Maryland’s plan to comply with new federal regulations designed to clean up the Chesapeake Bay would shrink the state's economy by $10 billion, result in the loss of 65,000 jobs and cost the state, taxpayers and consumers more than $11 billion by 2017, according to a report released on April 14 by Sage Policy Group.

The overall cost to Marylanders would be $21 billion, or $9,750 per household.

The Sage Group study — “The Impact of the Phase I Watershed Implementation Plan on Key Maryland Industries” — was commissioned by the Maryland State Builders Association, which represents the state’s home builders, remodelers, suppliers and contractors.

"Clearly the findings of this report are cause for concern," said Steve Seawright, the builders association president.

“We believe the focus of bay cleanup should center on the leading causes of pollution and the most economically beneficial reduction measures that can be put in place now with the limited resources available," he said.

The largest cost category, according to the Sage Policy Group report, includes various actions proposed to reduce storm water runoff from impervious cover and surfaces in the state’s 10 largest counties and from the state’s highways.

It also includes taking other steps to reduce this pollution, such as legislation to reduce phosphorus in fertilizers.

Collectively, these actions account for almost 35% of the total costs in Phase I.

Turning to Housing for Funding

The plan would definitely have a damaging impact on housing, the report says.

“Maryland’s counties have long histories with fees on new construction that are designed to compensate local governments for the fiscal impacts of new housing and other development,” the study says.

“It is not difficult to imagine that local governments in Maryland will turn to the housing industry as a source of new revenue to generate the billions of dollars of cost that Phase I may entail,” it says.

The plan would divert an estimated $2.5 billion worth of consumer spending on housing and related real estate services, the report says, assuming that housing prices would rise as localities imposed new impact fees and “similar impositions” on the industry to generate their share of Phase I costs and as septic system costs rose.

As a result, the state’s housing and real estate industries stand to lose 6,600 direct years of work.

“When the full multiplier effect is considered, the total economic cost includes over 15,000 jobs with associated income of almost $700 million and sales to Maryland businesses of $3.7 billion,” the Sage research finds.

To assist in the cleanup effort, the state’s Bay Restoration Fund is currently funded by a $30 annual fee on each housing unit that uses an onsite septic system.

For the state’s entire economy, pushing forward with Phase I threatens to result in a devastating loss of $2.8 billion in wages and income, a particular concern for Maryland builders at a time when the economy is still struggling to emerge from recession.

The authors of the report point out that their cost projections are conservative and do not include the additional spending between 2017 and 2020 that will be needed for the effort to achieve its final goals.

“The burden to be borne by industry and taxpayers is slated to expand over time,” the report says.

Bad for Business

The report also notes that Maryland is putting more into the effort than neighboring states, which will leave it at a competitive disadvantage in generating new economic activity and attracting new businesses and residents.

“The economic impact of these effects could be massive over time and have not been included in this analysis,” the study says.

“For example, if home prices rise in the state, more residents are likely to choose to live in Virginia, Pennsylvania, the District of Columbia, Delaware or West Virginia.

“This could cause retailers and certain employers to relocate to these states,” the study says, and rising energy prices resulting from the plan would only make things worse for Maryland, which “continues to hemorrhage manufacturing employment.”

The report points out that Maryland “has considerable control regarding implementation details” of the regulations coming from the Environmental Protection Agency, even though the EPA is providing a significant amount of guidance on the Total Maximum Daily Loads (TMDLs) — or amount of permissible pollution — that can enter the bay.

Phosphorous and Nitrogen

The report also calls the effectiveness of Maryland’s plan into question.

Phase I is expected to reduce phosphorus loads into the bay by 57% and nitrogen emissions by 37%, short of the plan’s 70% reduction estimate.

The state says that since 1985, it has reduced nitrogen pollution by 33% and phosphorous pollution by 38% despite a 29% increase in population through 2009.

But, “for the most part, these efforts appear to have achieved modest results on a micro level,” the study says.

On a scale of one to 100 — where 70 is the target and 100 reflects the pristine conditions that existed before 1600 and the European settlement of the area — the Chesapeake Bay Foundation (CBF) at the end of 2010 gave the bay a 31, up from a score of 28 in 2008.

“Neither score is substantially higher than the worst conditions for the bay in the early 1980s, roughly a quarter of a century ago, when CBF indicates that the score would have been 23,” the report observes.

“The Phase I Plan estimates that, of the 10.33 million pounds of nitrogen that need to be eliminated to meet the plan’s goals for 2020, the efforts undertaken in Phase I between 2012 and 2017 will still leave Maryland 6.46 million pounds short of its goal,” the analysis finds.

“That is, the investments and costs of Phase I will only accomplish 37% of the reduction needed to meet the long-range target.”

From a practical standpoint, it is unclear how the plan’s $11 billion price tag will be paid for given the current budgetary limitations on the state and localities, which expect to face substantial cuts and growing liabilities this year and over the following two years, said Seawright.

While some costs will be passed onto consumers and industries, Maryland and its counties would incur dramatically increased costs for compliance over the plan’s first five years.

"The Maryland State Builders Association certainly supports efforts to strengthen the health of the bay, as every Marylander would,” said Seawright.

“We, however, believe that those efforts should be undertaken within the confines of affordability and in way that keeps Maryland competitive economically," he said.

For more informatiion on this issue, email Glynn Rountree at NAHB, or call him at 800-368-5242 x8662.