Free Motion in Limine - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS (E-Filed: September 20, 2006) CAROLE AND ROBERT TESTWUIDE, et. al., Plaintiffs, No. 01-201 L Honorable Victor J. Wolski THE UNITED STATES, Defendant.

DEFENDANT'S MOTION IN LIMINE TO EXCLUDE THE EXPERT REPORTS AND TESTIMONY OF JON P. NELSON Dated: September 20, 2006 Respectfully Submitted, STEVEN D. BRYANT KELLE S. ACOCK United States Department of Justice Environment & Natural Resources Division Natural Resources Section P.O. Box 663 Washington, DC 20044-0663 Email: [email protected] Voice: (202) 305-0424 Fax: (202) 305-0267 Of Counsel: Robert J. Smith Mary Raivel Navy Litigation Office Washington Navy Yard, D.C. 20374 CDR Dominick Yacono JAGC, USN Commander Navy region Mid-Atlantic, Code (00LE) Norfolk, VA 23511-2737

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TABLE OF CONTENTS MEMORANDUM I. II.
............................................................

BACKGROUND AND DESCRIPTION OF THE REPORTS .............. 2 STANDARD OF REVIEW ......................................... A. B. Motion in Limine ........................................... FRE 702 and Daubert ........................................ 5 5 6 7

IN.

ARGUMENT ....................................................

CONCLUSION .............................................................. 1

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TABLE OF AUTHORITIES

Baskett v. United States, 2 C1. Ct. 356 (1983) ....................... . ............................. Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993) .............................................. Dodge v. Cotter Corp., 328 F.3d 1212 (10th Cir. 2003) ............................................. General Electric v. Joiner, 522 U.S. 136 (1997) .............................................. INSLAW, Inc. V. United States, 35 Fed. C1. 295 (1996) ................................................... Intl. Graphics, Div. of Moore Bus. Forms, Inc. v. United States, 5 C1. Ct. 100 (1984) ..................................................... Kumho Tire Co. V. Carmichael, 526 U.S, 137 (1999) ...................................................

5

1, 6, 7, 10

6

1, 6, 7, 10

5

6

1, 7

Micro Chemical, Inc. v. Lextron, Inc., 317 F.3d 1387 (Fed. Cir. 2003) ........................................... 6, 7 Testwuide v. United States, 56 Fed. C1. 755 (2003) ................................................... 5

Zenith Radio Corp. V. Matsushita Elec. Indus. Co., 505 F. Supp. 1125 (E.D. Pa. 1980) ......................................... 6

OTHER AUTHORITIES 5 6 C. Wright and A, Miller, Federal Practice and Procedure 1525 (1971) ................... WEINSTEIN & BERGER ¶ 702 ................................................. 7

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LIST OF EXHIBITS

Exhibit A

Description Excerpts from the Expert Report of Jon P. Nelson, Ph.D., September 26, 2005 Table 4. Summary of the Meta-Analysis of Airport Noise and Property Values, excerpt from the Expert Report ofJon P. Nelson, Ph.D., September 26, 2005 Excerpts from Plaintiffs' Rebuttal to the Expert Report of Dr. David Dale-Johnson, December 12, 2005 Excerpts from the Deposition Transcript ofJon P. Nelson

B

C

D

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS (E-Filed: September 20, 2006)

CAROLE AND ROBERT TESTWUIDE, et. al., Plaintiffs, No. 01-201 L Honorable Victor J. Wolski THE UNITED STATES, Defendant.

DEFENDANT'S MOTION IN LIMINE TO EXCLUDE THE EXPERT REPORTS AND TESTIMONY OF JON P. NELSON Defendant, United States of America, hereby moves to exclude the expert reports and testimony of Plaintiffs' economist, Jon P. Nelson, from the upcoming trial in this matter pursuant to Rule 16 of the Rules of the United States Court of Federal Claims ("RCFC") and Rule 702 of the Federal Rules of Evidence ("FRE"), as well as the case law ofDaubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993), General Electric v. Joiner, 522 U.S. 136 (1997), Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999) and their progeny.1 Dr. Nelson's expert reports do not comply with FRE 702 and federal case law because they contain irrelevant and unreliable conclusions regarding the relationship between jet noise from operations at Naval Air Station ("NAS") Oceana and Naval Auxiliary Landing Field ("NALF") Fentress and property values in communities

1 Dr. Nelson has submitted four expert reports setting forth the same theory. The first two reports were submitted during the class certification phase of this litigation. His third expert report ("Nelson Report") was submitted on September 26, 2005, and a subsequent rebuttal report was submitted on December 12, 2005.

