APPENDIX A

PROPOSED FRAMEWORK FOR THE REGULATORY ANALYSIS

1. INTRODUCTION

As directed by Executive Order 12866 and OMB Circular A-4, as well as the Regulatory Flexibility Act and Executive Order 13272, the Department may be required to conduct a comprehensive Regulatory Impact Analysis of the revised ADA Standards. A Regulatory Impact Analysis may include a statement of need for the proposed regulation, the identification of a reasonable range of alternatives, the conduct of a Benefit-Cost Analysis of the proposed regulation and the alternatives, and an analysis of uncertainty in the identification and quantification of costs and benefits. The Benefit-Cost Analysis entails the comprehensive description of the incremental costs and benefits of each alternative, to the extent practicable, in terms of monetary value. In this context, a Benefit-Cost Analysis would apply to each of the new or changed scoping and technical provisions in the revised ADA Standards that represent substantive changes from the current ADA Standards, as well as to possible alternatives to those provisions. The proposed Regulatory Impact Analysis would be included as part of the NPRM, and while the public will have an opportunity to comment on its assumptions and results at that time, this is the time to suggest significant changes to the Department’s proposed methodology. In presenting in this ANPRM its current thinking on how it might approach the regulatory analysis, the Department seeks to engage the public in the choice of its methodology before significant time and effort is expended on its implementation.

Role of Regulatory Impact Analysis in the ADA Regulatory Process

Regulatory Impact Analysis is intended to inform stakeholders in the regulatory process of the effects, both positive and negative, of proposed new regulations. The principal stakeholders are those who will be directly affected by the proposed regulations, namely people with disabilities and the owners and developers of facilities that will incur the direct costs of compliance. However, the public at large, including people both with and without disabilities, is also a key stakeholder in the regulatory process. The costs and cost savings associated with the proposed regulatory action will ripple throughout the economy, potentially affecting business costs and consumer prices. Businesses may respond to the new and revised requirements in a number of ways, some of which entail costs that may be easily measurable, such as increased or reduced construction, operating, and maintenance costs, and others of which entail costs that may not be as easily measurable, such as delays in construction and renovation. Thus, in addition to their effect on direct capital, operating, and maintenance costs, new and revised accessibility requirements influence less obvious but equally genuine aspects of cost, such as construction schedules. Construction schedules might be lengthened where the regulations impose new requirements and shortened where the burden of a given scoping or technical provision has been reduced relative to the current ADA Standards. The Regulatory Impact Analysis will seek to recognize and account for such schedule-related changes in costs.

The public at large will also benefit from the proposed regulations. Accessible facilities benefit persons with and without disabilities alike. This represents their use value. For individuals with disabilities, use value will include benefits arising from the ability to participate in previously inaccessible facility-based activities, or the availability of more convenient or independently usable facility elements or spaces. In addition, because people who do not need the protections of the ADA in the present may need them in the future, like an insurance policy, people without disabilities may place a value on accessible features. People may also place some value on the existence of accessible features unrelated to their anticipation of future personal need for them. This is reflected in people’s possible willingness to pay something to ensure that equal access is provided for others (family, friends, and other members of society) who are or might become temporarily or permanently disabled, or to safeguard the principle of equal protection for people with disabilities, regardless of the risk of onset or the general incidence of disability. Benefit-Cost Analysis helps the general public ascertain whether the value of these “nonuse” related benefits is quantitatively significant relative to the costs.

Some stakeholders might believe that economic analysis of any kind is simply irrelevant with respect to the implementation of a civil rights statute. The ADA is a comprehensive civil rights statute protecting the rights of persons with disabilities, and as such, could provide sufficient justification for regulatory action even if the Benefit-Cost Analysis were to produce negative results. Others might believe that, although economic yardsticks must not override the protections laid down in Federal statutes, the comprehensive articulation, if not quantification, of all benefits, including the nonuse values discussed above, can help promote understanding and further societal implementation of the protections established in law. Some might also believe that Benefit-Cost Analysis can be helpful in evaluating options for exempting certain elements or spaces in existing facilities from the provisions of the revised ADA Standards. Stakeholders are encouraged to express their views and to advise the Department as to how best to conduct these analyses as part of any rulemaking that is published to adopt the revised ADA Standards.

