EXECUTIVE SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ES-1

1 INTRODUCTION AND BACKGROUND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1-1

1.1 Description of Species and Habitat. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-2

1.2 Proposed Critical Habitat. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-3

1.3 Framework and Methodology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1-10

1.4 Information Sources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1-22

2.1 Socioeconomic Profile of the Critical Habitat Area. . . . . . . . . . . . . . . . .2-1

2.2 Relevant Baseline Elements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-12

3 SECTION 7 ACTIVITIES WITHIN THE MUSSEL CRITICAL HABITAT DESIGNATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-1

3.1 Categories of Economic Impacts Associated with Section 7 Implementation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3-1

Designation for the Mussels. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3-4

4.1 Estimated Total Costs of Section 7. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-1

4.2 Section 7 Activity Details Within Proposed Critical Habitat. . . . . . . . .4-11

4.3 Estimated Technical Assistance Efforts. . . . . . . . . . . . . . . . . . . . . . . .4-38

4.4 Other Regulatory Assessment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-41

5.1 Categories of Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-2

REFERENCES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Ref-1

APPENDIX B: Other Regulatory Assessments. . . . . . . . . . . . . . . . . . . . . . . . B-1

APPENDIX C: Section 7 Costs for the Mussels Per Unit and Activity. . . . . . .C-1

1. The purpose of this report is to identify and analyze the potential economic impacts that may result from the proposed critical habitat designation for the 11 Mobile River basin mussels (the mussels). This report was prepared by Industrial Economics, Incorporated (IEc), under contract to the U.S. Fish and Wildlife Service’s (Service) Division of Economics, and was delivered on June 23, 2003.

2. Section 4(b)(2) of the Endangered Species Act (Act) requires the Service to designate critical habitat on the basis of the best scientific data available, after taking into consideration the economic impact, and any other relevant impact, of specifying any particular area as critical habitat. The Service may exclude areas from critical habitat designation when the benefits of exclusion outweigh the benefits of including the areas within critical habitat, provided the exclusion will not result in extinction of the species.

3. The primary purpose of this analysis is to estimate the economic impact that will result from the designation of critical habitat for the mussels.

This information is intended to assist the Secretary in making decisions about whether the benefits of excluding particular areas from the designation outweigh the benefits of including those areas in the designation.

This economic analysis considers the economic efficiency effects that may result from the designation and addresses how the impacts of the designation are distributed, including an assessment of any local or regional economic impacts of the designation and the potential effects of the designation on small entities, the energy industry, or governments. This information can be used by decision-makers to assess whether the effects of the designation might unduly burden a particular group or economic sector.

4. OMB guidelines for conducting economic analysis of environmental regulation direct Federal agencies to measure the costs of a regulatory action against a baseline.

The baseline includes the currently existing regulatory and socio-economic burden imposed on landowners and managers potentially affected by the designation of critical habitat including, for example, local zoning laws, state natural resource laws, and enforceable management plans and best management practices applied by other State and Federal agencies. Existing laws, regulations, and policies that offer baseline protections to the mussels are described in greater detail in Section 2 and Appendix A of this analysis.

5. This analysis describes impacts that are expected to occur above and beyond the baseline. In other words, it measures the costs of compliance with the Act that would not occur in the absence of the currently proposed critical habitat. Importantly, economic impacts associated with section 9 and 10 of the Act, with a few exceptions, are considered to be part of the regulatory baseline and thus are not addressed in this report. These costs are considered to be part of the baseline because they remain unaffected by the designation of critical habitat.

6. The measurement of direct compliance costs focuses on the implementation of section 7 of the Act. This section requires Federal agencies to consult with the Service to ensure that any action authorized, funded, or carried out will not likely jeopardize the continued existence of any endangered or threatened species or result in the destruction or adverse modification of critical habitat. The administrative costs of these consultations, along with the costs of project modifications resulting from these consultations, represent the direct compliance costs of designating critical habitat. Importantly, this analysis does not differentiate between consultations that result from the listing of the species (i.e., the jeopardy standard) and consultations that result from the presence of critical habitat (i.e., the adverse modification standard).

7. The designation may, under certain circumstances, affect actions that do not have a Federal nexus or are otherwise not subject to the provisions of section 7 under the Act. For example, although technical assistance is not a direct cost of section 7 of the Act, these costs are incorporated into the cost analysis when they are explicitly propagated by consideration of species and habitat conservation. Similarly, a State agency may request technical assistance from the Service as a precaution to ensure that activities without a Federal nexus, such as the issuance of National Pollutant Discharge Elimination System (NPDES) permits, adequately provide for particular species and habitats. In this case, costs of Service review of such activities would be included as a cost of critical habitat designation.

8. The analysis examines activities taking place both within and adjacent to the proposed designation. It estimates impacts based on activities that are “reasonably foreseeable," including, but not limited to, activities that are currently authorized, permitted, or funded, or for which proposed plans are currently available to the public. Accordingly, the analysis bases estimates on activities that are likely to occur within a ten year time frame, beginning on the day that the current proposed rule becomes available to the public. The ten-year time frame was chosen for the analysis because, as the time horizon for an economic analysis is expanded, the assumptions on which the projected numbers of projects are based become increasingly speculative.

