3. Benefit-Cost Analysis Approach

The Department's adoption of the 1991 Standards ADAAG 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 proposed standards represent improvements in the quality of accessibility and the degree of inclusion. However, unlike the 1991 Standards, many of the improvements in the quality and degree of accessibility resulting from the proposed standards 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 a whole. Supplemental requirements however are more akin to the 1991 Standards with respect to their anticipated effect on particular facilities (e.g. play areas, recreation facilities and judicial, detention and correctional facilities).

OMB Circular A-4 stipulates that a regulatory analysis should account for only costs and benefits that arise as a result of the proposed regulatory action. Considering the diversity of facilities, requirements, construction types, and of course, persons with disabilities, measuring the incremental economic impact of the proposed standards becomes a complex assessment. In all cases however, changes in costs and benefits are measured against a baseline. The 1991 Standard is the primary baseline for measuring these regulations' impact on costs and benefits. This chapter discusses the development of the theoretical benefit-cost model to measure the most likely as well as the range of incremental impacts of the proposed standards.

3.1 Cost Estimation

Cost estimation is performed for a number of cost categories of buildings and requirements. The approach for each can be summarized in a simplified framework. Overall, the incremental cost of compliance for elements includes initial and recurring costs. Initial costs refer to the capital costs incurred for design and construction at the facility to achieve compliance. Recurring costs include operations and maintenance (O&M) and the cost of any lost productive space. Lost space occurs when compliance requires additional maneuvering room be set aside in an accessible space. In addition, to maintain compliance with some requirements, facilities will need to incur costs to regularly replace equipment. More stringent requirements involve increased capital costs whereas less stringent requirements offer facilities capital cost savings. Recurring costs follow the same cost structure as capital costs.

The framework for estimating costs is developed for three types of construction (new construction, alterations and barrier removal) and three categories of cost (capital construction costs; O&M; and lost productive space). Applied to the types of construction, the framework only differs in parameter values. The cost framework can be simply defined as:

Cost_ijkl = [# of facilities_ij]•[# of elements per facility_ik]•[unit cost per element_jkl]

Where the subscripts are defined as follows:

i denotes the facility;

j denotes the type of construction;

k denotes the requirement; and

l denotes the category of cost.

This framework applies to more and less stringent requirements by altering the sign (positive or negative) on the cost per element, as determined by the type of requirement. All unit costs are incremental to a baseline scenario and are the same across facilities. The number of elements per facility does not change by type of construction.

Numbers of Facilities

Facilities are defined to be establishments with employees.^[1] Total numbers of facilities are available from a variety of published sources. Unfortunately, numbers of facilities are not available by size. Without size differentiation facilities are defined as ‘average'-sized (or perhaps "typical") because costs then can be appropriately scaled up with a total number of U.S. facilities to obtain a total U.S. cost. As an average then, there would be just as many facilities larger as smaller and by extension, the average would over and under estimate the facility costs in equal proportions. The assumption on what constitutes an ‘average-size' facility impacts results because if a larger ‘average' facility is assumed, total costs would increase.

The number of facilities for each type of construction depends principally, on whether they currently exist when the proposed requirements are adopted. Numbers of existing facilities are determined from published sources. New facilities are determined by data-derived annual growth rates. These rates are facility specific and developed from historical data.^[2]

A subset of facilities includes those that must comply with specific requirements because of the amenities they provide. For example, requirements for swimming pools apply to facilities that are swimming pools (i.e. aquatic centers/swimming pools) as well as facilities, such as hotels, which have swimming pools. Accordingly, it is necessary to determine not only the number of hotels, but also the percentage of hotels that have pools. These integrated facility-elements include swimming pools, exercise facilities, play areas and parking lots.

Numbers of Elements per Facility

The number of applicable elements per facility uses assumptions about the average facility and new assumptions about the characteristics of the element. ^[3] In average facilities, a number of elements can be assumed. Again, as average facilities, larger and smaller facilities would have more and fewer numbers of elements. The defined size and characterization of such facilities are used to determine how many elements a typical facility contains. Assumptions on the number of elements in a facility are derived directly from assumptions on the average facility size.

