Ch. 7— The Effects of the 404 Program • 159 



State processing, several States said that only a 

 small percentage are delayed (e.g., Massachusetts 

 stated that 90 percent of its projects are processed 

 within 2 months). 



Estimates of Delay Costs 



Very little information is available bearing on 

 the monetary costs of permit processing delays. 

 OMB, evidendy using the IWR analysis, put such 

 costs at "over $1.5 billion. "« The IWR estimated 

 delay costs, including opportunity costs due to de- 

 lay, to total $1.7 billion. The extremely complicated 

 formula used by IWR to calculate delay costs en- 

 tailed many assumptions for which no basis was 

 provided. Some data that went into the calculation 

 almost certainly were inaccurate. For these reasons, 

 the IWR estimate is of uncertain reliability (15). 



Only one industry association made a specific 

 monetary estimate of delay costs: FI put the range 

 of such costs at $17,000 to $2.2 million. The $2.2 

 million estimate was based mostly on opportunity 



costs: according to one firm, delay made it neces- 

 sary to cancel a mining project, thereby negating 

 previous sums spent on environmental studies and 

 foregoing the value of the resource. Individual ac- 

 counts of increased costs from delays are frequent. 

 One application in Alaska by an oil company to 

 construct a drilling mud pit took 225 days to proc- 

 ess, mostly as a result of repeated extensions granted 

 to an Alaskan State agency. The company involved 

 claimed that project costs more than doubled, most- 

 ly because construction was moved from summer 

 to winter.*^ Two other estimates from the petroleum 

 industry also indicate substantial costs: API stated 

 that 55 permit delays in southern Louisiana cost 

 firms $19 million (with "lost or deferred produc- 

 tion" totaling 428,000 barrels of oil and 14.9 billion 

 cubic feet of gas as a result).** Another industry 

 study claimed that 57 out of 89 oil- and gas-related 

 permit applications experienced delay-related eco- 

 nomic losses.*^ 



^Office of Management and Budget, op. cit. 



"General Accounting Office (Tech. Note No. 9). 

 "Ibid. 



'^Mid-Continent Oil and Gas Association, 1979, quoted in Institute 

 for Water Resources, op. cit., p. 175. 



OPPORTUNITY COSTS 



Opportunity costs are created when the permit- 

 ting process denies applicants the use of capital, 

 labor, and machinery that could otherwise produce 

 an investment return. For example, modifications 

 to projects that require additional outlays by the 

 applicant may create opportunity costs, assuming 

 that the funds going into modifications could be 

 used in other ways that would generate more reve- 

 nue than that produced by the modification. Sim- 

 ilarly, delays could mean that investments sunk in 

 project planning and kept in reserve for project im- 

 plementation remain idle rather than produce rev- 

 enue when expected. In some cases, delay produces 

 opportunity costs when the opportunity to exploit 

 a resource is withdrawn, owing to delay (e.g., if 

 time-based leasing arrangements are not fulfilled). 

 Even normal processing of permits produces oppor- 

 tunity costs in time and money that conceivably 

 could be used elsewhere to produce a greater return. 



Denials and withdrawals of permits presumably 

 create opportunity costs greater than those of nor- 

 mal processing, as no return is realized from the 

 resources spent on such permit applications. Op- 

 portunity costs in terms of the value of lost raw 

 materials also are created when permit denials pre- 

 vent a resource from being exploited if an alter- 

 nate plan of resource extraction subsequently can- 

 not be worked out. 



An even more speculative category of opportuni- 

 ty costs is costs related to planned projects that never 

 were submitted as permit applications out of fear, 

 perhaps based on meetings with Federal officials, 

 that they would be denied or modified in a way un- 

 acceptable to the applicant. 



Opportunity costs are the most difficult of all the 

 costs listed to estimate. It is possible to approximate 

 roughly the number and proportion of projects sub- 



