APPENDIX C Final Report

POTENTIAL IMPACTS ON SMALL ENTITIES

January 2003

1.      Under the Regulatory Flexibility Act (as amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA) of 1996), whenever a Federal agency is required to publish a notice of rulemaking for any proposed or final rule, it must prepare and make available for public comment a regulatory flexibility analysis that describes the effect of the rule on small entities (i.e., small businesses, small organizations, and small government jurisdictions). However, no regulatory flexibility analysis is required if the head of an agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. SBREFA amended the Regulatory Flexibility Act to require Federal agencies to provide a statement of the factual basis for certifying that a rule will not have a significant economic impact on a substantial number of small entities. Accordingly, the following represents a screening level analysis of the potential effects of critical habitat designation on small entities to assist the Secretary in making this certification.

2.      This analysis determines whether this critical habitat designation potentially affects a “substantial number” of small entities in counties supporting critical habitat areas. It also quantifies the probable number of small businesses likely to experience a “significant effect.” While SBREFA does not explicitly define either “substantial number” or “significant effect,” the Environmental Protection Agency and other Federal agencies have interpreted these terms to represent an impact on 20 percent or more of the small entities in any industry and an effect equal or greater than three percent or more of a business’ annual revenues. In both tests, this analysis examines the total estimated section 7 costs calculated in earlier sections of this report, including those impacts that may be “attributable co-extensively” with the listing of the species. This results in a conservative estimate (i.e., more likely to overstate impacts than understate them), because it utilizes the upper bound impact estimate from the earlier analysis.

Identifying Activities That May Involve Small Entities

3.      Section 3 of this report identifies activities that are within, or will otherwise be affected by, section 7 of the Act for the sturgeon. Exhibit C-1 presents the land and water use activities that were identified as being potentially impacted by section 7 implementation for the sturgeon under the “with section 7” scenario.

4.      Of the projects that are potentially affected by section 7 implementation for the sturgeon, several occur exclusively on Federal lands and do not have third party involvement (i.e., only the Action agency and the Services are expected to be involved). Thus, small entities should not be affected by section 7 implementation for affected projects with the following agencies:

•        Fish and Wildlife Service (activities associated with NWRs);

•        Department of Defense (AFB, Space Center activities); and

•        Forest Service (no consultations anticipated).

5.      Of the projects that are potentially affected by section 7 implementation for the sturgeon that do not occur on exclusively on Federal lands, many are expected to involve no project modifications, or very minor ones (e.g., silt fencing during construction). The greatest share of the costs associated with the consultation process stem from project modifications (as opposed to the consultation itself). Indeed, costs associated with the consultation itself are relatively minor, with third party costs estimated to range from $1,200 to $4,100 per consultation. Therefore, small entities are unlikely to be significantly affected by consultations that do not involve costly project modifications. Thus, this analysis indicates that small businesses involved in consultations with the following Action agencies should not be significantly affected as a result of section 7 implementation:

•        Minerals Management Service;

•        Environmental Protection Agency;

•        Federal Emergency Management Agency;

•        Coast Guard;

•        National Marine Fisheries Service; and

•        U.S. Army Corps of Engineers (clearing and snagging projects, and regulated modifications to surface water bodies, such as dock construction and permitting of pipeline construction and maintenance projects).

6.      After excluding the two sets of Action agencies and consultations noted above from the total universe of impacts identified in the body of the analysis, the following Action agencies and consultations remain. This subset represents the group of Action agencies and consultations that may produce significant impacts on small entities. Specifically, these actions feature activities that do not occur exclusively on Federal lands and may involve relatively costly project modifications:

•        U.S. Army Corps of Engineers (O&M navigation project projects);

•        Federal Highway Administration (bridge projects); and

•        Federal Energy Regulatory Commission (interstate oil and gas pipeline projects).

Description of Affected Small Entities

7.      This section describes the industries most likely to be directly affected by section 7 implementation for the sturgeon. Federal courts and Congress have indicated that an RFA/SBREFA analysis should be limited to direct and indirect impacts on entities subject to the requirements of the regulation. As such, entities indirectly impacted by the sturgeon listing and critical habitat and, therefore, not directly regulated by the listing or critical habitat designation are not considered in this section of the analysis. More information about affected projects can be found in Sections 3 and 4 and in Appendix B of this report.