Elements themselves must also be defined before they can be counted. For example, an average restaurant is defined to have an average of at least 1 passenger loading zone per 100 feet of curb. The frontage average length of the restaurant is assumed to be 100 feet or so and therefore, one element is counted for the average size. A similar approach is used to determine the number of such elements for each average facility. These specifications are assumed to apply consistently among all facilities.

Not all average facilities, defined to have one or more elements, actually have them. The proportion of average facilities that have such elements is unknown. Based on the requirements however, the number of average facilities that actually have the element is related to the conditions that determine how the requirement is applied. These conditions are used to develop a scaling factor that is applied to the number of elements in the average facility to more reasonably reflect the nature of the requirement. This scaling factor is defined as the probability that the average facility actually has the element. In other words, the defined number of elements (determined by defining the facility and element, as described above) is conditional on the element being in the facility in the fist place. In the example above, even though the average restaurant is to have one passenger loading zone, some average restaurants are located on streets, in malls or other interior spaces where the requirement would not apply. Accordingly, the likelihood that a restaurant has the element that requires compliance is the scaling factor. Applying this factor to the number elements computes an ‘expected' number of elements per facility that is subject to compliance. ^[4] Because this factor is not based on data, a reasonably large variability around this value is assumed in the model.

A final adjustment of the number of elements involves determining the proportion of elements that are costed and for what type of construction. For barrier removal and alterations, the number of elements per facility that are costed depends on whether the analytical scenario assumes SH is adopted or the level of readily achievable. When higher levels of readily achievable are assumed, more elements undertake barrier removal than lower levels of readily achievable. These adjustment factors are described in Section 2.4.

The proportion of elements by construction type changes over time. The first elements to improve access do so as part of barrier removal or alterations. Barrier removal construction is assumed to be completed in one year. The number of elements undergoing alterations depends on when the element was originally built and the frequency of alternations. Elements are added each year at the rate new buildings are constructed. Over the 15-year rule-making period, the number of new and altered elements increases and takes on a larger share of the total number of accessible elements in buildings.

Unit Costs

Incremental unit costs represent the cost of compliance with a supplemental or revised requirement measured against the cost of compliance with the current requirement. Unit costs differ with respect to the type of requirement (supplemental, less stringent, and more stringent) and type of construction. Unit costs are defined for a range of possible values to reflect site-specific variation in measures required to achieve compliance. For example, compliance with a requirement applicable to an accessible route could involve distances of 25, 50, or 100 feet, depending on the layout of the accessible entrance and parking lot. As another example, a requirement could be fulfilled by either creating a circuitous but accessible route or providing a lift. The range of values is intended to reflect a reasonable range of possible cases. The low and high ends of the range of unit costs have been defined as the lower 10% and upper 10% of costs, respectively (this range is equivalent to an 80% confidence interval).

3.1.1 Capital Construction Costs

Capital construction costs per element differ by type of construction in fundamental ways. Construction costs for new and altered buildings are estimated as the difference between the cost of complying under the 1991 standard and the compliance with 2004 ADAAG. This implies that in most cases, the costs attributable to the construction or alteration scenario itself would be subtracted from the costs of both standards, and thus, not be measured. By contrast, barrier removal costs require that the entire cost of retrofitting be included. The reason for this distinction is that new and altered buildings represent planned activities at a site, so the proposed standard represents only a difference in design specifications for projects that were being undertaken anyway. By contrast, compliance with the barrier removal requirement implies that whatever level of access is currently provided at a facility, if barrier removal is required, the full cost of retrofitting must be incurred.

3.1.2 Operations and Maintenance Costs (O&M)

Incremental costs of compliance are not complete without including incremental annual O&M costs. O&M is commonly expressed as a percentage of the capital construction costs. Requirements can be grouped by the level of use and/or equipment involved in O&M. These O&M groups include (at an increasing level of cost) standard maintenance, high-use maintenance, extraordinary wear and tear, and equipment maintenance. O&M costs are applied for all types of construction. O&M costs start the year after construction has concluded.