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surrounding those two bases. Accordingly, the reports and Dr. Nelson's testimony must be excluded from the upcoming trial. A memorandum in support of this motion follows. MEMORANDUM I. BACKGROUND AND DESCRIPTION OF THE REPORTS Dr. Nelson's September 2005 report contains his "evaluation of the effects on residential property values resulting from aircraft noise exposure, including the impact of the realignment of F/A-18 C/D fleet squadrons and fleet replacement squadrons (FRS)" to NAS Oceana and NALF Fentress. Exhibit A, Nelson Report, p. 2. As indicated in this report, Dr. Nelson's evaluation consisted of reviewing 29 studies conducted at various times from 1967 through 1995 of 23 different civilian, commercial airports throughout the United States and Canada. Dr. Nelson extracted the noise depreciation index ("NDI")2 from each of those studies and summarized the NDIs in Table 3 of his report. See Exhibit A, Nelson Report, p. 17. As set forth in Table 3, the studies Dr. Nelson selected for his evaluation contained a vast range of NDIs from .29% (Cleveland, 1970) to 1.49% (District of Columbia, 1970) per decibel increase in noise. Id. After reviewing the studies and summarizing the NDIs, Dr. Nelson broadly concluded that "aircraft noise is negatively capitalized into residential property values." Nelson Report, p. 16. Dr. Nelson's evaluation did not include any studies regarding aircraft noise in Virginia Beach or aircraft noise from military bases, nor did any study identify an actual NDI for Virginia Beach at any point in time over the last thirty years.

2 NDI represents the percentage of depreciation in property value per decibel of increased jet noise as measured by the Day-Night Average Sound Level ("DNL") metric. For example, a -1.0% NDI would mean that a house exposed to 70 dB DNL would be worth 5% less than a house exposed to 65 dB DNL, assuming the properties are equal in value in all other respects.

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After extracting and summarizing the NDIs from the 29 selected studies, Dr. Nelson performed a meta-analysis3 to estimate the mean NDI of the 33 NDIs listed in Table 3 of his report. 4 See Exhibit B. Dr. Nelson arrived at a mean NDI of-0.7% per dB increase in noise. See Exhibit B. Dr. Nelson then combined the mean NDI of-0.7% with a 1985 FAA NDI estimate5 of-1.0% per dB to arrive at his conclusion that "the best NDI estimates are -0.7% to -1.0% per dB." Exhibit A, Nelson Report, p. 20. Apparently, Dr. Nelson would universally apply this estimated NDI range to any civilian or military airport. Ironically, of the 33 reported NDIs listed in his report, only nine fell within this estimated range. See Exhibit A, Nelson Report, p. 17. No data regarding Virginia Beach were used in Dr. Nelson's meta-analysis. 6 Dr. Nelson then concluded, without any supporting data from any study related to the impact of noise from military aircraft on property value, that "It]he special effects of military aircraft noise that exceeds 75 dB are not fully captured by the NDI values of -0.7% to -1.0% per dB change in noise exposure." Nelson Report, p. 21. Proceeding with this assumption, Dr. Nelson reviewed the following: studies that show housing 3 A meta-analysis is an analysis or synthesis of the results of a statistical analysis. 4 Four studies listed in Table 3 included two NDIs, for a total of 33 NDIs. 5 As explained in Dr. Nelson's report, the FAA estimate published in 1985 was based on data gathered in 1960 and 1967-70, more than twenty-five years before plaintiffs' alleged date of taking in the present case. Exhibit A, Nelson Report, p. 15. 6 In his rebuttal report, Dr. Nelson did examine the data regarding Virginia Beach provided by defendant's expert, Dr. David Dale Johnson, in his expert report. Dr. Nelson concluded that these data show that aircraft noise had a negative impact on property value assuming that the original projected noise contour, ARS2, was an accurate reflection of the noise environment at the time of the alleged taking. Yet, Dr. Nelson clearly articulated that, in his view, Dr. David Dale Johnson's data was unreliable. See Exhibit C, Nelson Rebuttal Report, pp. 2-7. Just as his September 2005 report was not based on any data from Virginia Beach, his rebuttal report is also not based on any data for Virginia Beach that he considers reliable.

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markets near airports (Chicago O'Hare Airport and "three communities near a major hub airport," Nelson Report, p. 21-24) segmented by noise exposure levels in excess of 75 dB; adverse health effects of severe noise levels on human health and welfare7; unique features of Navy operations; and the residential living environment and lifestyle of Virginia Beach and Chesapeake, Virginia. Exhibit A, Nelson Report, p. 21. Dr. Nelson concluded from his review of these four factors that, as applied to the communities surrounding NAS Oceana and NALF Fentress, properties located in the 65-79 dB noise zone had a NDI of-l.0% per dB increase in jet noise exposure, and properties located in the 80 dB and above noise zone had a NDI of-1.5% per dB increase in jet noise exposure. As with the evaluation discussed above and analyses contained in his previous reports, Dr. Nelson failed to include any actual data regarding Virginia Beach in reaching this conclusion set forth in his September 2005 report. Finally, Dr. Nelson utilized the average assessed residential property value in Virginia Beach of $128,000 in July 1999 to illustrate how his NDI theory applied to plaintiffs' claims for just compensation in the present case. According to Dr. Nelson, monetary damage to an average property exposed to 60-64 dB in 1998 and 65-69 dB in 1999 would be $6,400 using a -1.0% NDI. Exhibit A, Nelson Report, p. 30. Pursuant to Dr. Nelson's analysis, damages would be greater for a property exposed to 80+ dB because a -1.5% NDI would apply. In other words, the NDI is multiplied by the increase his report, Dr. Nelson repeatedly discussed adverse health and welfare impacts of noise on property owners living in Virginia Beach and Chesapeake, Virginia. As discussed more fully infra, Dr. Nelson admitted he is not an expert regarding the effects of noise on people, Nelson Depo, p. 23, and therefore, he is not qualified to offer opinions concerning the relationship between jet noise and the health and welfare of people living in communities near military bases. Accordingly, Dr. Nelson's conclusions regarding alleged adverse health and welfare effects on property owners are not relevant to the upcoming trial and must be excluded.
7 Throughout

