Financial ability of operators to comply with new proposals

EPA used three criteria for determining the financial impact of the regulations on an operation. They are:

1. a comparison of incremental cost to total revenue--sales test;
2. projected post-compliance cash-flow over a 10-year period--cash-flow test;
3. and an assessment of an operation's debt-to-asset ratio under a post- compliance scenario--solvency test.

EPA then used the financial criteria to divide the impacts of the proposed regulations into three impact categories.

1. The affordable category--not considered vulnerable to closure as a result of compliance.
2. The moderate impact category--not considered vulnerable to closure as a result of compliance.
3. The financial-stress category--considered vulnerable to closure as a result of compliance.

The following table shows the financial conditions that EPA used to determine whether or not an operation falls into the affordable, moderate, or financial- stress categories.

For example, any farm whose incremental compliance costs are less than 3% of its total revenue will be considered able to afford compliance regardless of what occurs to its cash flow or debt-to-asset ratio. Any farm whose incremental compliance costs are more than 3% but less than 10% of its total revenue but still has a positive cash flow will be considered in financial stress only if its debt-to-asset ratio exceeds 40%.

EPA estimated the number of operations that would be considered in the "financial stress" category under its preferred regulatory option--called best available technology--BAT--option.

The following table gives EPA's estimates for the entire United States. To the degree that Missouri reflects the United States we could expect the percentage of operations experiencing financial stress to be similar.