3.1.3 Loss of Productive Space

Some requirements also impact (reduce or increase) the space available for productive uses at a facility. The incremental impact of the standards is the change in space requirements between the existing and the revised requirements. The total change in productive space for each group of elements is multiplied by the value of space for that facility type. The cost to a facility from lost productive space is included as a requirement cost because it reflects an annual loss in productivity. With regard to barrier removal and alterations, loss of productive space can represent a significant additional cost of the proposed standards. Similarly, if the proposed standards frees up productive space, this lesser requirement results in a decreased cost (or benefit) to facility owners.^[5] These decreased costs will also be counted as part of the total cost of ‘lost' productive space.

This cost is assumed to be larger for barrier removal than for new construction or alterations because barrier removal does not involve changes to the building shell or improved design that might compensate for the lost productive space. By contrast, changes to the building shell are assumed to be part of new construction or alterations and not a direct result of a requirement. The cost of lost productive space is the amount of lost space (in terms of square feet) multiplied by the value of building space (per square foot). Along with O&M, these costs are applied each year of the planning horizon.

3.2 Benefits Estimation

3.2.1 Overview of theory

Benefit-cost analysis principles are applied to help inform whether the incremental benefits of the proposed standards are justified on economic terms. The benefit consumers derive from changes in facility accessibility can be equated to the changes in the quantity and quality of time spent consuming goods and services at those facilities. Benefits are primarily represented by the creation of economic value from these changes in quantity and quality.

Benefits -- the economic value people derive from accessibility -- can be divided into three categories:

Use value: the value that people with disabilities derive from the use of accessible facilities;

Option value: the value that people both with and without disabilities derive from the opportunity to obtain the benefit of accessible facilities; and,

Existence value: the value that people both with and without disabilities derive from the guarantees of equal protection and nondiscrimination that are accorded through the provision of accessible facilities.

The generalized use and access cost of a facility visit is the basis for determining use value. The actual price paid for goods and services represents only part of this value. Users also incur costs as a manifestation of the time spent traveling to a facility and the time spent within a facility accessing the spaces or features that constitute the primary purpose of the visit. For example, people go to movie theatres to watch a film. Likewise, one goes to a restaurant to eat or to a hotel (as a guest) to sleep. In such cases, the access time is the time that a visitor spends within a facility to move from say, the parking lot, to her or his seat, table, or bed. In contrast, use time refers to the time spent watching the movie, eating, or sleeping.

This distinction is important because changes in accessibility due to the proposed requirements have a direct impact on access time and the experience users gain from while visiting a facility. In fact, users derive value from a visit from three distinct sources:

Changes in access time;
Enhanced quality of facility access; and
Enhanced quality of facility use.

Each of these components of value is monetized with an appropriate value of time that is an expression of a user's willingness to pay for changes at the facility. With regard to the first component, minutes saved in accessing a fishing pier, for example, are monetized by a value of time that depends on the reason for using a facility. Following common economic assumptions, facilities that principally involve leisure activities have a lower value than ones involving work, including housework.

The components (b) and (c) identify benefits which are derived from a change in the experience of accessing and using a facility. For example, changing access means changing the experience of moving through doorways, getting a drink of water, or getting into a pool. Requirements that cause an incremental change in access time -- in component (b) -- enhance value during the entire duration of access time change. Use time -- in component (c) -- is enriched by requirements that fundamentally change the experience of using the facility. For example, requirements that enable users to hear a performance, swim or fish, experience increased value throughout the time that they are participating in those activities, simply because access is available, at any time during use.

These premiums on the user experience have been explored in studies of benefits and behavior of transit systems. For example, economic analysis and market research have shown that people with disabilities would pay a premium to use regular public transit systems if they were made accessible. In addition, transit riders would also value sitting more than standing without regard to any change in the time it takes to use the service. Data used to assign values to the user experience of changes in access time and use of facilities has been drawn from these sources.

The benefits for users are computed as a change in the consumer surplus, an economic measure of public welfare. Consumer surplus is estimated with partial equilibrium models of facility visits. These models determine the quantity of goods or services provided at facilities by the amount demanded by consumers for a given price. For example, when the cost of a visit declines due to the monetized reduction in access time, current users gain by means of an increased value of each use, and new visitors (as well as new visits by current users) are increased. These increases in use and value represent the consumer surplus benefit.