•        U.S. Army Corps of Engineers (O&M navigation projects). As detailed in Exhibit 4-5, USACE consultations on navigation projects could lead to project modifications such as minimizing the extent of dredging and disposal areas to reduce impacts on the benthos and funding research and monitoring studies. If they occur, most of these modification costs are likely to be borne by the Action agency (i.e., USACE) directly, though some may involve small contractors who own the dredges, or who otherwise carry out dredging activities. Estimating the costs on a per entity basis is difficult, particularly because many costs associated with project modifications are anticipated to be “through costs,” i.e., any increase in costs to private contractors will be passed on to the Federal government, who will ultimately bear most of the costs of these modifications. The SBA set the size standards for businesses involved in “dredging and surface cleanup activities” at $17.0 million in average annual receipts (also referred to as sales or revenues). There are approximately 816 heavy construction operators within the fifty counties included in sturgeon critical habitat areas, of which 767 are identified as small.

•        Federal Highway Administration bridge projects. As described in Exhibit 4-5, FHWA consultations on bridge projects could lead to project modifications that include providing silt curtains during construction. As with dredging projects, this analysis anticipates that most costs associated with project modification compliance will either be borne directly by or passed on to the Federal government, which therefore will ultimately bear most of the costs of these modifications. The SBA set the size standards for “highway and street construction” and “bridge, tunnel, and elevated highway construction” contractors at $28.5 million in average annual receipts. There are approximately 490 heavy construction operators of these types within the fifty counties included in sturgeon critical habitat areas, of which 454 are identified as small.

•        Federal Energy Regulatory Commission pipeline projects. As described in Exhibit 4-5, FERC consultations could lead to project modifications that include pipeline construction management measures, such as altering the project design and implementing best management practices. As with O&M navigation projects, this analysis anticipates that most costs associated with project modification compliance will either be borne directly by or passed on to the Federal government, which therefore will ultimately bear most of the costs of these modifications. The SBA set the size standards for construction operators involved with “water, sewer, pipeline, and communications and power line construction”at $28.5 million in average annual receipts. There are approximately 454 of these contractors operating within the fifty counties included in sturgeon critical habitat areas, of which 365 are identified as small.

4.6.1 Estimated Number of Small Businesses Affected: The “Substantial Number” Test

8.      To be conservative (i.e., more likely to overstate impacts than understate them), this analysis assumes that a unique entity will undertake each of the projected consultations in a given year, and so the number of businesses affected is equal to the total annual number of consultations (both formal and informal). This analysis also limits the universe of potentially affected entities to include only those within the fifty counties in which critical habitat units lie; this interpretation produces far more conservative results than including all entities nationwide.

9.      First, the number of small businesses affected is estimated. As shown in Exhibit C-2, the following calculations yield this estimate:

•        Estimate the number of businesses within the study area affected by section 7 implementation annually (assumed to be equal to the number of annual consultations);

•        Calculate the percent of businesses in the affected industry that are likely to be small;

•        Calculate the number of affected small businesses in the affected industry;

•        Calculate the percent of small businesses likely to be affected by critical habitat.

10.    This calculation reflects conservative assumptions and nonetheless yields an estimate that is still far less than the 20 percent threshold that would be considered “substantial.” As a result, this analysis concludes that a significant economic impact on a substantial number of small entities will not result from the designation of critical habitat for the sturgeon. Nevertheless, an estimate of the number of small businesses that will experience effects at a significant level is provided below.

Estimated Effects on Small Businesses: The “Significant Effect” Test

11.    Costs of critical habitat designation to small businesses consist primarily of the cost of participating in section 7 consultations and the cost of project modifications. To calculate the likelihood that a small business will experience a significant effect from critical habitat designation for the sturgeon, the following calculations were made:

•        Calculate the per-business cost. This consists of the unit cost to a third party of participating in a section 7 consultation (formal or informal) and the unit cost of associated project modifications. To be conservative, this analysis uses the high-end estimate for each cost.

•        Determine the amount of annual sales that a company would need to have for this per-business cost to constitute a “significant effect.” This is calculated by dividing the per-business cost by the three percent “significance” threshold value.

•        Estimate the likelihood that small businesses in the study area will have annual sales equal to or less than the threshold amount calculated above. This is estimated using national statistics on the distribution of sales within industries.

•        Based on the probability that a single business may experience significant effects, calculate the expected value of the number of businesses likely to experience a significant effect.

•        Calculate the percent of businesses in the study area within the affected industry that are likely to be affected significantly.

12.    Calculations for costs associated with section 7 implementation for the sturgeon are provided in Exhibit C-3 below.

13.    Because the costs associated with section 7 implementation for the sturgeon are likely to be significant for six or fewer small businesses per year in the affected industries in the study area, this analysis concludes that a significant economic impact on a substantial number of small entities will not result from the designation of critical habitat for the sturgeon. This would be true even if all of the effects of section 7 consultation on these activities were attributed solely to the critical habitat designation.