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in dB sustained by a property to arrive at a percentage decrease in value. That percentage decrease is then applied to the fair market value of the property before the date of the alleged taking. See Testwuide v. United States, 56 Fed. C1. 755,762-63 (2003) (Bush, j.).8 For the reasons set forth below, Dr. Nelson's reports and testimony must be excluded from the upcoming trial. II. STANDARD OF REVIEW A. Motion in Limine

A motion in limine is a recognized method for issuing early rulings on trial matters. Baskett v. United States, 2 C1.Ct. 356, 359 (1983) (citations omitted). This Court has the power to issue motions in limine under Rule 16 of the Rules of the United States Court of Federal Claims ("RCFC"). As stated in Baskett: There is no question under [Rule] 16, that this court, as a trial court, has the power to issue pretrial orders simplifying issues for trial. Not only does this court have such power, it has a duty to exercise it in appropriate cases. This power allows the court, inter alia, to define the issues, facts, and theories actually in contention and to weed out extraneous issues. Too, this court also has the authority to issue pretrial rulings concerning the admissibility at trial of proposed testimony and documentary evidence. 2 C1.Ct. at 359-60 (citing 6 C. WRIGHT AND A. MILLER, FEDERAL PRACTICE AND PROCEDURE 1525 (1971)); see also INSLAW, Inc. v. United States, 35 Fed. C1. 295,

8 In its opposition to class certification, defendant set forth the following three arguments regarding Dr. Nelson's theory that are also applicable to this motion: (1) Dr. Nelson's theory "assumes injury from noise exposure and calculates damages based on that assumption without any market evidence showing that a particular property's value has actually diminished"; (2) Dr. Nelson "assumes a reliable linkage between an increase in noise exposure and a consistent, uniform decrease in property values" that "is speculative, unproven, and unsupported"; and (3) Dr. Nelson's extrapolation of the decline in housing prices from statistical analysis of other markets is unreliable, misleading and lacks probative value. See Testwuide, 56 Fed. C1. at 763.

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302-03 (1996) ("The basic purpose of a motion in limine is to'prevent a party before trial from encumbering the record with irrelevant, immaterial or cumulative matters."). Furthermore, motions in limine promote "trial efficiency and promot[e] improved accuracy of evidentiary determinations by virtue of the more thorough briefing and argument of the issues that are possible prior to the crush of trial." Intl. Graphics, Div. of Moore Bus. Forms, Inc. v. United States, 5 C1. Ct. 100, 104 (1984) (quoting Zenith Radio Corp. v. Matsushita Elec. Indus. Co., 505 F. Supp. 1125, 1140-41 (E.D. Pa. 1980)). B. FRE 702 and Daubert

Pursuant to FRE 702, this Court may receive testimony of a properly qualified expert "[i]f scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue." Fed. R. Evid. 702. Rule 702 requires the testimony meet the following three additional criteria: (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, (3) and the witness has applied the principles and methods reliably to the facts of the case. Fed. R. Evid. 702. The proponent of the testimony bears the burden of proving the requirements of Rule 702 are satisfied before the testimony is allowed. See Dodge v. Cotter Corp., 328 F.3d 1212, 1222 (10th Cir. 2003). "The landmark case ofDaubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), provides the analytical framework for determining the admissibility of expert testimony under Rule 702." Micro Chemical, Inc. v. Lextron, Inc., 317 F.3d 1387, 1391 (Fed. Cir. 2003). The Supreme Court stated in Daubert that Rule 702 demands that a trial judge act as a "gatekeeper" and ensure that the proffered testimony "both rests on a reliable foundation and is relevant to the task at hand." Daubert, 509 U.S. at 589, 597.

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Expert testimony is unreliable and inadmissible if there is an analytical gap between the data and the conclusions. In General Electric Co. v. Joiner, 522 U.S. 136 (1997), the Supreme Court emphasized that: Trained experts commonly extrapolate from existing data. But nothing in either Daubert or the Federal Rules of Evidence requires a district court to admit opinion evidence that is connected to existing data only by the ipse dixit of the expert. A court may conclude that there is simply too great an analytical gap between the data and the opinion proffered. Joiner, 522 U.S. at 146. "Expert testimony which does not relate to any issue in the case is not relevant and, ergo, non-helpful." Daubert, 509 U.S. at 591 quoting WEINSTEIN & BERGER ¶ 702[02], p. 702-18. The Daubert principles apply not only to scientific testimony, but "to all expert testimony." Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. i38, 149 (1999) (emphasis added); Micro Chemical, Inc., 317 F.3d at 1391. III. ARGUMENT As applied to the present case, the requirements of FRE 702 and Daubert mandate that Dr. Nelson's reports and testimony be excluded from the upcoming trial. First, Dr. Nelson's conclusions regarding the impact of jet noise on property values fail to satisfy the requirements of FRE 702 and Daubert because the conclusions are not based on sufficient facts or data. Second, Dr. Nelson's evaluation of the effects on residential property values resulting from aircraft noise exposure in the communities surrounding NAS Oceana and NALF Fentress are not reliable or relevant to the upcoming trial. Third, Dr. Nelson admits he is not qualified to offer an opinion as to the impact of noise on the health and welfare of property owners in Virginia Beach. For these reasons, Dr. Nelson's opinions are not helpful to the fact-finder and must be excluded.