The estimation of facility visits depends on data related to the cost of a visit, the demand for a visit and the number of visits. The cost of a visit is defined as a generalized use and access cost, and includes both the price of using a facility or buying goods there and the cost of the time of traveling to, moving within and using a facility. Demand for a facility is characterized by the price responsiveness of the good or service provided at the facility. This price responsiveness can be directly extrapolated to the cost of a visit. Finally, the number of visitors is derived from market data and assumptions about the projected changes in the use of a facility by users with disabilities, including users who have the specific type of impairment each requirement is designed to address.

3.2.2 Benefits from Changes in Access Time

The model developed to estimate benefits follows directly from the methodology previously discussed. In fact, equating changes in benefit ("utility") to changes in the quantity and quality of time is convenient because it can draw from extensive literature on the value of time in various activities.

Requirements affect access time in a variety of ways. Some requirements alter the time necessary for directly using a facility element. Others change the number of accessible facility elements available to a person with disabilities. A change in numbers of elements is manifested into a time that a person with disabilities would have to wait until one of the remaining elements becomes available. A few requirements involve only changes in equipment that can translate into access time through a difference in mechanical speed.

The magnitude of the change in access time during a facility visit depends on the product of several factors: (a) the change in access time per use of an element; (b) the number of uses per facility visit; and, (c) the likelihood that benefits are realized during a facility visit. The time savings (or increase) is estimated for each requirement based on an incremental change in access compared with the 1991 Standard. Time savings applies to the recreational facility amenities differently than elements of a facility. Only some people use recreational facility amenities (e.g. a pool) while at a non-recreational facility (e.g. a hotel), thus associated time savings is only realized by amenity users at those facilities.

The number of uses of a facility element depends on the element. Some elements are likely to be used with some predictable frequency while spending time at a facility (e.g. a bathroom). The estimated number of users per hour is multiplied by the total time during a facility visit to determine the total number of uses per visit. Other elements are likely to be used once or a few times, but independent of the time at the facility. Entrances and parking lots are examples of elements are generally used twice: coming and going from a facility.

Even though a facility has become compliant does not mean that user benefits (in the form of time savings) are realized or realized to the extent anticipated. Facility visitors have to use the element to realize the benefits. For example, it is conceivable that a facility with an accessible bathroom is not used during the visit by a person with disabilities. In addition, some requirements imply time savings only under specific circumstances. For example, only during a power outage would users benefit when automatic doors that have back-up power. Benefits may also accrue only if the right conditions are present. Requirements that cause persons with disabilities to wait until an accessible element becomes available realize this change in time only if there is someone using the accessible element when the person with disabilities is ready. Finally, the actual time savings or uses vary among persons with disabilities because of their varying degrees of disability.

Due to these considerations and others, an estimate of the likelihood that benefits are realized is used to scale down the actual benefits per requirement. The likelihood of realizing benefits is assumed for each requirement. Similar types of requirements are assumed to have the same likelihood of realizing benefits. This scaling factor has an important impact on the benefits estimated in the model. Uncertainty in the size of the scaling factor is included with a relatively wide range of values in the risk analysis.

3.2.3 Economic Models for a Change in Access Time

The partial equilibrium model of consumer surplus for existing users who benefit from a change in access time is shown in Figure 2. In the base case, the generalized use and access cost is equal to P₀. It is assumed that facilities are compliant with the 1991 Standards. More stringent requirements reduce access time whereby users experience a new generalized cost, P₁. At this cost, a facility would experience additional uses from new or existing users depending on the price responsiveness. Additional facility visits are shown by a shift from Q₀to Q₁. The user benefits (or consumer surplus) are represented by the shaded area [P₀ a b P₁].

The incremental costs incurred by facilities are not transferred to consumers as a change in prices at facilities. This assumption is reasonable since the incremental cost to facilities is expected to be small, especially considering implementation with safe harbor and readily achievable determinations. The revised requirements, which refine already existing requirements and will be subject to Safe Harbor, would be highly unlikely to create a significant incremental cost burden. Similarly, it is assumed that the supplemental requirements would not materially affect the supply of either recreational or judicial/law enforcement facilities, though for different reasons. Judicial facilities cannot limit the scope of their activities due to legal mandates imposed by sources other than the ADA or its implementing regulations. Existing small recreational elements and facilities are protected by the limited safe harbor provision allowing them to limit annual barrier removal costs to no more than 1% of annual receipts (see Appendix 10 for more detail). In addition, all facilities would still be subject to the readily achievable barrier removal standard, which essentially serves as a "brake" on prohibitively expensive compliance costs for both revised and supplemental requirements. (Note that overall results for the Rule are presented for three different scenarios of estimating readily achievable barrier removal -- see section 5.2). It is also assumed that demand from persons with disabilities does not cause a shift in demand and price.

