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r 002074 - . ~. proaches to engineering design and operation are now feasible and that, whenever possible, a benefit-cost-reliability framework should be used to select the appropriate level of protection for engineered systems. The fOllowing sections summarize the state of the art in es~imating benefits and costs. 2.3.2 Benefit Estimation The 1983 Federal Principles and Guidelines (P&G) present specific in- structions for estimating the benefits of water resources activities. Envi- ronmental quality is not covered by the Principles and Guidelines. However, it can be added as an additional category. While the general methodology for benefit-cost analysis is well defined, its application by government agencies if often seen as being arbitrary. A recent review of these methodologies and their applications revealed that the primary reason seems to be that the agencies apply B-C analysis within a restrictive scope due to their limited missions and legislative mandate(s) (Heaney 1994). Hufschmidt et al. (1983) classify benefit valuation techniques for assessing effects on environmental quality into market and service oriented. Ortolano (1984) summarizes the environmental valuation using the materials budget approach espoused by Kneese and Bower (1979). Heaney (1994) describes a methodology which can be used to quantify environmental benefits within the context of the current 1983 Principles and Guidelines used by Federal water resources agencies to do benefit-cost analysis. The effect of environmental enhancement or degradation on property values has been studied by numerous researchers for air and water management systems. A major advantage of using property values as a measure of environmental quality is that databases are available through property transactions and from tax assessors' databases. Economists refer to this approach as hedonic valuation. Freeman (1979) pro- vides an excellent summary of efforts to rel~te urban property values to air quality. 2.3.3 Cost Analysis The U.S. Army Corps of Engineers (1980) developed a software package called MAPS (Methodology for Areawide Planning Studies) to support its urban water program during the 1970s. MAPS provides cost estimates for virtually all components of a water resource system including storage, transmission, and pumping. EPA has sponsored numerous studies to develop reliable cost estimates for urban water supply systems, e.g., Gumerman et al. (1982), Clark (1982) and Clark et a1. (1979). US EPA,and the Corps of Engineers provided extensive technical guidance to assist engineers in estimating the costs of wastewater collection and treatment systems. A Computer-Assisted Program for the Design of Wastewater Treatment Systems (CAPDET) was developed as a coop- erative COE-EPA initiative (U.S. Army Corps of Engineers 1978). EPA also published as-built costs for wastewater systems. Unfortunately, these esti- mates and model have not been kept current. Using CAPDET and MAPS as a starting point, it is possible to update the expected costs of new infra- structure. However, a key cost consideration is actual operation and mainte- nance costs. Heaney et al. (1991) showed how a new cost estimating technique called Activity Based Costing (ABC) can be used to obtain more accurate estimate of actual costs of infrastructure. An essential component of ABC is to link the accounting and the engineering process analyses. It is also critical to keep track of the incidence of benefits and costs because it has a direct effect on acceptability. For example, an aggregate benefit-cost analysis only looks at the benefits and costs to whomsoever they may accrue. However, if group A reaps most of the benefits and group B pays 6