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Dr. Nelson's reports fail to satisfy FRE 702 and Daubert because Dr. Nelson reviewed insufficient and irrelevant data to arrive at the conclusions set forth in his reports. For his September 2005 report, Dr. Nelson began his evaluation by reviewing 29 studies, 19 of which contain data more than thirty years old, regarding the relationship between noise and residential property values in communities surrounding civilian, commercial airports. The most recently compiled data from the studies Dr. Nelson cited was collected in 1995, more than four years before July 1999, the date plaintiffs allege a taking occurred in this case. This data is simply too old to be reliable or relevant to plaintiffs' takings claim. Additionally, all of the 29 studies reviewed by Dr. Nelson addressed aircraft noise from civilian, commercial airports - a topic not at issue in the upcoming trial. When asked at his deposition whether any of the studies cited in his report examined the relationship between aircraft noise and residential property values around military bases, Dr. Nelson replied, "No. As I indicated, in my meta analysis they are all concerned with major civilian airports." Exhibit D, Nelson Deposition Transcript ("Nelson Depo."), pp. 39-40. Moreover, no study reviewed by Dr. Nelson examined the relationship between a change in noise and property values. Specifically, no study examined a possible change, either positive or negative, in the value of property purchased at a discount due to the presence of aircraft noise that subsequently experienced a change in noise.9 Exhibit D, Nelson Depo., p. 182. Therefore, Dr. Nelson reviewed irrelevant studies that have no relationship to the present case where a military jet base was present in the community 9 In his rebuttal report, Dr. Nelson noted that he was aware of two unpublished studies that examined "airport announcement effects." Exhibit C, Nelson Rebuttal Report, p. 12, fn. 11. One study involved an announcement closing an airport and opening a new airport in a different location. The second study involved an existing airport announcing it would become a FedEx hub.

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for over fifty years and additional squadrons of jets arrived at that base. Aside from being outdated and not relevant to military bases, the data relied on by Dr. Nelson are inherently flawed because no study he reviewed addressed the relationship between aircraft noise and property values for properties located in Virginia Beach. In fact, at least four of the 29 studies listed in Table 3 of Dr. Nelson's report examined aircraft noise from airports that were not even located in the United States. The remainder of the studies examined airports located in major cities across the United States, such as Los Angeles, Dallas, and Boston, and the nearest airports to Virginia Beach were Washington, D.C., Baltimore, and Atlanta. Additionally, no study identified a NDI for Virginia Beach, and more importantly, Dr. Nelson admitted he did not gather any data regarding aircraft noise and properties surrounding NAS Oceana. Exhibit D, Nelson Depo., p. 48, 67. As such, Dr. Nelson's reports are completely devoid of any independent investigation regarding aircraft noise in Virginia Beach or the actual NDI for properties located in Virginia Beach.1° Therefore, it is impossible for Dr. Nelson to arrive at any relevant and reliable conclusions regarding whether the relocation of F/A-18 C/D aircraft to NAS Oceana impacted property values in the surrounding community based on his data. Indeed, Dr. Nelson admitted during his deposition that he is an economist who was hired "to establish a negative impact, "Exhibit D, Nelson Depo., p. 62, on property values in communities surrounding NAS Oceana and NALF Fentress, " and that "... other analyses of these properties will determine the exact damages .... Nelson Depo., p. 62; see also Nelson Depo., p. 125.

10 As discussed above, the only data for Virginia Beach that Dr. Nelson cited were developed by defendant's expert, which Dr. Nelson did not consider reliable.

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Despite the fatal deficiency of relevant and sufficient data, Dr. Nelson assumed a decline in property values in Virginia Beach from noise exposure and calculated compensation based on that assumption without any relevant market data from Virginia Beach that he considers reliable. This flawed assumption inherently includes a second flawed assumption - that a reliable linkage exists between the NDIs calculated more than thirty years ago near civilian, commercial airports (some of which were not located in the United States), and a NDI for a military base located in Virginia Beach. These assumptions are speculative, unproven, and clearly do not satisfy the reliability standard set forth in Daubert and its progeny. In an attempt to support his assumptions, Dr. Nelson engaged in an unreliable analysis that averaged the irrelevant and wide-ranging NDIs extracted from the 29 surveyed studies, and then arbitrarily concluded that the average should be increased to -1.0% and -1.5% based on a FAA guideline for residential property located near civilian airports set forth more than 14 years before plaintiff's alleged date of taking, and on conclusions regarding adverse health and welfare effects for which Dr. Nelson is not qualified to give an opinion. Dr. Nelson then concluded that this arbitrary increase is somehow applicable to properties located in Virginia Beach. Again, outdated information regarding civilian airports is not relevant or analogous to the present case involving jet noise from a military base. Moreover, Dr. Nelson's analysis and any resulting conclusions are misleading and far from reliable or relevant. "Too great of an analytical gap" exists between the studies cited by Dr. Nelson and his conclusions for his report or trial testimony to be reliable or helpful to the trier of fact. See Joiner, 522 U.S. at 146.