Figure 2: Economic Framework for Estimating Benefits from Changes in Generalized Access Cost

The estimation of the consumer surplus is based on the assumption that the demand for goods and services at facilities is dependent on the generalized cost of using them. The generalized cost includes:

the market price of the good or service at the facility;

access time within a facility to its elements (i.e. traveling to a seat in a theater);

travel time to the facility;

use time (i.e. watching a movie in a theater); and,

value of time.

The implementation of the Standards is expected to reduce the generalized cost of visiting a facility by decreasing the access time. In turn, the lower cost is expected to increase demand from users with disabilities due to the realization of some latent demand.

Each requirement applied to a facility contributes to the consumer surplus for the facility. Most requirements are intended to increase access for a person with a typical disability. The benefit of increased access is determined by applying any change in access time due to an element during a facility visit to the visitor's value of time. Benefits are calculated for facility visits for each category of disability affected by the facility's requirements (sight, hearing, etc) and are then apportioned to each requirement to reflect its impact on access time for that group of visitors.

Several preliminary calculations and estimates are required before computing the consumer surplus:

Initial number of uses per year by persons with disabilities, by type of disability. First, the number of visits per average adult in the US is used (see Section 4.2.1 for more details). As a starting point, it is assumed that persons with disabilities visit facilities with the same frequency as those without disabilities. This assumption is modified by two adjustments to reflect potential reasons why persons with disabilities likely visit facilities at different rates than the general population: the imperfect accessibility of facilities and the lower average income among persons with disabilities. Specifically:

Ease of Access (EOA) adjustment. The EOA accounts for the relative difficulty of accessing a particular type of facility. Each facility is defined to have a current level of access. The current EOA has values that range from 60 percent (very difficult or no access) to 100 percent (completely accessible). Note that after the Standards are implemented, it is assumed that facilities are accessible such that persons with disabilities experience the same ease of access as those without disabilities for the specific elements covered by the proposed Standards. Thus, the new EOA (EOAn) adjustment after the Standards is assumed to be 100 percent.
Income adjustment (IA). As a group, persons with disabilities have a lower average income than the rest of the population. The IA incorporates the fact that people with lower incomes tend to visit certain types of facilities at a different rate than persons with higher incomes. The IA multiplies the percentage of the population with a disability that visits a facility by a figure between 60 to 140 percent.

Type of disability. The proportions of the population with specific types of disabilities are drawn from Census data and are used to determine the number of visitors to a facility who are the targeted beneficiaries of the specified requirements. For example, some access standards at a hotel directly benefit persons using a wheelchair. The proportion of persons using wheelchairs determines the total number of hotel visitors who directly benefit from those requirements.

Changes in access time (A_t). During an average visit, A_t is a product of:

the time change per use of each element/requirement (derived from averages of high, medium and low estimates of time changes provided by the Benefit RAP panelists),

the frequency of use of each element per visit, either as uses per visit (e.g. parking lots or entrances) or uses per hour of access time (e.g. bathrooms) (also derived from averages of high, medium and low estimates provided by the Benefit RAP panelists),

the likelihood of realizing the benefit of each element (in some cases, the element affected by a requirement would only be used in cases of emergency or waiting, and so the likelihood of realizing benefits is very low), and

the likelihood of the element occurring in a facility (provided by the Cost RAP panelists).

The time savings per facility visit for persons in each type of disability category are summed across all the requirements that are relevant to that facility and disability group. This determines the net effect of the proposed Standards on each facility and type of disability. Time savings are valued at the value of time (VOT) for the average disabled user of the facility. Time savings are equivalent to decreases in the generalized cost mentioned above.