2. SCOPE OF THE REGULATORY IMPACT ANALYSIS

In conducting its analysis, the Department will be required to take a broader approach to the assessment of the benefits and costs of the revised ADA Standards than the Access Board was required to take in assessing ADAAG. The Department’s broader approach is required for two reasons. First, while the Access Board developed the guidelines contained in ADAAG incrementally over several years, the Department is now proposing to adopt ADAAG as a whole, as the revised ADA Standards. Since 1992, the Access Board has undertaken five separate and distinct rulemaking actions. The most recent of those rulemaking actions involves 68 substantive changes and additions to the scoping and technical requirements provided in the current ADA Standards (estimated to impose annual incremental costs on new or altered facilities of between $12.6 and $26.7 million). The other four rulemaking actions involved the adoption of supplemental guidelines for children’s facilities ($0); state and local facilities; play areas (between $37 and $84 million); and recreational facilities (between $26.7 and $34.4 million). Examined singly, the Board estimated each of the five rulemaking actions to entail incremental annual costs of less than $100 million, which is the threshold established in OMB Circular A-4 as the trigger for the Benefit-Cost Analysis requirement

The Department, however, is proposing to adopt the revisions to the current ADA Standards and the four supplemental guidelines as a whole as the revised ADA Standards. When combined, the Access Board’s estimated annual cost of all of the ADAAG revisions falls within a range between $76.3 million and $145.1 million (uncorrected for between-year inflation). With the mid-point of this range at about $111 million, there is a material probability that the combined cost of adopting the revised ADA Standards as a whole will exceed the $100 million threshold.

The second reason that the Department will likely be required to undertake a full Benefit-Cost Analysis is that the Department, unlike the Access Board, is responsible for implementing the requirements of the ADA with respect to existing facilities. Thus, the Department must account for the additional incremental costs and benefits attributable to the adoption of the revised ADA Standards to the extent that the new or revised provisions will apply to existing facilities. The additional incremental cost associated with these requirements increases the likelihood that the total regulatory costs will exceed the $100 million threshold for Benefit-Cost Analysis.

To the extent practicable, the Department proposes to apply state-of-the-art methods of Benefit-Cost Analysis as provided in OMB Circular A-4. While Circular A-4 is definitive with respect to principles, it leaves Federal agencies with discretion with respect to the means and methods of application. The Department is seeking comment, advice, and information on its proposed approach in the three key application areas, as follows: (1) categorizing the revised ADA Standards for purposes of identifying costs and benefits; (2) defining baselines and incremental costs; and (3) identifying and quantifying costs and benefits.

3. CATEGORIZATION OF THE REVISED ADA STANDARDS FOR PURPOSES OF ASSESSING COSTS AND BENEFITS

The adoption of the current ADA Standards represented a fundamental change in the accessibility of facilities and, accordingly, in the extent to which people with disabilities are able to participate in the mainstream activities of daily life. Most provisions of the revised ADA Standards represent improvements in the quality of accessibility and the degree of inclusion. However, unlike the current ADA Standards, many of the improvements in the quality and degree of accessibility resulting from the revised ADA Standards will derive from changes in the scoping, design, and features of specific elements and spaces of a facility, rather than as a result of changes to the facility as whole.

The various elements and spaces addressed in the revised ADA Standards vary among different types of facilities and will be classified accordingly. In addition, the impact of the new and revised requirements may be fundamentally different with respect to facilities that are newly constructed or altered after the effective date of the revised ADA Standards, on the one hand, and existing facilities, on the other. This in turn requires an additional level of categorization. The Department and the stakeholders in this regulatory action have an interest in viewing the combined costs, benefits, and net benefits with respect to the substantive new and revised provisions in the revised ADA Standards both as a whole and as applied to particular types of facilities.