10

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Finally, Dr. Nelson is not qualified to present an opinion regarding any relationship between jet noise and the health and welfare of people living in communities surrounding a military base. When asked at his deposition whether he would consider himself an expert in the effect of noise on people, Dr. Nelson replied, "No. I am not an expert in that. What I've stated is that I have background knowledge of the literature in that area. I certainly do not have original studies in that area." Exhibit D, Nelson Depo., p. 23. Yet, nearly half of Dr. Nelson's report contains discussions and conclusions regarding health and welfare consequences of people exposed to various noise levels. Dr. Nelson should not be permitted to offer expert opinions on subjects for which he is not qualified. As stated, Dr. Nelson is an economist who was hired "determine the negative effect of aircraft noise, "Nelson Depo., p. 62, on property values in communities surrounding NAS Oceana and NALF Fentress, not to set forth opinions and conclusions regarding health and welfare consequences of people exposed to various noise levels. Accordingly, Dr. Nelson's opinions and conclusions regarding the health effects of noise must be excluded. CONCLUSION For the foregoing reasons, defendant respectfully requests the Court exclude the expert reports and testimony of Jon P. Nelson from the upcoming trial. Dated: September 20, 2006 Respectfully Submitted, s/Steven D. Bryant

STEVEN D. BRYANT KELLE S. ACOCK United States Department of Justice Environment & Natural Resources Division Natural Resources Section 11

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P.O. Box 663 Washington, DC 20044-0663 Email: steven.bryant@usdoi, gov Voice: (202) 305-0424 Fax: (202) 305-0267 Of Counsel: Robert J. Smith Mary Raivel Navy Litigation Office Washington Navy Yard, D.C. 20374 CDR Dominick Yacono JAGC, USN Commander Navy region Mid-Atlantic, Code (00LE) Norfolk, VA 23511-2737

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EXHIBIT A

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EFFECTS OF AIRCRAFT NOISE ON RESIDENTIAL PROPERTY VALUES: NAVAL AIR STATION (NAS) OCEANA and NAVAL AUXILIARY LANDING FIELD (NALF) FENTRESS

EXPERT REPORT OF JON P. NELSON, Ph.D.

September 26, 2005

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2 300 times by other researchers in economics, transportation, and real estate. Two of my articles have been reprinted in collected volumes, which is another mark of their importance. The 1979 article was reprinted in The Environment and Transport (Hayashi et al. 1999) and the 1980 article was reprinted in Classics in Transport Analysis: Air Transport (Forsyth et al. 2002). In January 2004, I published a peerreviewed meta-analysis of airport noise and property values, which was the lead article in the Journal of Transport Economics and Policy (Nelson 2004; attachment 2). 5. During 1976-77, I was a member of the Committee on Appraisal of Societal Consequences of Transportation Noise Abatement, National Academy of Sciences, and I contrl'buted to two chapters in the Committee's final report (DeVany et al. 1977a, 1977b). I received three research grants from the U.S. Department of Transportation to investigate the effects of mobile-source pollution on residential property values, including aircraft noise (1972-73, 1974-75, and 1977-78). I have published several other articles that examine adverse effects of pollution on residential property values, including peer-reviewed articles appearing in the Southern Economic Journal (1977); Journal of Urban Economics (1978); and Land Economics (1981 ). I have acted as a technical consultant to several organizations concerned with noise and other pollutants, including the Pennsylvania Low-Emissions Vehicle Commission (I 993). 6. I have experience with the collection of data on residential property values and the measurement of aircraft noise levels for economic studies; I have performed several econometric analyses of the empirical relationship between aircraft noise and residential property values; i have examined the costs and benefits of aircraft noise abatement policies; and I have extensively reviewed the academic literatures in economics and real estate that deal with the effects of noise on residential property values in the United States, Canada, and other countries (Nelson 1978, 1980, 1982, 2004). 7. This report contains my evaluation of the effects on residential property values resulting from aircraft noise exposure, including the impact of the realignment ofF/A-I 8 C/D fleet squadrons and fleet replacement squadrons (FRS) to Naval Air Station (NAS) Oceana, Virginia, and Naval Auxiliary Landing Field (NALF) Fentress, Virginia. This decision was effective during 1998-1999. The Navy's realignment decision was followed by the publication of additional environmental policies, including a revised AICUZ map for Oceana and Fentress (I 999); a draft EIS for the basing ofF/A-I 8 E/F (Super Hornet) aircraft at these fields (July 2002); revised land use compatibility guidelines for Navy installations (December 2002); and a Joint Land Use Study for the Hampton Roads area (Hampton Roads PDC, April 2005)_ InSeptember 2003, the Navy announced its intentions to homebase eight F-I 8 E/F fleet squadrons (96 aircraft) and the FRS (24 aircraft) at NAS Oceana. 8. My rate of compensation as an expert is $200 per hour, and my compensation is not dependent on my method of evaluation or the conclusions researched from my evaluation. My opinions