Value of time (VOT). The VOT is derived from the average hourly earnings for production workers in the US. For persons with disabilities, the base VOT is assumed to be equal to 50% of average hourly earnings.^[6] Requirements change the quality of the experience at a facility, independent of the time change, by impacting either 1) access or 2) use of a facility for its primary purpose. To reflect these impacts, the base VOT is augmented with either an access or use premium. For requirements that change access time, such as the requirement that improves the route to an exercise machine at a gym, an access-based VOT premium is assumed to increase the base VOT. The total (or final) VOT is applied to the total change in access time.

Other requirements change the quality of the use of a facility for its intended purpose. One such requirement relates to accessible exercise machines at the gym. Requirement-induced changes in the quality of facility use require a different VOT premium. This premium is equal to the VOT. The use-based VOT premium is applied to the facility use time, not access time. For these requirements, the benefits of the proposed Standards are equal to (a) the base VOT-monetized change in access time from the element and (b) the use-based VOT premium over the total use time for all visits to the facility. If the use of a facility is enhanced by more than one requirement, the use-based VOT premium is shared for all relevant requirements.

The slope of the demand curve (m) is developed using literature-derived price elasticities for the purchase of goods or services sold at the facilities. In some cases, proxy elasticities are used. The elasticity for the facility type (ε) is assumed to be a reasonable approximation of the responsiveness to monetized changes in access and use time at a facility. The slope is computed from:

price elasticity at the facility

number of uses per year for persons with disabilities

generalized use and access cost

EOA adjustment.

In this case, the EOA adjustment is computed as a ratio of EOAn to the current EOA. Resulting values are between one and two and cause an increase in elasticity of facility visits.

After the consumer surplus is calculated for each facility type, the consumer surplus for each individual requirement is derived by prorating the total consumer surplus across all the requirements to a facility based on the time change that each requirement generates (positive or negative).

For the supplemental play and recreational facilities and requirements, an additional calculation is made to estimate the expected increase in the number of new users who were previously unable to visit the facility independently, as well as the benefits generated to them. As new, or "supplemental," requirements, play and recreation requirements are assumed to have a greater impact on new users (the other requirements are "revised" requirements, building on the 1991 Standards and are assumed to improve existing accessibility). Thus, while the Ease of Access adjustment to the calculation of m is assumed to estimate the number of new uses by current users, an additional calculation for new play and recreation users is made to estimate the number and the benefits related to new uses by new users who were unable to access these facilities before the implementation of the new standards. The estimation follows the guidelines below:

Before the implementation of the new standards, the potential new users' cost is assumed to be higher than the current users' cost, because of either the type or intensity of their disability which makes it impossible or very costly to attend a recreational facility. Access could be gained only by having someone else's assistance. The difference in cost between new and current users is estimated as the cost of paying to get the assistance of a health care aid professional at the recreational facility during an average stay. After the implementation of the new standards, the cost for new and current users is assumed to be the same.

Since there are obviously no new users before the implementation of the new standards, the cost of visiting a facility for these new users is equal to, or higher, than the highest valuation implicit in their demand curve. Therefore, it is assumed that before the implementation of the new standards, the highest valuation equals the cost to new users (at the point of the demand curve with zero new users). The demand curve is then built from the highest valuation point and the slope of the demand curve as derived for current users.

The numbers of uses by new users is then estimated at the equilibrium of the demand curve (constructed as described above) and the line representing the cost after the implementation of new standards. The consumer surplus is estimated as the area above the cost line and below the estimated demand curve for new users.

For examples of the specific calculations described above, see Appendix 4Q.

3.3 Risk Analysis

This analysis fully recognizes that many parameters in the model require specification with limited or non-existent data. For example, determining a number of facilities implies that within a certain type of facility (e.g. clothing stores), let alone a facility group (e.g. retail establishments), many differences exist. Such differences mean that no single equation can capture the variability in real conditions as it relates to each of the components. This analysis addresses part of this problem by specifying assumptions so that it is possible to assess implications under alternative assumptions.

Uncertainty is incorporated in this regulatory impact assessment through risk analysis. Economic analyses often take the form of a single "expected outcome" supplemented with alternative scenarios. The limitation of a forecast with a single expected outcome is clear - while it may provide the single best estimate, it offers no information about the range of other possible outcomes and their associated probabilities. The problem becomes acute when uncertainty surrounding the forecast's underlying assumptions is material.

