyses been undertaken, they would likely have
indicated a range of possible costs exceeding those estimated by EPA.

Analyses Do Not Support EPA's Determinations Under the Unfunded Mandates
Reform Act

Given the uncertainties surrounding EPA's cost estimates, we do not believe
that the agency has established that the annual costs of its proposed
regulations will not exceed $100 million. Accordingly, we disagree with EPA
that the agency's economic analyses adequately supported its determination
under the Unfunded Mandates Reform Act that more detailed analyses of costs,
benefits, and alternatives were not needed for either of the proposed
regulations.

In the case of the requirements for additional analyses under the Regulatory
Flexibility Act, case law supports EPA's determination that because its
proposed revisions to both the TMDL and NPDES regulations do not
directlyregulate small entities, additional analyses were not required.
Specifically, several court decisions discussed in our report have ruled in
analogous situations that agencies' regulations were not subject to the
Regulatory Flexibility Act's requirements for additional analysis.

Observations

Our major disagreement with EPA regarding its economic analyses was with its
assumption of full compliance, the effect of which was to exclude any costs
to be incurred by states that have yet to meet the requirements of the
existing program. In excluding these costs, we believe EPA has
underestimated the costs of implementing the proposed regulations. However,
the larger issue is that regardless of whether one attributes the costs to
develop and implement TMDLs to the existing or proposed

14

regulations, an indisputable fact remains- the costs to develop and
implement TMDLs will be substantial. In addition, as we recently reported,
states need more comprehensive data on water quality to both ensure they
adequately identify impaired waters and to develop the TMDLs themselves.

This concludes our prepared statement, Mr. Chairman. We would be pleased to
address any questions that you or other Members of the Committee may have.

(160539)

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