Flushing Federalism. by Randall Lutter and Elizabeth Mader.  November 2001.

A seemingly innocuous and unsexy proposal to regulate municipal sewers was issued in the waning days of the Clinton administration, going all but unnoticed amid the uproar over higher profile regulations that the Bush administration has sought to revise. But its burden on cities and towns would be simply crushing: $82 billion dollars over the next ten years, by the Environmental Protection Agency's own estimate, to be imposed on roughly 19,000 municipalities. That exceeds the cost of any previous unfunded federal mandate on local government, according to the Office of Management and Budget (OMB). Moreover, its goal--the absolute elimination of sewer leaks during heavy rains--is impossible to achieve. Less stringent alternatives would clearly make a lot more sense. EPA Administrator Christine Todd Whitman has given no hint of how she plans to regulate municipal sewer leaks, but her decision will send a key signal as to how federalism will fare under the new administration.

Signed last January by outgoing EPA Administrator Carol Browner, the proposed rule seeks to eliminate sewer system leaks during heavy and moderate rains, while claiming that it merely "clarifies" existing policies. Browner's rule acknowledges that existing regulations require sewer agencies to take only "all reasonable steps to minimize or prevent sewer system overflow discharges to waters of the United States that have a reasonable likelihood of adversely affecting human health or the environment" [emphasis added]. The new rule would instead use the "prohibit-and-excuse" approach, prohibiting all overflows and then authorizing EPA to excuse the inevitable overflows if it determines that municipalities have adopted all feasible control measures. This approach opens the regulatory process to inconsistent and arbitrary decision-making by EPA regional offices, and amounts to an unwarranted use of federal authority.

Local government representatives have requested a revision, and Administrator Whitman--a former New Jersey governor--is likely to grant them one, although she is unlikely to abandon the proposal entirely. What local officials would like to see is a national policy that would forestall inconsistent and arbitrary decisions by EPA regional offices. For their part, enforcement offices at EPA will likely seek a revision that includes a prohibition on overflows. A rule that lacks such a prohibition would threaten to undermine administrative orders they have already issued requiring municipalities to eliminate sewer system leaks.

As it stands, the draft proposal would significantly extend the Clean Water Act into matters traditionally of local concern. The rule would require 19,000 municipal sewage systems to get permits for possible leaks from sewage collection systems, and would prohibit them from making discharges into U.S. waters. The proposal would also mandate that systems take "all feasible steps to stop" sanitary sewer overflows, regardless of the size of such overflows, or even whether they reach U.S. waters. These requirements represent a sharp departure from current procedures, which emphasize treating wastewater rather than eliminating leaks from collection systems.

While economic analysis could in principle identify sensible regulations of sewer leaks, the analysis accompanying the proposal is flawed. It claims that the benefits of the rule justify the costs, but provides numerical estimates of costs that exceed the benefits. Furthermore, its estimates of net costs-$30 million to $58 million per year-are too low. They take into account only the paperwork costs of keeping records and reporting data and completely ignore the costs of actually controlling sewage system leaks, such as more regular maintenance and inspection. The rule ignores these costs because EPA interprets current law as already requiring these controls.

The problem is that the proposal greatly tightens the existing standard, because it would "prohibit discharges to waters of the U.S." even if the likelihood of adverse effects on human health or the environment is negligible. The economic analysis supporting the proposal does not account for this additional stringency.

For "information purposes," the proposal also presents the costs and benefits of "abating" overflows. It reports that the costs of various overflow control objectives, ranging from one wet-weather overflow per year to one every five years would fall between $6.9 billion and $9.8 billion per year. A sensible approach would be to compare these costs with the associated benefits. But the proposal presents only the benefits of eliminating all overflows, which range from $1.1 billion to $6.1 billion per year. Because the benefits of feasible controls must be less than that, they must also be less than the costs.

Even these data suffer from a variety of difficulties. First, the assumptions in the proposal significantly overstate the size of the overflow problem in the absence of new controls. The proposal assumes that wet weather overflows range from 1.0 to 5.4 percent of the total flow to treatment plants, although the only data that it provides indicate that overflows are much less--0.2 percent for Los Angeles and 1.0 percent for Greenville, S.C., respectively. The proposal also assumes that dry weather overflows were about 2000 times greater than indicated by the evidence cited for Los Angeles. These assumptions substantially overstate the benefits of the proposal.

Second, the proposal uses arbitrary assumptions to link sewer overflows with contamination in rivers, streams and other bodies of water. For its upper-bound estimate, it simply assumes that overflows are entirely responsible for making a body of water unsuitable for swimming, if such overflows are listed as one of several major causes of contamination. For its lower-bound estimate, the proposal assumes that half of the pollution that makes a water body unsuitable for swimming should be attributed to overflows that are listed as a major source. Although there are no data to definitively resolve proper attribution of contamination, the estimates may overstate the importance of overflows because pollution in urban settings has many sources.

Third, the bulk of the estimated benefits assume that dose-response relationships appropriate for highly contaminated beaches can predict effects on swimmers at beaches that are already in compliance with existing pathogen standards. The proposal estimates that 54 percent to 67 percent of the total benefits from its rule would occur at such beaches. This assumption is likely to overstate the magnitude of the problem and the benefits of the proposal. Thus the net benefits may be significantly less than the data suggest.

Yet the greatest problem with Administrator Browner's proposal, and in particular its "prohibit-and-excuse" approach is that it would do little to reduce the uncertainty that municipalities already face about what they have to do to comply with EPA's interpretation of the Clean Water Act. Identifying a reasonable "excuse" is an intrinsically subjective exercise.

A sensible alternative to the "prohibit-and-excuse" approach exists. EPA could significantly reduce regulatory uncertainty by authorizing a small number of overflows for sewer agencies that adopt appropriate controls. This approach would mirror EPA's 1994 regulation of combined sewer overflows, a related problem from sewer systems designed to combine sewage with street runoff during storms. In that case, EPA presumes compliance if overflows are limited to only 4 per year-or up to 6 on an exceptional basis.

To be sure, deciding how many overflows to authorize is difficult. One approach would be for EPA to authorize overflows so as to maximize the net benefits of controls. EPA has already estimated that changing the overflow target per system from five overflows per year to one every five years would raise the annual costs to municipalities from $4.1 billion to $9.8 billion. EPA has not yet presented data on the benefits of these different overflow targets and may need substantially improved data to derive credible estimates. The magnitude of the costs makes careful consideration of the costs and benefits essential.

Providing sewer agencies with a specific, attainable overflow target could improve water quality faster than the "prohibit-and-excuse" approach. Sewer agencies would have a clearer idea of their goal and could more easily enlist other interested parties in efforts to control overflows. Such a standard would also reduce municipalities' uncertainty about what actions are necessary to comply with federal requirements.

Prohibiting inevitable overflows and then excusing the municipal agencies for their occurrence is incompatible with meaningful federalism. Administrator Whitman should issue a new proposal to control sewer overflows in a way that respects municipalities' authority and their limited budgets, and does not try to outlaw the unavoidable.

Randall Lutter is a fellow at the AEI-Brookings Joint Center and Elizabeth Mader was a research associate at the Joint Center.