5

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15 the NDI results in the FAA's (1985) report on Aviation Noise Effects. Second, I will summarize my recent recta-analysis (Nelson 2004), which updates and extendsmy earlier reviews for U.S. and Canadian airports. All of the empirical studies cover noise from civilian aircraft and the residential environment at civilian airports. All of the studies apply the hedonic model. The next section of this report, Section V, discusses special features of military aircraft operations and the residential living environment of Virginia Beach and Chesapeake, Virginia_ In Section V, I also summarize the results from two survey studies of the effects of aircraft noise on residential property values, which are especially important for noise exposure levels of 80 dB and above. The monetary damages developed below isolate the effect of aircraft noiseon property values, holding constant other influences such as accessibility and general growth of nominal housing values. Where the passage of time is important, researchers have included variables to account for general changes in housing market demand and supply and other macroeconomic conditions. The FAA found that aircraft noise decreases the value of residential property by approximately -1% per dB. This estimate is based on results from seven hedonic studies that use data for civilian aircraft and airports. 40. The FAA's (1985 at 100) report on Aviation Noise Effects includes a discussion of the effects of aircraft noise on the value of residential property located around civilian airports. The FAA selected 10 best estimates of the NDI from the range of available values, including three estimates for 1960 and seven estimates for 1967-70. The three NDI values for 1960 are about -2% per dB, which reflects adjustments in housing markets due to early growth of commercial jet aircraft as a mode of transport. The values for 1967-70 include estimates of-1.5% for San Francisco and -1.0% for Washington, D.C., which may reflect climate and other lifestyle considerations in these areas. After omitting the three estimates from the 1960s, the FAA's range of estimates is -0.6% to -I.5% per dB (FAA, 1985 at 101). The FAA' (1985 at 101) concluded that noise decreases the value of property by approximately -1% per decibel. As shown below, the FAA's estimate of the NDI is well within the range of values found by more recent empirical studies of the aircraft noise-property value relationship.6 Empirical studies produce a range of estimates for the NDI from -0.3% to -1.5% per dB. The simple mean NDI is -0.75% per dB, which is close to the FAA's estimate. This estimate is based on information from 23 U.S. and Canadian airports and 33 estimates of the NDI.

6 The FAA notes that "... all research conducted in this area found negative effects from aviation noise ... researchers have been careful to consider [other factors] and to normalize their influences in research studies" (FAA, 1985 at 100).

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41. Since the publication of my survey article (Nelson 1980), there have been additional studies of the empirical relationship between aircraft noise and property values. In Nelson (2004), I updated and extended my earlier survey using the technique ofmeta-analysis. Table 3 displays the results from 20 hedonic studies that cover 23 different civilian airports in the U.S. and Canada, and includes studies using sample data from 1967 to 1995. A total of 33 best estimates oftheNDI is presented. Two independent estimates are available for Atlanta, Dallas, Reno, San Francisco, St. Louis, and Washington, D.C. A variety of data are employed, including data for census tracts, census blocks, disaggregated census blocks, and individual housing sales (e.g., Multiple Listing Service data). The NDI estimates also reflect a variety of model specifications and variables, which capture sample differences in housing and neighborhood characteristics, employment accessibility, airport accessibility, governmental services, and other economic and environmental features. As previously mentioned, it is not expected that the NDI will have a singular value, and the range of NDI values is -0.28 to -1.49%. The simple mean NDI in Table 3 is -0.75% per dB (Nelson, 2004 at 14). This average implies that each dB increase in noise exposure will reduce property values by -0.75%, holding constant other housing and land characteristics. This value is in substantial agreement with the FAA's estimate of-I.0% per dB. 42. The hedonic estimates in Table 3 uniformly indicate that aircraft noise is negatively capitalized into residential property values. Twenty-seven of 31 estimates are statistically significant at i¸ ~:~ the 95% level or better (estimates for JFK and La Guardia Airports are missing standard errors). This is a far greater number of significant negative estimates than could possibly be attributed to chance. The coefficient standard errors and other statistical measures (e.g., R-square) are found in my attached article. The technique of meta-analysis can be used to synthesize the set of NDI estimates contained in Table 3. A recta-regression analysis produces a best estimate for the mean NDI of-0.7% per dB. This value is not affected bymoderating and mediating variables such as sample size, sample year, mean property value, or airport accessibility. 43. Meta-analysis is a statistical procedure for integrating and synthesizing the quantitative results contained in a set of studies of a given empirical relationship or outcome. That is, meta-analysis is "an analysis of the results of statistical analyses" (Hedges and Olkin, 1985 at 13). According to Hedges and Olkin (1985 at 1), "replication of experimental results has long been a central feature of scientific inquiry, and it raises questions concerning how [best] to combine the results obtained." Metaanalysis was developed in the early 1980s and applied originally in psychology and education (Cook et al. 1992; Cooper and Hedges 1994). It is now widely applied in the physical sciences and other areas of the social sciences. In economics, meta-analysis has been applied to environmental issues (Smith and Huang 1995; van den Bergh 1997), recreation demand (Rosenberger and Loomis 2000), gasoline demand

