Normally at Scioto Analysis, we talk about issues related to state and local government. This is because we believe that not enough rigorous policy analysis goes into decision making at the state and local level. To understand why this is an issue, we will explore a recent analysis done around a revision to the EPA’s lead and copper pipe rule.
For context, the EPA is required to perform economic analysis of any potential policy proposal that they expect to be “economically significant.” The threshold they commonly use is any policy that they expect to have either costs or benefits of at least $100 million. There are other rules that require an economic analysis to be performed, but this is the most common.
In January 2021, the EPA issued new Lead and Copper Rule Revisions with the goal of reducing contamination in water supplies across the country. This revision strengthened the initial Lead and Copper Rule introduced in 1991.
This change was large enough to trigger an economic analysis, and sure enough the EPA found that these changes would cost about $335 million and produce $645 million in benefits. The costs included things like water sampling, lead pipe replacement, and education about lead pipes among others. The only benefit they monetized was the increased earnings children would experience due to a reduction in lead exposure.
From a policy perspective, these changes are positive, but not overwhelmingly positive. Benefit-cost ratios of 3:1 and 4:1 are not uncommon with well designed policies. Given that government agencies have to act within budget constraints, it would not be unreasonable to think that there are better ways to use our limited resources than enforcing these particular rule changes.
However, the EPA only monetized one health benefit from this change. While on one hand we might think that being conservative in our assumptions protects us from investing into unhelpful programs, being overly conservative prevents us from maximizing our limited resources.
Researchers Ronnie Levin and Joel Schwartz from the Harvard School of Public Health took a second look at these changes and found that the benefits from this rule change could actually be as high as $9 billion, a benefit-cost ratio of 35:1.
The two major changes these authors made were to monetize the infrastructure benefits that are associated with removing lead pipes and to expand the monetized health benefits to include a wider range of expected improvements than just future earnings increases.
With such wildly different estimates of the costs, it is important to take a step back and think about which research has the more believable assumptions. From my perspective, I tend to agree with the $9 billion figure more.
While it is generally best practice to make conservative assumptions, there is a ton of research on the effects of lead pipes that stretches far beyond future earnings. Not monetizing those other effects doesn’t really make sense from a research perspective.
Taking it a step further, it would even be possible to make the case that Levin and Schwartz were also being a bit too conservative with their estimates. There is a broad literature on the effects of lead exposure on crime, and excluding those benefits might mean the actual benefit of this policy is even higher than just $9 billion.
Bringing it back to the policy decision, there is obviously a major difference in how we would think about a proposal that we expect to have 35:1 returns. It would be foolish for policy makers to ignore something with this much potential. It also makes it much less likely going forward that this rule would get rolled back in the future to fund some other policy proposal.
This is what well done policy analysis can bring to the table. Instead of this change being thought of as a good but not great policy that could be cut if something else were to come along, we should think of it as a critical investment that should be prioritized over other less valuable programs.
While the stakes might be higher at the federal level because of the size and scope of the policies, state and local governments often have to operate under much tighter budget constraints. Effectively maximizing those budgets is a critical part of ensuring that everyone in our society gets to lead their best lives.