A common approach is to create "high case" and "low case" scenarios to bracket the central estimate. This scenario approach can exacerbate the problem of dealing with risk because it gives no indication of likelihood associated with the alternative outcomes. The commonly reported "high case" may assume that most underlying assumptions deviate in the same direction from their expected value, and likewise for the "low case." In reality, the likelihood that all underlying factors shift in the same direction simultaneously is just as remote as that of everything turning out as expected.

Another common approach to providing added perspective on reality is "sensitivity analysis." Key forecast assumptions are varied one at a time in order to assess their relative impact on the expected outcome. A problem here is that the assumptions are often varied by arbitrary amounts. A more serious concern with this approach is that, in the real world, assumptions do not veer from actual outcomes one at a time. It is the impact of simultaneous differences between assumptions and outcomes that provides a perspective on the risk of a particular forecast.

Risk analysis provides a way around the problems outlined above. It helps avoid the lack of perspective in "high" and "low" cases by measuring the probability or "odds" that an outcome will actually materialize. This is accomplished by defining ranges (probability distributions) to the forecasts of each input variable. The approach varies all inputs simultaneously within their distributions, thus avoiding the problems inherent in conventional sensitivity analysis. The process incorporates potential interrelationships between variables and their associated probability distributions to generate more realistic outcomes.

HDR performs risk analyses through a process called a Risk Analysis Process (RAP). RAP involves four steps:

Define the structure and logic of the problem;
Assign estimates and ranges (probability distributions) to each variable and forecasting coefficient in the forecasting structure and logic;
Engage experts and stakeholders to assess model and assumption risks (the "RAP Workshop Session"); and
Implement input from experts and stakeholders in the model and generate risk-adjusted results.

This process has been used to gather much of the critical data to estimate costs and benefits. Additional information about RAP process and workshop is contained in Appendices 6 and 7.

3.4 Lifecycle Analysis

Growth and change underlies the entire analysis. The number of individuals with disabilities grows over time as population increases. The value of sales per facility grows and so too the number of buildings due to new construction. Forecasts of growth are also inherently uncertain. Lifecycle analysis involves methods that summarize all future costs and benefits (and associated uncertainties) so that they can be understood and compared in the present. Future costs and benefits include both one-time and recurring costs and benefits. Important elements of a lifecycle analysis include the temporal scope of analysis, planning horizon, and discount rate.

Implementation of the proposed standards assumes that six months following passage of the final rule, all facilities will be subject to a "triggering event" that compels compliance with the new regulation.^[7] The specific triggers vary for new construction and alterations construction and/or the Title the construction falls under.^[8] New construction under Title III uses "first occupancy" as its triggering event. Hence, after the effective date of the proposed standards, all entities must be designed and constructed for "first occupancy" in accordance with those standards.^[9] For alterations that fall under Title III, the triggering event is the date that physical alteration begins. Title II construction, on the other hand, uses the same trigger for both new construction and alterations -- the date construction commences.

The temporal scope of analysis concerns the period over which this regulation will govern accessibility standards. Given the current congressional mandates, the Department expects to revise its Title II and III regulations (including the ADA Standards) approximately every 10-15 years. Because the nature of future changes is unknown, it is inappropriate to attribute to this proposed regulation the benefits and costs that will result from compliance efforts that will be required by a future regulation. Accordingly, it is assumed that only construction projects that are begun within15 years after the effective date of the proposed standards will be subject to this regulation. This covers the period from the end of 2010 through 2024.

This temporal scope has implications for barrier removal, alterations and new construction sub-models. For example, barrier removal actions are assumed to occur evenly over a 15-year period (as compliance becomes readily achievable with respect to additional elements). The numbers of alterations and new construction projects subject to this rule are projected to increase annually until year 15 after which they would be subject to the next rule. The increase in alterations projects is determined by a historically-derived alterations schedule. New construction projects are assumed to grow at a fixed rate per type of facility.