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Table 3. Summary" of Noise Depreciation Indexes (NDI) foI ~3 Airports. Hedonic Study - Airport BAH-FAA (1994 at 18) - Baltimore BAH-FAA (1994)-Los Angeles BAH-FAA (1994) - NYC JFK BAH-FAA (1994) -N'~C La Guardia Blaylock (1977 at 84)-Dallas DeVany (1976 at 213) -Dallas Dygert (1973)- San Francisco Dyge~ (1973at113)- San Jose Emerson (1972)-Minneapol~ Espey & Lopez (2000) - Reno Fromme (1978)- Washington, DC Levesque (1994 at 207) - Winnipeg Mark(1980atl12)- St. Louis Maser et al. (1977) - Rochester urban Rochester suburban McMillian (1980) - Edmonton Mieszkowski et al. (1978) -Toronto Toronto (Etobicoke) Myles (1997 at 2t) - Reno Nelson (t978) - Washington, DC Nelson (1979, 1980) - Buffalo Nelson (1979, 1980)- Cleveland Nelson (1979, 1980) - New Orleans Nelson (1979, 1980)- St_ Louis Nelson (1979, 1980)- San Diego Nelson (1979, 1980)- San Francisco Nelson (1979, 1980, 1981)- six airports O'Byme et al. (1985) - Atlanta (houses) Atlanta (census blocks) Price (1974) - Boston Tarassof(1993 at 83)- Mona-eal

Dm~
60 & 70 dB 60 & 70 dB 60 & 70 dB 60 & 70 dB 55-90 dB 55-85 dB 60-80 dB 60-80 dB 60-80 dB 60-75dB 55-70 dB 75+ dB 70 & 80 dB 65+ dB 65+ dB 55-70dB 55-70dB 55-70dB 55-75dB 55-70dB 60-80dB 60-80dB 60-80 dB 60-80 dB 60-80 dB 60-80 dB 60-80dB 65-80 dB 60-80 dB 60-80 dB 55-70dB

Sample Size (N) and Data (Year) N = 30; individual houses (I990) N = 24; individual houses ( 199 I) N = 30; individual houses (1993); no std. error N = 30; individual houses (1993); no std. error N = 4264; disaggregated census blocks (1970) N = 1270; census blocks (1970) N= 128; census tracts (1970) N = 198; census tracts (1970) N = 222; individual houses (1967) N = 1596;.individual houses ( 1991-95) N = 28; census tracts (1970) N=1635;individualhouses(1985-86) N = 6553; individual houses (1969-70) N = 398; individual houses (1971) N = 990; individual houses (1971) N = 352; individual houses (1976) N = 509; individual houses (1969-73) N = 611; individual houses (1969-73) N -4332; individual houses (1991) N = 52; census tracts (1970) N = 126; census blocks (1970) N = 185; census blocks (1970) .i N = 143; census blocks (1970) N = 1 I3; census blocks (1970) N=125;censusblocks(1970) N = 153; census blocks (1970) N = 845; Census blocks (1970) N = 96; individual houses (1979-80) N-=- 248; census blocks (1970) N = 270; apt. rentals by census tracts (1970) N = 427; individual houses (1989-90)

NDI -1_07 -1.26

-t.2o 'I
-0.67 -0.99* -0.80* -0.50* -0_70* -0.58* -0.28 '1:49" -1.30" -0.56* -0.86* -0.68* -0.51" -0.87* -0.95* -0.37* -1.06 -0.52* -0.29* -0.40* -0.5I* -0.74" -0.58* -0.55* -0.67* -0.64* -0.8t * -0.65*
-0.65*

Uyeno et al. (1993)-Vancouver (houses) 60-75 dB N = 645; individual houses (198%88) "Vancouver (condos) 60-75 dB N = 907; individual condos (1987-88) Notes: Derived from Nelson (2004 at- 12), attached_ Asterisks indicate statistically significant at the 95% level.

-0.90"

