6.1. Lead Paint Hazard Disclosure
The subject Regulatory Impact Analysis of Lead-Based Paint Hazard Disclosure Regulation for Residential Renovations, (October 22, 1996) was prepared for a regulation intended to inform residents of dwellings containing lead-based paint of lead risks from renovations about to be undertaken. The regulation requires that an EPA explanatory document or the equivalent be delivered to residents and that records be maintained of such delivery. Contractors are responsible for making such delivery in the case of owner-occupied housing and, for rental housing, owners and managers are responsible.
The document estimates total cost and cost per renovation. It also assesses the effects of the regulation on small business. It considers whether the regulation is an unfunded mandate and discusses environmental justice. Finally, there is a section on benefits.
Costs and Benefits
Compliance costs fall into several categories. (11-13). Start-up costs include the cost of training personnel to comply with the regulation. Disclosure event costs arise from giving the explanatory document to designated parties, providing explanations and obtaining signed receipts. There are costs to maintain records of documents furnished and there are material costs for receipts and the disclosure documents. The costs total $82.2 million annually or $4.35 per affected transaction (renovation). (32). In addition to compliance, EPA will incur some enforcement costs. These are estimated to range from $2.4 to $4.3 million annually. ( 36).
The document does not quantify or monetize the benefits of the regulation. The absence of quantified benefits is explained as follows:
- The lead hazard disclosure rule for residential renovation is expected to yield benefits by leading owners of residential property to make better, i.e., more informed, decisions regarding renovation and remodeling activities, thereby enabling them to reduce their exposure to the health hazards of lead-based paint. Because of uncertainty regarding how households will respond to the information provided by the lead hazard disclosure requirements, it is not possible to quantify these benefits, either in terms of direct benefits of efficiency gains from improved decision making or in terms of indirect, avoided adverse health effects. (p. 49)
A qualitative analysis is provided, however. The document asserts:
- … given the prescriptive nature of Section 406 of the [Toxic Substances Control] Act, EPA believes that the information provided in the qualitative analysis … served to inform decision-making in this case. (p. 52)
The qualitative analysis indicates that there is a market imperfection – a lack of information concerning the health hazards associated with renovating dwellings where lead-based paint is present. Ibid., p. 49. Several adaptive responses to the disclosure are cited as benefits including:
- Because of the information provided by the disclosure rule, occupants of target housing in which renovation work is to be performed may specify that the renovation contractor observe risk management precautions in the course of their work or may themselves undertake precautions to eliminate or reduce the health risks from lead-based paint. (p. 51.)
The document concludes by describing how a quantitative study of the benefits of disclosure might be performed. Ibid., pp. 52-53. The proposed methods include (1) contingent valuation, (2) estimation of the transaction costs to disseminate and obtain information and (3) examination of behavioral changes resulting from similar dissemination events.
The document contains a Regulatory Flexibility Analysis (RFA) as required by the Regulatory Flexibility Act to assess the impact on small business. Ibid., pp. 39-45. The analysis begins by determining that
- All four [affected] business groups are comprised of predominantly “small business entities.” (p. 40)
Compliance costs were estimated for hypothetical firms of typical size in the affected business groups, essentially contractors and property owners and managers. Ranges were calculated and compared to total firm cost. The lowest estimate of 0.04% (compliance cost as a percentage of total cost) was for a multi-trade contractor. The highest estimate of 1.44% was for a rental property manager.
The RFA concludes:
- While a large number of small establishments will be potentially affected by the rule, cost impacts were not found to be of sufficient magnitude to cause undue harm to such establishments. Consequently, EPA did not further modify the regulation based on small business impact considerations. (p. 39)
In compliance with the Unfunded Mandates Reform Act, EPA considered two ways that the regulation might impose an unfunded mandate on non-Federal governments. Ibid., pp. 45-46. Neither was deemed significant.
First, the regulation permits State and Tribal governments to implement the regulation within their jurisdictions. However, because there is no requirement for them to do so, no unfunded mandate is created.
Second, non-Federal governments may own and operate rental housing that would be subject to the regulation. In this instance, the conclusion of the Regulatory Flexibility Analysis is cited to demonstrate that the cost burden will be slight.
The document discusses whether the regulation would adversely distribute costs and benefits to low income and minority individuals. Ibid., pp. 46-48. Two channels of adverse distribution are cited:
1. Possible imposition of a significant economic burden on affected businesses that are owned by low income and/or minority individuals or that employ substantial numbers of low income and/or minority individuals.
2. A possible distribution of costs or benefits among consumers that results in a disproportionately large share of costs falling on low income and/or minority households or a disproportionately small share of benefits accruing to these households. (p. 46)
Regarding the first issue, minority-owned business, the document finds that such businesses are very prominent among the affected business groups. However, alluding to the results of the Regulatory Flexibility Analysis of a minor cost burden on small business, the document concludes that minority-owned firms will not face a significant cost burden.
As to the second concern, adverse distribution among consumers, the document notes that lead-based paint is especially prevalent in both low income and African-American households. It conjectures that this
- may mean that these households stand to reap a greater share of the regulation’s expected benefits. (p. 48, emphasis in original)