9. This report relies on a sequential methodology and focuses on distilling the salient and relevant aspects of potential economic impacts of the proposed designation. The steps followed in this analysis consist of:

• Describing current and projected economic activity within and around the proposed critical habitat area;

• For activities with a Federal nexus, evaluating the likelihood that these activities will require consultations under section 7 of the Act and, in turn, result in any modifications to projects.

• Estimating the direct costs of expected section 7 consultations, project modifications and other economic impacts associated with the designation;

• Estimating the likelihood that current or future activities may require additional compliance with other Federal, State, and local laws as a result of new information provided by the proposed designation;

• Estimating the likelihood that projects will be delayed by the consultation process or other regulatory requirements triggered by the designation;

• Estimating the likelihood that economic activity will be affected by regulatory uncertainty, and/or property values affected;

• Estimating the indirect costs of the designation, as reflected in the cost of compliance with State and local laws, project delays, regulatory uncertainty, and effects on property values;

• Assessing the extent to which critical habitat designation will create costs for small businesses as a result of modifications or delays to projects;

• Assessing the effects of administrative costs and project modifications on the supply, distribution, and use of energy; and

• Determining the benefits that may be associated with the designation of critical habitat.

10. Exhibit ES-1 provides an overview of the present value of total section 7 costs associated with the listing and designation of critical habitat for the mussels over a ten year period.

As the exhibit shows, estimates of the costs associated with section 7 consultations for the mussels, discounted to present value using a rate of seven percent, range from $6.42 million to $23.5 million over a ten year period. This present value range equates to an annualized stream of costs of $914,000 to $3.35 million. This cost range represents the costs of the designation associated with section 7 consultations and resulting project modifications, and technical assistance efforts. The analysis did not identify any broader regional economic impacts or constraints on commerce beyond these costs.

Exhibit ES-1 SECTION 7 AND TECHNICAL ASSISTANCE COSTS ASSOCIATED WITH THE LISTING AND DESIGNATION OF CRITICAL HABITAT FOR THE MUSSELS
	Total Estimated Section 7 Costs
Nominal value of total section 7 costs (ten years)	$9.03 million to $33.3 million
Present Value (7% discount rate)	$6.42 million to $23.5 million
Annualized over ten years	$914,000 to $3.35 million
Present Value (3% discount rate)	$7.73 million to $28.5 million
Annualized over ten years	$907,000 to $3.34 million
Notes: Estimates are rounded to three significant digits. Costs may not add up due to rounding. These estimates include all section 7 costs, including both those associated with the species listing and designation of critical habitat for the mussels. Consultations costs known to occur in specific years are discounted accordingly; all remaining consultations costs are assumed to be evenly spread across the ten years.

11. The general distribution of these costs by activity, unit, and party bearing them is as follows:

•Costs by type of major activity. As detailed in Exhibit ES-2, a range of activities may be affected by the designation of critical habitat for the mussels. The majority of these costs, however, are expected to stem from consultations with the U.S. Army Corps of Engineers (USACE) and related project modifications concerning dredging activities. The primary area of uncertainty concerns water supply dam proposals in Alabama and Georgia. Any of these dam proposals may significantly affect critical habitat. If construction plans proceed on these dams, consultation will be required. Considerable uncertainty exists with respect to the level of project modification that may be recommended with respect to the permitting and construction of these dams, particularly regarding minimum flow recommendations.

• Costs by unit. As detailed in Exhibit ES-3, Units 16 and 25 are likely to engender the highest costs on a unit-by-unit basis. Within Units 16 and 25, these high costs result from the relatively large project modification costs that are forecast to occur related to the restriction of in-stream activity and infrastructure construction associated with road and bridge maintenance projects (i.e., constructing bridges that span streams in place of using instream pilings). These project modifications add approximately $300,000 each to seven informal consultations in Unit 16 and three informal consultations within Unit 25.

• Costs by type of entity. Approximately, 56 percent of total section 7 costs will be borne by third parties (e.g., local and State governmental agencies). Of the remaining costs, approximately six percent will be borne by the Service, and 38 percent by other Federal agencies.

• Costs by category. Administrative costs of consultations will generate a high end estimate of approximately 24 percent of total designation costs. Resulting project modifications are anticipated to account for 73 percent, and technical assistance accounts for approximately three percent of the total costs.

12. The following section first outlines costs by major activity affected by critical habitat designation, and then allocates these costs on a unit-by-unit basis. A detailed itemization of this cost information by activity, unit, type of entity, and category is provided in Appendix C.

13. The following discussion summarizes the activities anticipated to experience impacts due to designation of critical habitat for the mussels. Related consultations and project modification costs are summarized in Exhibit ES-2. Federal agencies that may consult with the Service concerning these activities include the Army Corps of Engineers (USACE), Natural Resources Conservation Service (NRCS), the Federal Highway Administration (through State Departments of Transportation (DOT)), Farm Service Agency (FSA), U.S. Environmental Protection Agency (EPA), the Tennessee Valley Authority (TVA), and the U.S. Forest Service (USFS).

• Road and bridge construction or maintenance. State DOTs and the USACE are expected to engage in 141 to 151 informal and 17 formal section 7 consultations regarding road/bridge construction and maintenance projects at a total cost of approximately $4.8 million to $10.1 million over the next ten years. Modifications to these projects may include