Economic Evaluation of Governor Branstad's Water Quality Initiative

Governor Branstad has proposed an initiative that would significantly increase state spending on water quality. This document examines the economic costs and benefits of such a proposal. As with previous work on this topic, this economic evaluation uses the state's Iowa Nutrient Reduction Strategy to measure costs and research results on water quality benefits from Iowa State University's Center for Agricultural and Rural Development. In doing an economic evaluation of this type, the reader should understand these important points: 1. A calculation of Iowa Nutrient Reduction Strategy costs with current strategies can be determined. The costs in labor, land, machinery and supplies are all well-known factors. There are also scientifically validated studies that show the impact these remedial strategies will have on water quality. 2. While reducing nutrients in surface waters offers benefits, calculating the exact economic value is inherently complex. Few studies are available to estimate the benefits to state residents versus benefits to the nation or world. These studies are based on measures of willingness to pay for improved environmental services and quality. The measures provided here are probably conservative because they exclude those that have yet to be measured or are currently impossible to measure. Research may develop future technologies that offer similar or enhanced benefits in nutrient reduction at lower costs. For example, some agronomists believe drainage water management technologies may reduce nutrient losses and provide an economic return to producers. However, at this time we cannot include these potential opportunities because the research has yet to be done. Also, more experience with current practices and technologies will yield more benefits. The Governor's proposal would provide approximately half of the funds required to implement the Iowa Nutrient Reduction Strategy. The rest of the funds would need to come from cost shares from landowners, the federal government, or other third party organizations (such as NGO's). Landowners might be willing to contribute because of reduced soil erosion and improved soil quality or because they prefer this program to possible future regulation. One argument for federal cost is that many of the environmental benefits would be felt downstream of Iowa to the Gulf of Mexico. The benefits of the strategy exceed the costs when these downstream benefits are included. The spending level that the Governor has proposed is approximately equal to the currently identifiable and quantifiable benefits that residents of Iowa would receive from achieving the goals of the strategy. The adoption of this voluntary strategy might also deter potential regulatory approaches. On an annualized basis, projected spending under this proposal would generate approximately $690 million in economic activity, 1,150 full-time direct employment positions and 2,800 total full-time positions. However, it should be understood that alternative projects and proposals are likely to result in similar economic activity and employment.