Chrysotile Asbestos: Are the Costs of Mandating Actions Affecting Construction Funding?

Introduction

The Environmental Protection Agency (EPA) is charged with setting guidelines for the protection and well being of the public. At the same time, the EPA is compelled to "..promulgate [the] least burdensome, reasonable regulation required to protect the environment adequately." (Murphy and Grosse 1993) (Corrosion Proof Fittings v. EPA 1991). In all fairness, the EPA is operating within a fiscal dilemma. They are expected to protect society, yet they are limited by the funds available to be used to achieve this level of safety that we have all come to expect. A case in point is the Asbestos Containing Materials In Schools Rule of 1987 which promulgated final regulations for the Asbestos Hazard Emergency Response Act (AHERA) of 1986. As stated in these rules, local education agencies were, among other things, required to identify asbestos containing building materials in school buildings and take appropriate action to control potential fiber release. "The final rule identifies five major response actions - in section 763.91, operations and maintenance (O&M) and in section 763.90, repair, encapsulation, enclosure and removal..." (40 CFR Part 763,1987). The regulations, for the most part, choose not to differentiate between asbestos types in setting a scope. As stated in a recent issue of Building Research Journal (Murphy and Grosse 1993) the literature does reveal a difference of opinion with respect to the actual health risks associated specifically with chrysotile asbestos.

There are basically two types of fibrous asbestos, serpentine chysotile and fibrous amphibole (Benarde, 1990). Within the amphibole group, there are several types such as tremolite, amosite, crocidolite, and others that are less commonly used. While there seems to be some agreement concerning health effects of the amphibole group, there is an ongoing controversy with respect to the level of carcinogenicity (cancer causing properties) of chrysotile asbestos. With this debate continuing, one wonders what effect the AHERA regulations are having on the economy. To place some value on the cost of such regulations may bring more attention to the possibility that the EPA should continue to re-evaluate the scope of asbestos related regulations with regard to chrysotile asbestos. Ideally this research would include all public school buildings in the United States. But due to obvious logistical limitations in funding and time, the focus will be on the State of Texas. The State of Texas must fund these mandated actions out of the state budget. Typically, these type expenditures would be funded out of the budgets for capital improvements, renovations, and construction. If state funds for capital improvements are greatly reduced due to these regulations, the construction industry can/will be greatly affected with regard to available construction funding.

Methodology

To quantify the total costs attributable to asbestos regulations, all school buildings had to be included in the calculations. Using an existing facilities database, a quantitative research strategy was employed, utilizing secondary data analysis as a source for sampling the entire population in question. An equal probability systematic sample strategy was employed for this research. This strategy was utilized to ensure that every public school building had an equal opportunity, "1/K", to be selected as a sample (Nachmias & Nachmias,1987) (Fowler, 1990). The specific procedure for this sampling method is shown in Figure 1. The total sample number equaled 199with 165 samples being considered responsive (enough information existed in the individual management plans to continue). This response rate of 82.91% should be considered very positive.

The Asbestos Management Plan containing each building sample was analyzed to quantify the amount of asbestos present in the respective building. Cost estimating procedures associated with different asbestos containing building material (ACBM) abatement options for each of the samples followed accepted practices currently employed in the construction industry (Peurifoy and Oberlender, 1989). Total costs per building sample were "reduced" to a dollar per square foot cost factor relative to each abatement option.

Statistical analyses were performed to facilitate generalization to the population (state) level. For each cost per square foot number respective to each abatement option the mean cost, standard deviation, and variance were calculated for the sample group using a 95 percent confidence interval. Two different aspects of statistical inference are utilized through these concepts. The first relates to the application of the mean value as a "point estimation" for the parameter. The second concerns the consideration of the actual range produced by the confidence interval (Spatz and Johnston, 1989). Correlation and regression analysis were also completed but were found to be unacceptable in predictive value. Standard U. S. units of measurement were used in this study due to the units of measurement used in the existing database.

Results

The data revealed a substantial level of public expenditures that can be directly attributed to the abatement of chrysotile asbestos in Texas Public Schools. The question raise concerns whether the extent of expenditures significant) affects construction funding.

Economic Significance

In this paper, economic significance represents the question of whether these expenditures "noticeably" affect, or would affect, the available fiends which the Texas Public School System requires to function properly in terms of capita improvements and construction. Tables 1 and 2 show a summary of the research results with regard to the different abatement options as viewed with the point estimation statistical analysis being applied. A comparison of the total costs respective of each abatement option for the entire Texas Public School System shown on tables 1 and 2 reveals the following:

1.         56.43 percent of the cost for total removal of all asbestos in Texas public schools can be directly attributable to chrysotile asbestos.

2.         41.34 percent of the cost for encapsulating all types of asbestos where possible in Texas public schools, and instituting an O & M plan where encapsulation is not allowed by E.P.A. regulations, can be directly attributed to chrysotile asbestos.

3.         40.23 percent of the cost for instituting an O & M plan for all asbestos types in Texas public schools can be directly attributed to chrysotile asbestos.