The planning horizon for costs and benefits tracks the duration over which costs and benefits are included in the analysis. A reasonable duration for future costs and benefits is based on the longest lasting newly constructed asset which in this case is the period between a building's substantial alterations.^[10] Most commercial buildings require substantial renovations every 30-40 years, while others are designed to last 50 years or more.^[11] Given the range of situations, 40 years is selected as a reasonable planning horizon to account for all potential major building alterations occurring within this period.^[12]

A lifecycle analysis has different implications for future costs and benefits. Construction is assumed to occur over a span of three years for new construction and alterations projects, but over one year for barrier removal. Costs associated with O&M and lost productive space begin in the year after construction ends. Replacement costs are assumed to be a fraction of the initial construction costs. Such costs are incurred at different frequencies depending on the complexity of the element. In addition, salvage values are computed for all requirements applicable to elements that have replacement frequencies extending beyond 40 years.

Benefits are accrued after a facility has completed all compliance measures. Assumptions on construction durations, established on the cost side of the model, are applied to the benefits side to determine when benefits begin. It is also assumed that benefits ‘ramp-up' after construction until the full value is realized. A ramp-up describes the increasing use of a facility, beginning from a fairly low level of use. The initially lower use reflects the fact that potential users have simply not learned of the benefits from the new standards. Such benefits patterns are commonly observed in the response of users to transportation system investments (such as new roads).

The compliance costs must be incurred to maintain access. Over a 40-year period, elements require annual operation and maintenance (O&M) expenditures. In addition, at some point, elements may require replacement. Over 40 years, some devices may be replaced several times whereas others may not be replaced at all. Replacement should be considered as an additional cost over and above ordinary O&M costs. In cases where the replaced element has a useful life remaining at the end of the lifecycle, a "salvage value" is computed. The salvage value is assumed to equal the construction cost prorated for the number of years that have elapsed since the element was installed. If value in the equipment remains after this 40-year horizon, the remaining value ("salvage" value) is credited back assuming that wear and tear has been constant while the element has been in use.

All future costs are discounted to the present using an appropriate discount rate. The discount rate turns all future year dollar values into present year dollar values (for both costs and benefits) so that they can be compared. A discount rate recognizes that current dollars are more valuable than future dollars and systematically converts future dollars to present values. Discounted costs are summed to obtain total present value costs for each requirement and for all facility types. Net present values are simply the difference between the total present value of benefits and the total present value of costs. Recent OMB guidance suggests using a rate of 3.0% or 7.0%. This analysis models the estimated benefits and costs under both discount rates to show how the results might differ depending on which rate is applied.

3.5 Evaluation criteria

A standard criterion for deciding whether a government program and, in this case, the benefits of the proposed standards can be justified on economic principles is net present value--the discounted monetized value of expected net benefits. Net present value is computed by estimating monetary values to benefits and costs, discounting future benefits and costs using an appropriate discount rate, and subtracting the sum total of discounted costs from the sum total of discounted benefits. Discounting benefits and costs transforms gains and losses occurring in different time periods to a common unit of measurement. Programs with positive net present value increase social resources and are generally preferred.

[1] Facilities operated without employees would be sole-proprietors who may own or lease actual establishments. This depends on the facility type. In general however, the large proportion of non-employee facilities can be assumed to work at home or in facilities already covered in another category (e.g. independent trainers at sports facilities).

[2] Data sources and assumptions are discussed in more detail below.

[3] The number of applicable elements differs from the total number of elements at a facility. For example, the revised requirements for accessible routes have not been assessed with respect to every route within a facility, but only those routes that will be affected by the change to the requirement. With this distinction, unless otherwise stated, elements in the remainder of this analysis refer to only those elements affected by the change to the requirement and which are thus relevant for the regulatory impact analysis.

[4] This factor could also be interpreted as adjusting the number of facilities that actually have the element.

[5] Benefits to facilities are counterbalanced by decreased benefits to facility users.

[6] See Section 4.2.5 and Appendix 4J for details.

[7] This is the only scenario considered. Twelve and eighteen months are not considered at this time.

[8] Title II or Title III.

[9] Specifically, ‘first occupancy' is defined in relation to the completion of a building permit application (completed less than twelve months before the effective date) and the issuance of a certificate of occupancy (completed after the effective date).

[10] Many buildings are built to last a long time, but can require several major alterations before it is beyond usefulness.

[11] Expert opinion was provided by HDR. Some technically advanced facilities such as labs required substantial alterations on a far more frequent basis.

[12] With suitable data, alternative assumptions on alternations schedules and planning horizons could be developed for different types of facilities.

Previous Chapter | Return to RIA index | Next Chapter