Under the Department’s proposed categorization scheme, the Department will assess costs and benefits for each element addressed in the revised ADA Standards, as categorized by building and facility type, separately for newly constructed or altered facilities and existing facilities. Once costs and benefits are assessed for each element, they (costs, benefits, and net benefits) will be aggregated (“rolled-up”) with respect to (i) the type of building and facility; (ii) newly constructed or altered facilities; (iii) existing facilities; and (iv) the revised ADA Standards as a whole. The different “roll-ups” will enable stakeholders to examine the regulatory analysis from their particular perspective.

4. DISTINGUISHING THE BASELINES FROM THE INCREMENTAL COSTS AND BENEFITS

OMB Circular A-4 stipulates that a regulatory analysis is only supposed to account for those costs and benefits that arise as a result of the proposed regulatory action itself. Such costs and benefits are called “incremental” because they reflect only the costs and benefits imposed by the adoption of the regulation – excluded are any costs and benefits that are imposed by already existing requirements. The latter costs and benefits constitute the “baseline” against which the incremental costs and benefits of the new regulation are compared. The baseline thus represents the costs and benefits that would arise whether or not the proposed regulations are adopted. Although the current enforceable ADA Standards clearly impose costs and benefits upon society, for the purpose of the proposed Regulatory Impact Analysis, which will be designed to identify the incremental costs and benefits of the proposed rulemaking, the current ADA Standards and other Federal requirements will be considered the baseline, and as such, will be assigned zero costs and benefits. Thus, technically, if compliance with a current requirement costs $40, and compliance with the changed requirement costs $50, this will be stated as baseline of zero, incremental cost of $10.

As a general principle, the Department proposes to determine the incremental cost for each element or space addressed by a new or revised standard in the revised ADA Standards by first determining whether or not the current ADA Standards specify scoping and technical requirements for that element or space. If the current ADA Standards do address the element or space, then the provision in the revised ADA Standards will be referred to as a change in existing requirements. If not, the provision in the revised ADA Standards will be referred to as a new requirement.

Incremental Costs Applied to Newly Constructed or Altered Facilities

Where a given provision in the revised ADA Standards reflects a change in the existing requirements applicable to a particular element or space, the incremental cost (or savings) for that element or space in facilities newly constructed or altered after the effective date of the revised ADA Standards will be only the difference between the costs and benefits imposed by the requirement in the current ADA Standards and other Federal requirements with respect to that element or space and the costs and benefits imposed by the changed requirement. This is because, if the revised ADA Standards were not adopted, those elements in such facilities would still be required to comply with the current ADA Standards and other Federal requirements. If, with respect to any given element or space, it costs more to implement the revised Standard than it would have cost to implement the current Standards, the assessment of incremental cost will capture that additional amount. If it costs less, the assessment of incremental savings will capture that amount.

With respect to new requirements, the entire actual cost of compliance will be attributed to the revised ADA Standards. New requirements are those applicable to elements and spaces for which there were previously no standards. For example, all amusement rides built or altered after the effective date of the revised ADA Standards are required to be accessible to persons who use wheelchairs or other mobility devices. Neither the current ADA Standards nor other Federal requirements contain any requirement with respect to amusement rides. Therefore, the costs and benefits of complying with this requirement can be attributed entirely to the revised ADA Standards.

In its regulatory analysis, the Access Board presented results based on two baseline concepts, one in which the baseline is taken as the current ADAAG requirements, and a second in which the baseline is taken as the voluntary model codes, in which the requirements are very similar to the revised ADA Standards that will be proposed in the NPRM. That regulatory analysis also discussed the extent to which State and local governments have adopted the model codes. The Department may take a similar approach in its Regulatory Impact Analysis or it may calculate incremental costs in new and altered facilities, with respect to those States and localities that have adopted a model code, as the difference between the model code requirements and the revised ADA Standards if that is determined to be practicable.

Incremental Costs Applied to Existing Facilities

The same principles will apply with respect to incremental costs applicable to elements and spaces in existing facilities (those that were or will be newly constructed or altered prior to the effective date of the revised ADA Standards). Thus, with respect to elements and spaces in existing facilities, the relevant incremental costs (savings) will be only the difference between the costs and benefits imposed by the requirement in the current ADA Standards and other Federal requirements with respect to that element or space and the costs and benefits imposed by the changed requirement.

