3. Benefit-Cost Analysis Approach

The Department’s adoption of the 1991 Standards represented a fundamental change in the accessibility of facilities and, accordingly, the extent to which people with disabilities are able to participate in the mainstream activities of daily life. Most provisions of the Final Rules 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 Final Rules 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, 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 regulatory action. Considering the diversity of facilities, requirements, construction types, and of course, persons with disabilities, measuring the incremental economic impact of the Final Rules becomes a complex assessment. In all cases, however, changes in costs and benefits are measured against a baseline. The 1991 Standards are the primary baseline for measuring these regulations’ 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 Final Rules.

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 differs only 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 Final Rules 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 first 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 Standards and the compliance with the Final Rules (which incorporate the 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 requirements in the Final Rules represent 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 costs are 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 requirements in the Final Rules. Similarly, if a particular requirement frees up productive space, this space savings results in a decreased cost (or benefit) to facility owners.[5] These decreased costs are 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 costs, these costs are applied each year of the planning horizon.

For examples of the specific calculations described above, see Appendix 3N.

3.1.4 Other Management Transition Costs

Facility management costs attributable to the Final Rules are expected to be minimal. The majority of the requirements are revised requirements and thus subject to Safe Harbor for Barrier Removal. Under Alterations and New Construction, the costs for incorporating (or accounting for) the Final Rules into projects are assumed to be part of the regular course of doing business for contractors, designers, builders and architects who must constantly monitor State, local and national codes. 

For the limited number of requirements that are supplemental (relating to courthouses and play and recreation requirements) facilities will need simply to determine if they contain one of the dozen or so supplemental requirements and determine how to contact an equipment manufacturer or contractor to make the change (the cost of bringing the element into compliance is assumed in the unit costs). Since the Department will be providing small business compliance guidance and other technical assistance documents, it is assumed that such costs are likely to be minimal. Nevertheless, in response to public comments, this Final RIA includes a stress test which examines the impact (on a per-facility group basis) of including moderate estimated indirect costs for owners of existing facilities with elements subject to supplemental requirements. See Section 6.3 for greater detail.

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 Final Rules are justified on economic terms. Benefits from improved accessibility can be categorized either as “use” benefits - incurred because of the use of a facility or requirement - or as non-use benefits.  The latter category can include the value of knowing that greater accessibility exists should it be needed in the future and the value of believing that civil society is improved, among others.  Use benefits can also be further differentiated among those which accrue from use by persons with a disability and those that accrue from use by a person without a disability (such as the parent with a stroller making use of a curb cut).  Figure 2 presents these benefits within a standardized framework.

Figure 2 : Framework for Accounting for All Benefits Resulting from Accessibility Improvements

For the purposes of this regulatory analysis, only use benefits to persons with disabilities are estimated in the primary analysis, and only those benefits derived from time savings and improved quality of time spent due to greater comfort and convenience are estimated and monetized in the main analysis (a threshold analysis in Section 6.6 incorporates some estimates for stigmatic harm and humiliation avoided and option/insurance value.)[6]

Use benefits that consumers derive from changes in facility accessibility are generated from 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.

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 Final Rules 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:

(a) Changes in access time;

(b) Enhanced quality of facility access; and

(c)Enhanced quality of facility use.

Each of these components of value can be 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, can be 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 that 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 uses of facilities have 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 benefits (“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 from 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 that 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 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 Q₀ to 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 which 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. 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 6.2..1). It is also assumed that demand from persons with disabilities does not cause a shift in demand and price.

Figure 3: 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 U.S. 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 Final Rules. 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 (At). During an average visit, At 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 Risk Analysis Process (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 Risk Analysis Process (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 Risk Analysis Process (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 Final Rules on each facility and type of disability. Time savings are valued at the value of time 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 U.S. For persons with disabilities, the base VOT is assumed to be equal to 50% of average hourly earnings.[7] 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 Final Rules 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; and
• 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 EOA 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 Final Rules. The estimation follows the guidelines below:

• Before the implementation of the Final Rules, 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 Final Rules, 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 Final Rules, 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 Final Rules, 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 the Final Rules. 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:

1. Define the structure and logic of the problem;
2. Assign estimates and ranges (probability distributions) to each variable and forecasting coefficient in the forecasting structure and logic;
3. Engage experts and stakeholders to assess model and assumption risks (the “RAP Workshop Session”); and
4. 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 Final Rules assumes that six to eighteen months following promulgation of the Final Rules, all facilities will be subject to a “triggering event” that compels compliance with the new regulation. [8] The specific triggers vary for new construction, alterations, and barrier removal, as well as for the regulatory provision (i.e., Title II or Title II) governing the construction. New construction under Title III uses “first occupancy” as its triggering event. Hence, eighteen months after publication of the Final Rules, all covered facilities must be designed and constructed for “first occupancy” in accordance with these requirements. [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. For barrier removal, Title III entities are afforded a six-month grace period after publication of the Final Rules. Thereafter, between six months and eighteen months post-publication, Title III entities may choose whether to use the 1991 Standards or the Final Rules as their respective compliance guides. After eighteen months, all elements at existing Title III facilities not then compliant with either set of standards (and not otherwise protected by Safe Harbor), must undergo barrier removal under the Final Rules to the extent readily achievable.

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 the Final Rules the benefits and costs that would result from compliance efforts required by a future regulation. Accordingly, it is assumed that only construction projects that are begun within 15 years after the effective date of the Final Rules will be subject to this regulation. This covers the period from the end of 2012 through 2026.

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 15-40 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. In response to public comments on the Initial RIA, discussed further in Chapter 5 , the planning horizon for lodging facilities (inns, hotels, and motels) is assumed to be 15 years.

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 Final Rules. Such benefits patterns are commonly observed in the response of users to transportation system investments (such as new roads). Benefits grow with the number of facilities becoming compliant, reaching the maximum after 23 years, the time after which the latest construction is complete and its ramp-up period ends.

The compliance costs must be incurred to maintain access. Over a 40-year period, elements require annual 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 Final Rules 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.

 

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March 10, 2011