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A Framework for Reviewing EPA's State Administrative Cost Estimates: A Case Study (2007)

Paper Number: EE-0509

Document Date: 09/14/2007

Author(s): Abt Associates

Subject Area(s):

Economic Analysis, State Administrative Costs, Retrospective Costs, Regulatory Impact Analysis

Keywords: Economic Analysis, State Administrative Costs, Retrospective Costs, Regulatory Impact Analysis, Environmental Council of States


One of the key challenges facing state-EPA partnerships is that of funding. There continues to be a confluence of growing fiscal constraints faced by many states and federal agencies, coupled with a steady increase in federal environmental and public health mandates. EPA is sensitive to State funding concerns and recognizes that major increases in either EPA or state budgets are unlikely -- while the scope and breadth of environmental programs continues to grow.

EPA agreed to work in conjunction with the Environmental Council of the States (ECOS) Exit and several participating member states, to undertake a series of case studies to investigate and analyze the nature and extent of demands placed on states when EPA issues a regulation. This report contains the findings of the set of case studies that look at EPA’s and the states’ information and methods used to estimate the costs to states charged with administering a selection of EPA regulations. Information was obtained from EPA economic reports developed at the time the regulations were initially promulgated, and through questionnaires provided to the states regarding their own estimates of the costs they incurred to administer these regulations. This report attempts to draw some comparisons between these two costs estimates – exploring where differences appear and investigating the potential reasons for these differences.

From the outset of the effort, it was understood that because of limitations with the analytical methods and quality of the data, the study would be incapable of producing definitive evidence necessary to draw firm conclusions on the abilities of either the EPA or the states to produce precise and complete cost estimates for the EPA regulations included in the case studies. EPA’s analytic framework used to estimate the economic costs of new regulations does not match up well with the budgetary or accounting-based framework states may rely upon to track their administrative costs for these same rules. In addition, the data collected for the study do not constitute a statistically valid sample of state environmental programs and regulations, from which to draw conclusions applicable to the broader universe of states and EPA regulations. Despite these limitations, the study did serve as a constructive effort to investigate the variety of issues associated with collecting and reporting information on the administrative costs to states charged with implementing EPA's regulations.

States differ tremendously from one another in how they need to address environmental issues, and the results in the report underscore this in terms of the variation in the costs and categories of costs that participating states said they incurred relative to the EPA-based estimates. In general, the study found no consistent trends in terms of the differences between the case study state estimates and the EPA-based estimates. Looking across the case study states for a given regulation, for example, some states incurred administrative costs above the EPA-based estimates, while others incurred costs that were lower than the EPA estimates. It was also common for the individual states to report administrative costs both above and below the EPA-based estimate for the four regulations examined in the report (an exception was Oklahoma, for which EPA-based estimates of the total cost of each regulation were reported to be lower than the state cost information for all four of the regulations included in the study).

The report includes several potential follow-up activities drawn from the lessons learned in the case studies and the efforts to gather and compare EPA and state administrative cost information. They include: 

  • Understand what gives rise to situations where a state may believe an activity to be essential for rule administration, whereas EPA may view the activity as being at the discretion of the state to undertake, and therefore the activity would not be included in an EPA cost analysis. 
  • Assess the time requirements for performing rule-related activities, including characteristics affecting start-up and recurring activities and their costs. 
  • Consider having a subset of states track their administrative costs for a few new regulations. 
  • Develop a practical and transparent way to examine and consider baseline costs where there are overlapping federal and state regulatory requirements. 
  • Explore opportunities for EPA to provide states with more training and education on the new regulations and explore how this impacts state administrative costs. 
  • Develop a comprehensive framework for use by EPA’s program offices in assessing the costs to states of administering federal regulations. 
  • Update internal EPA guidance to ensure uniform estimation and reporting of administrative costs. 
  • Present administrative costs in ways that would support more focused review and comments from the states . 

Upon release of the report at the September 2007 meetings of ECOS and the states, EPA proposed establishment of a joint EPA/State workgroup. Drawing on the results of the study and other information and resources on the subject, the workgroup has been called upon to help to develop tools and information that can result in improvements to existing analytic guidelines and practices used by EPA when it prepares state cost estimates for its regulations. The workgroup may also draw attention to other “best practices” and opportunities to improve methods for estimating the implementation costs for its regulations, as well as ways to improve communication of this information to states and other constituencies concerned with the costs of environmental regulations.

This paper is part of the  Environmental Economics Research Inventory.

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