It should be noted that the options shown in Tables 1 through 3 were chosen for very specific reasons. Of the possible options, the only abatement option that is not represented in the research is "enclosure." Enclosure simply means that the asbestos can be physically covered and "sealed" against the possibility of fibers escaping the enclosure, thus isolating the problem. 0 & M procedures are also required with this option. The reason this option was not considered in this research is the possibilities for enclosure designs are infinite and to designate a specific enclosure design would possibly overstate the cost of this option. Also, a combination of different abatement options was not included as a possibil­ity. While this might represent a more realistic view of what actions a school district would actually pursue, to address the infinite possibilities of these combinations through development of a representative model was not possible within the framework of allowable time and financial constraints.

As stated earlier, one needs to consider the confidence interval range for each abatement option. A conservative approach might be to use the lower limit of the respective

ranges of cost per square foot to evaluate the cost that can be associated with chrysotile asbestos for the Texas Public School System. On the other hand, using the upper limit could reveal the possibility of a higher cost to the State of Texas. To illustrate how this would change the values, Table 3 shows the cost of each abatement option considering both the upper and lower limits of the range. By doing this, one can see how much difference in cost can be associated with the 95 percent confidence interval. To provide the most accurate estimate possible in using this data, all three cost values (mean, lower limit, & upper limit) will continue to be referred to in this paper. This permits a broader view of the possibilities.

The magnitude of the above stated results is meaningless without some type of monetary reference to establish significance. This research chooses to use the total annual budget for the Texas Public School System as a reference by which to measure this significance. To compare the total cost of each option to the total state budget would be an oversimplification. To make this means of measure more specific, the budget categories of Capital Improvements, Construction & Renovation, and Facilities Acquisition were investigated. Any cost for abatement activities would typically come out of one of these three budget accounts.

A very informal survey was conducted of four separate school districts in the State of Texas. While this may, at face value, be a small number of samples, the individual samples were chosen specifically to include some of the largest school districts in the state. This would be considered a non probable purposive sample (Nachmias and Nachmias, 1987). Through this strategy, the results can represent a large portion of the constituents in the state. The results of this survey showed that an average of 8.23 percent of the total budget for these school districts is attributed to these cost categories. Using this average from some of the largest school districts in Texas, this same figure can be applied to the state-wide total public school budget. At the time of this research, state wide values for total annual disbursements were available for the fiscal year 1990-91. These data were obtained from the report Snapshot '91: 1990-91 School District Profiles (Texas Education Agency, 1992). The total disbursement amount shown for Texas public schools for the year 1990-91 is $ 16,224,465,688. After applying the 8.23 percent factor, it can be said that approximately $1,335,273,526 of the state-wide budget is available for capital improvements, construction and renovation, and facilities acquisition.

As stated earlier, the question to be considered is whether, or not, costs associated with chrysotile asbestos abatement significantly affect the available capital for operating and maintaining Texas public schools. Such a significant affect would in turn affect funding for "public school construction." This research chooses to set five (5) percent as the significant level of the affected budget. This evaluation of significance, however, requires views of how these costs might be financed. The first view can be considered the "private business" approach to financing. For this view it is assumed that any asbestos abatement costs are financed on a seven year amortization at an interest rate of ten percent per year. While some might argue that a five year payout is desired, a seven year payout can be considered a normal expectation for private industry investments. These assumptions are made in calculating the figures in Table 4, which is a summary that reveals how the different abatement option costs would affect Texas public school budgets in terms of a percent of the annual available funds. This table and these calculations, assume that the state-wide budget figure for 1990-91 is representative of the annual budget amount for the financing period. With this assumption, the annual payments for the above referenced financing scenario can be compared to this total annual budget amount.

The second view of how these abatement actions might be financed follows what is considered by many to be a typical public school capital improvement financing scenario. For this consideration, Table 5 reflects figures that consider a 20year amortization at an annual interest rate of 8.5 percent.

Before discussing the results illustrated in these tables, one fact needs to be addressed. At this point, only the first year costs and their associated amortization of each abatement option have been addressed. With options #2 and #3, there exists a need for an ongoing operations and maintenance (O&M) program as stipulated by the EPA regulations (Environmental Protection Agency, 1987). This is the case if any asbestos remains in a facility. While the figures deal with only chrysotile asbestos, it is logical that if option #1 (total removal) is selected as the course of action for chrysotile asbestos, then a school district would surely also remove the other types of asbestos that are harmful. In that case, all ACBM would be removed, leaving no need for an O&M program. However, if options #2 or #3 are to be the course of action, whether or not the other types of asbestos remain, an O&M program is necessary. The O&M figures considered to this point include all costs for design, equipment, training, supplies, testing, etc. for the first year only. According to a sample management report prepared by Aegis Associates, Inc. of Texas, the cost of an ongoing O&M program is approximately $0.09 per square foot of building. This cost does not include the "one time costs," such as program design and equipment, that were included in the first year costs. Therefore, to accurately evaluate the effect of abatement option costs on a budget, these ongoing O&M costs must be added to the annual cost over the finance periods being evaluated after the first year. This annual cost amount can be calculated as follows:

