Summary: Pursuant to a congressional request, GAO reviewed the dispute between the Environmental Protection Agency (EPA) and the industrial laundry industry regarding EPA's cost benefit analyses of its proposed pretreatment standards, focusing on: (1) EPA's implementation of the Unfunded Mandates Reform Act of 1995 (UMRA); (2) the significant differences between EPA's and the industry's cost estimates of this proposed regulation; (3) ascertaining how EPA estimated the benefits of the proposed rule and disclosed the uncertainties associated with the accuracy of its estimates; and (4) how EPA's analysis supports its belief that the agency has chosen the least costly, most cost-effective, or least burdensome regulatory alternative.
GAO noted that: (1) significant differences exist between EPA's and the industry's estimates of the costs of the proposed pretreatment standards for industrial laundries because different methodologies were used; (2) EPA's estimate of $136.4 million annually for compliance costs reflects an extensive analysis of the additional costs laundries would incur to comply with the rule; (3) EPA based its estimate on a stratified random sample of laundry facilities and the cost of installing and operating what the agency determined to be the best available technology for removing pollutants in laundries' wastewater; (4) the industrial laundry industry raised questions about EPA's methodology; (5) the agency used 1993 data, which the industry believes do not reflect the current status of the industry; (6) the industry's cost estimate of $401 million annually for compliance costs is based on data submitted voluntarily by 204 laundries; (7) the industry associations determined an average annual compliance cost for a single facility and multiplied this cost by the number of facilities EPA estimates will be affected by the rule; (8) the industry's methodology has several limitations; (9) for example, the industry's sample of laundries was not random, and the industry's survey instrument included language critical of EPA, which may have biased the responses; (10) EPA estimated that total annual benefits range from $2.9 million to $10.6 million; (11) included are human health, recreational, and other benefits; (12) EPA recognized that the uncertainty in the accuracy of its estimates by presenting a range of benefit estimates and discussing limitations; (13) the industry raised concerns about key assumptions in EPA's analyses; (14) EPA is collecting additional data to address these concerns; (15) in preparing the proposed rule, EPA followed the Office of Management and Budget's best practices for preparing economic analyses by explaining the need for the rule, identifying alternative approaches, and analyzing costs and benefits; (16) however, since EPA published the proposed rule in December 1997, concerns were raised about key assumptions that the agency used in its analysis of the costs and benefits; (17) as a result, EPA collected additional information and began assessing how the new data affected its calculation of costs and benefits; and (18) by the June 1999 deadline established in a consent decree and subsequent agreements, the agency expects to have concluded its assessment and, in accordance with UMRA, selected the least costly, most cost-effective, or least burdensome alternative.