The Department is considering several options with respect to existing facilities with respect to their continuing obligations under the readily achievable barrier removal requirement. Which options the Department chooses will affect the calculation of costs and benefits with respect to elements and spaces in those existing facilities with respect to that requirement. For example, if the Department were to exempt elements and spaces that are compliant with the current ADA Standards from any obligation to comply with the revised ADA Standards pursuant to the readily achievable barrier removal requirement, the incremental costs and benefits of the revised ADA Standards with respect to those elements and spaces will be zero. In that case, only the incremental costs and benefits (actual costs and benefits of the revised ADA Standards, minus the costs and benefits of the current ADA Standards) of implementing the revised ADA Standards with respect to noncompliant (nonexempt) elements of such facilities, to whatever extent that may be required under the readily achievable barrier removal requirement, would be counted.

The Department is also considering other options that may affect the calculation of incremental costs and benefits for existing facilities with respect to their obligations under the readily achievable barrier removal requirement. Under one option, existing facilities would be permitted to apply reduced scoping requirements for specified elements and spaces in the revised ADA Standards, such as the number of accessible entries to swimming pools. Whether or not this option is selected, the entire cost of the requirement would be attributable to the revised ADA Standards because, in the absence of the new regulation, there would be no requirement applicable to these elements or spaces. However, should the Department elect to apply reduced scoping to such elements and spaces, the incremental costs and benefits of the revised ADA Standards will likely be lower than they would be if the Department did not apply reduced scoping. Under another option, for purposes of the readily achievable barrier requirement, the Department may simply exempt existing facilities from compliance with certain scoping and technical requirements in the revised ADA Standards that are deemed inappropriate for barrier removal. Under this option, the incremental costs and benefits will also be lower than they would be if the Department did not provide such exemption.

5. IDENTIFYING AND QUANTIFYING COSTS, BENEFITS, AND NET BENEFITS

While the revised ADA Standards will apply directly to newly constructed or altered facilities, the Department will determine in its ADA regulation whether and to what extent the revised ADA Standards will apply to existing facilities. The cost of any required compliance with the revised ADA Standards by existing facilities will be more difficult to determine than the cost of compliance for newly constructed and altered facilities. Many existing facilities are subject only to the readily achievable barrier removal requirement. Under that requirement, what is readily achievable for any given facility must be determined on a case-by-case basis and, by statute, has no monetary or other absolute parameters. In addition, cost estimates are more readily available with respect to newly constructed and altered facilities. Thus, while the basic principles are the same for both, the Department is considering rather different technical approaches to the Benefit-Cost Analysis of the revised ADA Standards with respect to newly constructed and altered facilities, on the one hand, and existing facilities, on the other.

Costs and Benefits of Provisions Applied to Newly Constructed and Altered Facilities

For facilities that will be newly constructed or altered after the effective date of the revised ADA Standards, the Department will seek to estimate the economic value of the incremental costs and benefits of each new or revised provision, and from there the net costs or benefits of the rule as a whole, by fairly conventional means. Using the Access Board’s estimates of direct unit costs as a starting point, the Department will estimate the direct life-cycle costs (based on an estimated 50-year life cycle of a building) imposed by each provision. These direct costs may include one-time cash expenditures occurring at the time of construction or alteration (also known as “capital” costs), annual cash expenditures necessary to cover the incremental costs of maintaining and operating accessible elements and spaces, and any loss of economic value caused by the reduction of productive space or productivity. Indirect costs include losses in social value that may arise as a result of the revised ADA Standards, such as reduced accessibility or, due to the increased cost of construction, a reduction in the number of total facilities and buildings that are constructed.

Benefits are primarily represented by the creation of social value, and can be divided into three categories. “Use value” is the value that people both with and without disabilities derive from the use of accessible facilities. “Insurance value” is the value that people both with and without disabilities derive from the opportunity to obtain the benefit of accessible facilities. Finally, “existence value” is the value that people both with and without disabilities derive from the guarantees of equal protection and non-discrimination that are accorded through the provision of accessible facilities. Other kinds of benefits include the saving of direct costs, such as from reduced construction, alteration, or retrofitting expenses resulting from reduced accessibility requirements.

