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to compliance, special equipment and construction methods, and fees paid by private landowners to participate in Habitat Conservation Plans (HCPs). Stipulations: A ceiling cap on the total amount of tax credits may be warranted because many of these expenses are simply passed on to consumers in the form of higher timber, commodity, energy or housing prices. Foregone revenues and unrealized opportunity costs would be specifically excluded from this credit because the government has the authority under its police powers to regulate economic activity without compensation provided some level of economic return from the land is retained.4 Rationale: The costs required to comply with the ESA can escalate quickly. Large and small landowners alike are required to conduct biological field studies, prepare permit applications, perform mitigation work, and pay HCP-related fees to comply with both Section 7 consultation provisions or Section 10(a) permitting requirements of the ESA. Many of these expenses already qualify as standard business deductions, or can be passed on to customers. There is growing concern, though, that ESA compliance costs may be deterring some small landowners from fully participating in the existing regulatory processes designed to protect endan- gered species habitats. This concern is especially acute for HCP participants (Spear, FWS 1993). Compliance costs may also render appropriately designed and scaled economic activities unprofitable. Partial tax credits for ESA compli- ance expenditures targeted at small landowners may encourage them to participate more fully and willingly in the Section 7 consultation process, and in the local- and regional-level HCP planning processes required by Section 10(a). Transaction Costs: Distinguishing ESA compliance costs from other environ- mental planning or permit compliance costs may be difficult to ascertain and verify. A working definition of a qualifying "small landowner" would have to be developed. The effective level for a partial tax credit would also have to be ascertained. Research Questions and Issues: A basic data need is the annual aggregate amount spent by the private sector on compliance with the ESA. Such data are regularly compiled and published by the Council on Environmental Quality for pollution abatement costs. Research on the number of potentially qualifying small landowners, and the appropriate activities eligible for tax deduction is needed. Determining the potential effectiveness of a partial tax credit in encouraging ESA compliance behavior is also warranted. 4 The 1992 U.S. Supreme Court decision in Lucas v. South Carolina Coastal Council is the latest in a long string of Supreme Court decisions upholding this basic tenet of governmental regulatory authority.