Wednesday, November 10, 2010

Sacramento Wastewater Treatment Plant: Updated Impact Report

We have updated our assessment of the cost of upgrading the Sacramento Wastewater Treatment Plant as would be required by the tentative discharge permit under consideration by the Central Valley Regional Water Quality Control Board.  Over the next 30 years, the report finds that meeting the requirements of the draft permit would reduce Sacramento area incomes by an annual average of $246 million and reduce employment by 976 jobs in an average year.  While the construction and operation of the advanced treatment facility will create some jobs and income, these gains are more than offset by the negative impacts of a 140% to 210% increase in wastewater bills and fees on Sacramento households and businesses.

Link to full report.  The executive summary is below.

Ecological problems in the Sacramento-San Joaquin Delta have raised concerns about the discharge from the Sacramento Regional County Sanitation District (SRCSD) wastewater treatment plant that serves most of Sacramento County and West Sacramento in Yolo County. The Central Valley Regional Water Quality Control Board recently released a Tentative NPDES Discharge Permit that would require over $2 billion in upgrades to the Sacramento Regional Wastewater Treatment Plant. This report evaluates the economic costs to the Sacramento region of complying with tentative permit. All costs and economic impacts in this report are measured in 2009 dollars.

The project would require nitrification, denitrification, microfiltration, and UV disinfection. The capital cost is estimated at $2.083 billion, and operation and maintenance of the completed facility is estimated at $77 million per year. We project that the project will require SRCSD to generate an additional $239 million annually through increased rates and fees. SRCSD is projecting even higher rate increases, because they anticipate larger debt coverage requirements to maintain their bond rating and continued slow growth in their service area. The range of potential rate and fee increases is as follows:

• The typical Sacramento household wastewater treatment bill would increase between $28 and $42 per month ($336 to $504 annually) from their current level of $20 per month.
• Government, commercial and industrial users would also face proportional wastewater treatment cost increases between 150% and 200%.
• New development wastewater treatment impact fees would increase from $7,450 to between $15,000 and $35,000 per ESD (equivalent single family dwelling). In-fill development impact fees would increase from $2,800 to between $6,000 and $13,000 per ESD.

In addition to higher bills, the total economic impact of the project was assessed by estimating the negative effects of reduced disposable income on consumer spending, the negative effects of reduced construction activity, and the positive effects of building and operating the wastewater plant. Considering all the effects, the average annual economic impacts over the 30 year analysis period on the Sacramento Region are:

• Annual income loss of $246 million.
• Annual employment loss of 976 jobs.

This is a conservative assessment of regional impacts. SRCSD estimates rate increases will be even larger than our projections. We also assume increased impact fees will only have a small effect on the amount of new development over 30 years, and only reduce the average output of the construction industry by an amount equivalent to the increased fee payments. While the impact on development over 30 years will be relatively small, the effect will be greatest in the near term, pushing back the date at which many development projects become financially feasible for several years and delaying Sacramento’s recovery from the recession. The report assumes no effect on local electricity costs, although the project will generate a substantial increase in SMUD’s electricity demand. We assume increased wastewater treatment rates will not be significant enough to affect the location, operation or investment decisions of businesses, and that lost corporate income flows outside the region. Due to these conservative assumptions, the negative impacts could be larger than we estimate. On the other hand, the negative impacts could be smaller than we estimate if less advanced, lower cost treatment options suggested by Central Valley Regional Water Quality Control Board consultants were developed in more detail and proven to satisfy regulatory requirements as well as the scale and site requirements of the SRCSD plant.

The results of this study inform planning and regulatory decisions regarding the San Joaquin-Sacramento Delta, and can be compared to analysis we have conducted on other aspects of the Delta issue. In a recent analysis conducted in cooperation with UC-Davis researchers, we estimate that reduced agricultural water supplies due to Delta pumping restrictions to protect endangered species result in an income loss of $72 million and the loss of 1,400 jobs in the San Joaquin Valley. We have also estimated that the closure of the salmon fishery in 2008 and 2009 created an annual loss in California of about 1,800 jobs and $120 million in income. Our initial analysis of Sacramento wastewater treatment upgrades was limited to nutrient reduction, and we estimated an average loss of 390 jobs and $94 million in income. The $246 million estimate of lost income from the Tentative NPDES Discharge Permit for Sacramento are more than double the loss estimated in these other cases, whereas the job loss is lower since sewer impacts are distributed across hundreds of thousands of households rather than being concentrated on a low-wage industry such as agriculture.


  1. Jeff: I'm wondering about the basic logic of the inference that taxation on pollution abatement costs jobs and economic growth. Did requiring sewers for development in my town some 60+ years ago stunt its economic growth? Septic tanks would have been cheaper and would have required no taxes or fees; would economic growth been greater if only septic tanks were required? For that matter, what if there had been no laws about human sewage at all? Would economic growth have been higher? Would that not mean that the citizens of my town would be richer now? I guess that I'm wondering how we could ever justify spending on public services at all, if the bottom line is that it costs us jobs. What do economists say to this sort of question?
    Regards, Don

  2. This report does not assess the benefits of the project or make any statements about whether or not the project should be done. Environmental quality is important to economic growth and prosperity and human health in metro areas.

    I think we all agree that we are best off if an environmental goal is acheived in the most efficient and cost-effective manner possible.

    If I find time, something that is becoming increasingly scarce, this is a topic that deserves greater explanation.

  3. Jeff -- I agree that enviro quality needs to be included in this report and hopefully qualified.

    I also wonder if you're marginal effects on bills are actually going to have marginal impacts. What if people look at the higher bills and carry on?

    Finally, wastewater treatment is NOT an option under a rule-of-law regulatory regime. So, are there cheaper ways to reduce wastewater loads?

  4. David,

    This report basically assumes no marginal impacts on behavior. I have received feedback that we are undercounting the cost for that reason, some claim that these costs at the margin will shut-down a lot of new business activity in the region.

    Households won't adjust their wastewater loads, they will pay their higher bill, complain, and carry on with their lives with $400less to spend each year.

    I disagree that this report needs to include an assessment of environmental benefits. That can't be done at this point, and a cost assessment of the sewer plant is necessary so it can be evaluated on the same level as other options to improve the Delta.


  5. Thanks guyz. I think that I understand more now. We scientists are pretty much babes in the woods about economics.