Based on the estimates of costs and benefits, the Department will calculate the annualized value and the net present value of the rule as whole. In addition to requiring the presentation of annualized costs and benefits, OMB Circular A-4 stipulates that net present value is to be regarded as a principal measure of value produced by a Benefit-Cost Analysis when costs and benefits are separated from each other over time (i.e., when some people benefit from accessible facilities long after their construction). A net present value greater than zero would indicate that benefits exceed costs and that the regulation can be expected to increase the general level of economic welfare accordingly. While a net present value of less than zero could mean that costs exceed benefits, the existence of significant unmeasured and qualitative benefits must be taken into account. The Department proposes to identify and discuss all unmeasured and qualitative benefits. As one means of accounting for measurement risk, the Department also proposes to adopt the method of Threshold Analysis. Under this method, if quantitatively measured costs appear to exceed quantitatively measured benefits, the Department will calculate the value that society would need to assign to un-quantified benefits in order to balance the ledger. This “threshold value” will be reported for public review and comment in the NPRM, along with a qualitative description of the un-quantified benefits at issue.

Quantification of Costs and Benefits

Among the conventions of economic analysis, and an accepted principle in OMB Circular A-4, is that the amount of money people either pay or are willing to pay for goods and services represents a reasonable index of the total benefit they derive from such goods and services. This is called “willingness to pay.” The Department recognizes that the research community has made significant progress in the measurement of willingness to pay using proxies from market prices, surveys, and other methods. The Department also recognizes that some values nevertheless defy measurement. For example, while society clearly values the existence of constitutional protections, ascertaining the monetary equivalence of such values might be controversial and technically impracticable. Accordingly, the Department proposes to express benefits that are difficult to measure in qualitative rather than quantitative terms.

Circular A-4 indicates that, where available and relevant, market prices represent the appropriate starting point for ascertaining willingness to pay. Thus, for example, if a movie theater or swimming pool becomes newly accessible as a result of the revised ADA Standards, the resulting user value could be determined by multiplying the volume of new visits by people with disabilities by the market price of entry (namely, the ticket price). However, an issue with market prices arises where a provision in the revised ADA Standards renders an existing facility “more” accessible rather than newly accessible. Such might be the case, for example, with respect to the provision requiring an independent means of getting in and out of the pool in an otherwise accessible swimming facility, or the provision requiring equal access to the good seats in an otherwise accessible theater. In such cases, it may be argued that the price of entry overstates the value of the provision, since entry per se would still be feasible without the change. On the other hand, others may argue that the swimming or theater experience is fundamentally altered, perhaps even newly facilitated in a meaningful way, by the availability of improved, independent access. In practice, practitioners of Benefit-Cost Analysis employ empirical data, opinion surveys, expert judgment, and sensitivity analysis to obtain reasoned estimates of use value.

Economists also recognize that, as applied to people with low incomes, the willingness-to-pay index can underestimate economic value from the perspective of public policy. For example, the food purchases of single parents living below the poverty line are smaller than similarly constituted households with higher incomes. While both constitute willingness-to-pay data, for the low-income household, the data indicate affordability, not the economic value obtained from nutrition. In this regard, the Department recognizes that the median income among people with disabilities is significantly lower (about half) than that of the U.S. population generally. As a result, the willingness of people with disabilities to pay for access to architecturally improved facilities might not reflect the value of such facilities as viewed by the framers of the ADA and other policy makers. In practice, most Regulatory Impact Analyses use benefit values, such as a value of a statistical life in assessing health and safety regulations, assuming that the population receiving the benefits is of average income.