Annual Cost = (Total square feet of Texas facilities X $0.09/sf)

 = 411,647,104 sf X $0.09/sf

= $ 37,048,239 per year

In viewing Table 4, it can be seen that only by using the lower limit of the lowest costing option are the figures not significant (at or above the designated five percent level). But, as previously stated, this is taking a private business approach to a public financing situation. On the other hand, Table 5 reveals several percentages that fall below the stated significance level. At face value, considering only Table 5, it could be concluded that there are some options for abating the chrysotile asbestos that would not significantly affect the state budgets in question. But, as addressed in the previous paragraph, one would be remiss in not considering the ongoing cost of O&M programs where necessary with respect to the different abatement options. To assume a conservative position at this point in the research, only the lower costing financing scenario as illustrated in Table 5 will be adjusted to reflect these additional ongoing O&M costs. After considering these costs, Table 6 reveals that after the first year of the finance period, only one case shows a non-significant value of less than five percent of the total budget for capital improvements, construction and renovation, and facilities acquisition. That case involves using the lower limit of the 95 percent confidence interval for the lowest costing abatement option.

In reference to the intent of this research, these figures show that the cost associated with the required abatement of chrysotile asbestos in the Texas Public School System significantly affects the availability of moneys that would otherwise be utilized for maintaining the current level of educational facilities with respect to enrollment numbers. As enrollment grows in public school systems, facilities must be added to accommodate a growing student body.

Also, existing facilities are continually undergoing improvements and renovations to better facilitate students, teachers, and the learning process. To appropriate fewer funds for this dynamic situation could directly affect quality of education facilities and the funding for construction in the public sector.

Conclusions and Observations

This research evaluates the monetary impact of a particular aspect of a government regulation. The findings show the ongoing debate regarding the carcinogenicity of chrysotile asbestos is of such a financial magnitude that the regulations should continue to be re-evaluated. Based on the associated costs for the Texas public schools alone, the "estimate" expressed in the literature for the total cost associated with the Asbestos School Hazard Abatement Act (ASHAA) would appear to be very low. If the cost for removing all asbestos in Texas public schools is approximately 2.49 billion dollars, how can the total cost of all states combined be between three and five billion dollars (Booth, 1990)? A possible reason for this low estimate by Booth(Booth,1990) may be the failure to include replacement costs as was addressed in this study.

With regard to this research, the question "Has the government adequately considered where the dollars might be more effectively spent in lieu of abatement of chrysotile asbestos?" should be raised. With the ongoing debate over actual health risk levels with chrysotile asbestos, a question remains concerning whether the EPA was too aggressive in setting the scope of the regulations. This research revealed that a high percentage of ACBM in schools involves chrysotile asbestos. With that in mind, and with associated costs of abatement, this study suggests the regulations should be revised to include a differentiation between asbestos types with text explaining about ongoing medical research and the possibility that there may exist a difference in level of danger. Through this more detailed account of the situation, a building owner, whether public or private, is better prepared to make asbestos management decisions and possibly un encumber funds for other purposes such as capitol improvements and construction.

As discussed earlier, prior to this research the literature included many approximations of the value of asbestos related costs. To take this valuation to a more definitive level substantiates the magnitude of the "chrysotile debate." Any revisions in the regulations based on this, or further research, could conceivably convert to dramatic future savings in public, and possibly private, expenditures in the future. Any such savings can be allocated to maintain existing facilities and to build additional needed facilities.

References

Benarde, Melvin. (1990). Asbestos, the hazardous fiber, Boca Raton, FL: CRC Press, Inc.

Booth, William. (1990). Risk of one type of asbestos discounted. The Washington Post. Jan. 19, 1990. Pg. AB, Co1.3.

Corrosion Proof Fittings v. The Environmental Protection Agency and William K. Reilly,947 Fed 2nd 1201-1230 (5th Cir. 1991).

Environmental Protection Agency. (1987). Asbestos-containing materials in schools; Final rule and notice. Federal Register, 52 (210, Part III), Washington, D.C.: U.S. Government Printing Office.

Environmental Protection Agency. (1985). Guidelines for controlling asbestos-containing materials in buildings (EPA 560/5-85-024, 1985 ed.). Washington, D.C.: U.S. Government Printing Office.

Fowler, F. (1990). Survey research methods. Newbury Park, CA: Sage Publications, Inc.

Murphy, J. and Grosse, L. (1993). Chrysotile asbestos in buildings: A need for evaluating the regulations. Building Research Journal, 2 (1), 53-59.

Nachmias, D., & Nachmias, C. (1987). Research methods in the social sciences. New York: St. Martin's Press, Inc.

Peurifoy, Robert L. & Oberlender, Garold D. (1989). Estimating construction costs (4th ed.).New York: McGraw Hill Book Company.

Spatz, C., & Johnston, J. (1989). Basic statistics: Tales of distributions (4th ed.). Pacific Grove, CA: Brooks/Cole Publishing Company.

Texas Education Agency. (1992). Snapshot '91: 1990-91 School district profiles. Austin, TX: Author.

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