The economics of structural stormwater BMPs in North Carolina  Page 17 
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9 Prices of land vary to a large extent. In the calculations we distinguish three situations: ( 1) undeveloped land for commercial use with an average opportunity costs of $ 5 per square ft ($ 217,800/ a), ( 2) undeveloped land for residential use with an average opportunity cost of $ 50,000 per acre, and ( 3) undeveloped la nd with zero opportunity cost because of the requirement for open space. 2.2 Cost Equations and Present Value of Costs ( PVC) approach As follows from the above, total costs ( TC) of a stormwater BMP is made up of the following three components: Construction costs + Maintenance & Inspection Costs + Land Opportunity Costs First, to capture potential scale effects, regression equations relating construction and maintenance costs and watershed size are developed for the four types of BMPs ( Wiegand et al., 1986). The cost curves are specified as C = axbeu , where C denotes costs of the BMP; x is the size of the watershed in acre, and eu is the error term. For estimation purposes the costs curves are reformulated as ln Y = a + b ln x + u; parameters can then be estimated by conventional linear egression. The associated correlation coefficients ( R2) can then be examined to determined the validity of size effects on construction and maintenance costs. Scale effects exist if b is unequal to 0 and this implies that R2 is unequal to zero. Second, the differences in cost components over the lifetime of the BMPs need to be accounted for. Costs will vary considerably over time. BMPs require initial capital investments and then annual operating costs. Due to this time element, simply summing all costs over the lifetime of a BMP is inappropriate. To estimate the correct economic impacts the stream of costs is discounted to provide a Present Value of Costs ( PVC). Two ingredients are needed to calculate this value: the cash outflows, Ct, for each year t = 1, …, T of the duration of the BMP, and the discount rate i : ( ) å = + = T t t t i C PVC 1 1 . The discount rate is a critical factor for determining the net value costs of a BMP. The discount rate reflects the time value of money and the risks associated with the specific industry. This study uses a discount rate of 10 % for the private developer. The PVC values are then converted to annualized costs per acre treated and annualized costs per percent of pollutant removed, to enable BMPs of different duration, treatment area and removal effectiveness to be compared. For the PVC calculations presented in this report, a spreadsheet model was developed in Excel. Details are available upon request. Taxes: Developers may be able to use the costs of structural stormwater BMPs as a deductible for tax purposes. Operating costs are generally fully deductible as expenses in the year incurred. Capital investments associated with compliance must generally be depreciated over some number of years. Tax advantages are highly dependent on the marginal tax rate and were not accounted for in the calculations.
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Full Text  9 Prices of land vary to a large extent. In the calculations we distinguish three situations: ( 1) undeveloped land for commercial use with an average opportunity costs of $ 5 per square ft ($ 217,800/ a), ( 2) undeveloped land for residential use with an average opportunity cost of $ 50,000 per acre, and ( 3) undeveloped la nd with zero opportunity cost because of the requirement for open space. 2.2 Cost Equations and Present Value of Costs ( PVC) approach As follows from the above, total costs ( TC) of a stormwater BMP is made up of the following three components: Construction costs + Maintenance & Inspection Costs + Land Opportunity Costs First, to capture potential scale effects, regression equations relating construction and maintenance costs and watershed size are developed for the four types of BMPs ( Wiegand et al., 1986). The cost curves are specified as C = axbeu , where C denotes costs of the BMP; x is the size of the watershed in acre, and eu is the error term. For estimation purposes the costs curves are reformulated as ln Y = a + b ln x + u; parameters can then be estimated by conventional linear egression. The associated correlation coefficients ( R2) can then be examined to determined the validity of size effects on construction and maintenance costs. Scale effects exist if b is unequal to 0 and this implies that R2 is unequal to zero. Second, the differences in cost components over the lifetime of the BMPs need to be accounted for. Costs will vary considerably over time. BMPs require initial capital investments and then annual operating costs. Due to this time element, simply summing all costs over the lifetime of a BMP is inappropriate. To estimate the correct economic impacts the stream of costs is discounted to provide a Present Value of Costs ( PVC). Two ingredients are needed to calculate this value: the cash outflows, Ct, for each year t = 1, …, T of the duration of the BMP, and the discount rate i : ( ) å = + = T t t t i C PVC 1 1 . The discount rate is a critical factor for determining the net value costs of a BMP. The discount rate reflects the time value of money and the risks associated with the specific industry. This study uses a discount rate of 10 % for the private developer. The PVC values are then converted to annualized costs per acre treated and annualized costs per percent of pollutant removed, to enable BMPs of different duration, treatment area and removal effectiveness to be compared. For the PVC calculations presented in this report, a spreadsheet model was developed in Excel. Details are available upon request. Taxes: Developers may be able to use the costs of structural stormwater BMPs as a deductible for tax purposes. Operating costs are generally fully deductible as expenses in the year incurred. Capital investments associated with compliance must generally be depreciated over some number of years. Tax advantages are highly dependent on the marginal tax rate and were not accounted for in the calculations. 