Another issue that arises when willingness to pay is used as an index of value is that market prices simply do not exist for all goods and services. Such might be the case with a municipal swimming pool provided free of charge, or for a token, largely subsidized user fee. Another example might be the improvement of a particular element or space, such as a kitchen or toilet, in an otherwise accessible office building. Survey-based information is the principal means of obtaining willingness-to-pay data in such cases. A commonly used survey approach in Regulatory Impact Analysis is called the “Stated Preference” method. Stated Preference surveys pose carefully conceived and scientifically structured hypothetical choices and trade-offs to random samples of survey respondents. Special statistical analysis of the survey data is then employed in order to obtain estimates of willingness to pay. A concern with the Stated Preference surveys is that respondents may not have sufficient incentives to offer thoughtful responses that are consistent with their preferences, or that respondents may be inclined to bias their responses for one reason or another. Without a real budgetary constraint, for example, respondents with disabilities might be inclined to exaggerate their willingness to pay for more accessible facilities. On the other hand, respondents without disabilities might understate their true willingness to pay for accessibility measures due to a tendency to underestimate the risk of becoming disabled oneself. Additionally, people might have difficulty articulating the strength of their feelings regarding, for example, the integration of a child with a disability into a mainstream school or play area if they do not have a child with a disability. Perhaps people are more likely to underestimate than overestimate their willingness to pay for the existence of legal protections if they have not experienced disability first-hand or within their family. The Department recognizes the need to anticipate the risk of both under- and over-estimation of value based on the hypothetical willingness-to-pay questions posed in Stated Preference surveys. The Department recognizes as well that, other things being equal, “revealed preference” data – data based on actual transactions – is to be preferred over Stated Preference data because revealed preferences represent actual decisions in which market participants enjoy or suffer the consequences of their decisions.

Finally, measurement error is inevitable in the assessment of both costs and benefits. The revised Standards will have different implications for elements and spaces in facilities of different types and different ages. The number of elements and spaces in facilities is itself uncertain. Data will often be sparse and will be subject to recording errors of many kinds. In addition to the method of Threshold Analysis described above, the Department proposes to adopt the method of Risk Analysis to help ensure that the analysis is transparent with respect to measurement risk. While rather technical in application, the principle is straightforward: with Risk Analysis, every number employed in the analysis is expressed as a range – what statisticians call a “probability distribution” – that reflects the whole array of possible outcomes and the probability of each occurring. When all the ranges are combined into estimates of total costs and total benefits for a given regulatory provision, the result is not a single “best guess” of net benefit, but a probability range of possible outcomes.

Costs and Benefits of Provisions Applied to Existing Facilities Under the Barrier Removal Requirement: Proposed Simulation Model

Title III of the ADA reflects Congress’s specific intent not to establish – either in the statute or regulations – absolute technical or monetary standards for what constitutes readily achievable barrier removal in existing buildings. Some stakeholders, particularly businesses (and especially small businesses), have long expressed concern regarding the need to assess the costs of compliance with the readily achievable barrier removal requirement in absolute terms, notwithstanding the essentially relative nature of the statutory requirement.
The Department is considering the development of a computer simulation model to estimate the incremental costs and benefits of the revised ADA Standards as applied to existing facilities that may be required to retrofit particular elements or spaces only to the extent required by the readily achievable barrier removal requirement. For each new or revised scoping or technical provision in the revised ADA Standards representing a substantive change from the current ADA Standards, the computer model would assess the statistical probability that existing facilities would be required to implement the provision pursuant to the readily achievable barrier removal requirement. In order to determine whether a provision would apply to a given facility, the Department contemplates plugging a range of different factors relevant to the “readily achievable” analysis into the model, including the possibility of using multiple criteria that distinguish among small- and large-sized enterprises.

Two statistical databases would be developed in order to implement the simulation model. One is a database of costs associated with retrofitting elements and spaces in existing facilities, where the facilities are stratified by type, age, physical condition, and financial size. This database would also include estimates of user and nonuser benefits. The second database would include the estimated number of elements and spaces in existing facilities that would be subject to the readily achievable barrier removal requirement (in each year of the life-cycle analysis) in each stratum. Within each stratum, the incidence of facilities in various classes would permit the model to be executed for each of the options under Departmental consideration. The Department would collect the information used to populate the databases from all available sources. As set out above, all entries in the databases would be expressed as a range of probabilities in order to account for the inevitable risk of error and varying degrees of sampling quality. Thus, the model would be statistical by nature, which means that different types and sizes of facilities would be represented as sample data, not data for each facility in the nation. Costs would be statistical in the same sense.

September 30, 2004