The Economic Costs of Critical Habitat Designation - Project #1

The Economic Costs of Critical Habitat Designation: Framework and Application to the Case of California Vernal Pools The California Resource Management Institute is pleased to be making available the report - The Economic Costs of Critical Habitat Designation: Framework and Application to the Case of California Vernal Pools (click on the report title for a PDF version of the report) – prepared by Professor David Sunding, Director of the Department of Agricultural and Resource Economics, at the University of California, Berkeley, and his colleagues Aaron Swoboda and David Zilberman. Over the past several years, there has been much interest and debate on the issue of critical habitat, the lands designated as critical habitat, and the economic implications of such a designation on private landowners and the public. Lawsuits, unrealistic court ordered deadlines, and limited federal agency budgets have put into question the integrity of the critical habitat designation process, including the economic analysis that is required under the federal Endangered Species Act. This report and model framework will provide the federal government, local and state officials, private landowners, and the general public with a new, more accurate way to calculate the economic impacts of critical habitat designations. The framework was designed to apply to critical habitat designations regardless of species and regardless of geographic location. And, with straightforward modifications, the approach developed here can be applied to numerous private sector activities affected by critical habitat designation, including home building, commercial development, mining, vineyard establishment and others. In order to demonstrate the application of the economic model, the report looks at the recent vernal pool critical habitat designation in California. After comparing the draft U.S. Fish and Wildlife Service vernal pool economic analysis prepared by Economic and Planning Systems (EPS) with the economic model developed by Professor Sunding, the report concludes that the EPS approach is seriously lacking on both conceptual and empirical grounds and underestimates true impacts by a wide margin. Among other things, the report concludes: 1. The Service's own economic analysis of the vernal pool designation prepared by EPS underestimates the actual economic impacts by 7 to 14 times; 2. The EPS methodology seriously misstates the distribution of economic impacts among groups in society by inappropriately attributing all costs of designation to landowners. 3. In fact, economic impacts of critical habitat designations are borne disproportionately by consumers, particularly those on the lowest end of the housing affordability spectrum. 4. The most obvious economic effects of critical habitat designation are (1) increases in the cost of development by making it more difficult to obtain necessary entitlements, and (2) reduction in the size of projects. However, significant, material costs are also incurred, though apparently ignored in the EPS methodology, such as: o Increases to cost of other regulation resulting from the designation; o Reductions in the size of the regional housing stock; o Changes in the configuration of cities; o Project delays, resulting in increased development costs and other effects; o Costs to current and prospective homebuyers, commuters and others.