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2O Combing the results in Table 4 and the FAA's (1985) estimate, the best NDI estimates are -0.7% to -1.0% per dB. These values measure the diminution in property values due to a one dB increase in noiseexposure (DNL) above the background noise level (50-60 dB), and should be applied to noise exposure for residential properties located in the 65-79 dB zone. 48. In Table 3, the background noise level in most studies is about 60 dB. The maximum noise level in most studies is 80 dB. The change in noise exposure due to ARS-2 was about 8 to 20 dB (Wyle, 1998 at 4-37)° Using these values and the NDI estimate of-0.70% per dB, a 5 dB change in noise due to ARS-2 reduces a given property value by -3.5% (= -0.70% x 5); a 10 dB change in exposure reduces a given property value by -7%; and a 15 dB change in exposl~re reduces a given property value by -10.5%. ¯ At the FAA's (1985) higher value of-1.0% per dB, the diminution estimates are -5%, -10%, and -15°/o, respectively. 49. In order to illustrate the general calculation of monetary damages using the mean NDI, information was obtained on the assessed value of an average residential property in Virginia Beach. According to the Office of Real Estate Assessor, all residences (non-apartment units) had an average assessed value of $129,800 in January 2000 (City of Virginia Beach, 2000 at 6), compared to $125,290 in January 1999. The average assessed value for July I, 1999 was about $127,545. Hence, based on an average assessed value of $128,000, the diminution in value due to ARS-2 is $4,480 to $6,400 for a 5 dB change; $8,960 to $12,800 for a 10 dB change in exposure; and $13,440 to $19,200 for a 15 dB change. As discussed below, it is an important policy question whether or not properties exposed to 75+ dB can continue to be used for residential purposes. In the next section, I show that the adverse effect of ARS-2 will be at the upper limit of these estimates, or -1% per dB change in exposure. I also" demonstrate that the HDI is larger for residential properties exposed to 80 dB or more. 50. Average assessed residential property values in Virginia Beach rose by 3.60% between January 1999 and January 2000. Average assessed values rose to $158,400 in 2003 (FY 2004). Compared to 2000, this is a compound growth rate of 6.9% per annum. The rate of increase from 2003 to 2004 was 11.7%. The rate of increase from 2004 to 2005 was 22.3%. In the past two years, property values rose rapidly in Virginia Beach (City of Virginia Beach, 2005 at 7). However, this factor only affects the general level of nominal values, and does not change the supply and demand for housing in noisy areas. The correct economic issue is the difference in housing values at different noise exposure levels. Suppose that due to ARS-2 a residential property valued at $100,000 in 1998 was reduced in value by 20% or $20,000. Growth of property values over time means that this property might have a value at $133,500 in 2005. A similar $I00,000 house in a quiet area would be worth about $167,000. While both nominal values increased by 67%, the difference in relative values is 20% in 1999 and 2005.

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21 V. SPECIAL EFFECTS OF MILITARY AIRCRAFT NOISE The special effects of military aircraft noise that exceeds 75 dB are not fully captured by the NDI values of-0.7% and -1.0% per dB change in noise exposure. 51. Only three of the hedonic studies in Table 3 include noise exposures in excess of 80 dB, and even the populations exposed to 75-80 dB are limited in most studies. Hence, most of the studies in Table 3 fail to consider severe noise exposure of 80 dB and above. For example, O'Byme et al. (1985) examine the effects of aircraft noise in the vicinity ofAtlanta's Hartsfield International Airport. For 1970 census blocks, only 12% of the observations are in the 75-80 dB zone, and for 1979-80 individual house sales, only 7% of the observations are in the 75-80 dB zone. As shown in Table 1, ARS-2 subjected 23,000 people to 80+ dB. In this section, I examine evidence indicating that property value losses due to miliary aircraft noise will be seriously understated if the special effects of severe noise exposure are not considered. For this purpose, I review the evidence on: (1) survey studies that show that housing markets near airports are segmented by noise exposure in excess of 75 dB; (2) the adverse effects of severe noise levels on human health and welfare; (3) the unique features of Navy aircraft operations; and (4) the residential living environment and lifestyle of Virginia Beach and Chesapeake, Virginia. 52. The discussion that follows is based on the assumption that the land areas exposed to 80+ dB will continue to be used for some residential purposes. It is not clear that this should be the case. Four U.S. federal agencies - EPA, HUD, FAA, and the Department of the Navy - have established explicit guidelines for noise exposure of 75+ dB, which indicate that such levels of exposure are incompatible with residential land use. For example, in its National Strategy for Noise Control, one of EPA's specific national goals was expressed at follows: Reduce environmental noise exposure of the population to a DNL value of no more than 75 dB immediately, using all available tools, except in those isolated cases where this would impose hardship. This will essentially eliminate risk of hearing loss due to environmental noise, and reduce the exlxeme annoyance and activity interference for the population most severely affected (EPA, 1977a at 14). 53. The FAA's Part 150 guidelines also are explicit about the scope and purpose of limiting residential land use at a DNL of 75 dB or greater at civilian airports. According to the FAA, the purpose of an airport's noise compatibility program will be: To develop comprehensive and implementable noise reduction techniques and land use controls which, to the maximum extent feasible, will confine severe aircraft YDNL values of DNL 75 dB or greater to areas included within the airport boundary (14 Code of Federal Regulations Partl50, January 1, 2000 at 89).

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54. The Department of the Navy's AICUZ guidelines also strongly discourage residential use near airfields at DNL 70-75, and recommends that the greatest degree of compatible use controls should be used at DNL of 75 dB and above (DON, 2002 at 16; DoN, 2003 at 3-38). Hence, the discussion that follows is based on the strong assumption that some of the land areas at 80 dB or greater will continue to be used for residential purposes. This assumption is clearly in violation of policy positions taken by several U.S. federal agencies, including the U.S. Navy. Two survey studies of aircraft noise and property values indicate that housing markets are segmented at 75-80 dB and above. At severe noise levels of S0+ riB, the NDI is -0.85°/. to -1.50% per dB change in exposure. 55. Frankel (1991) examined the effect of aircraft noise on property values in the vicinity of Chicago's O'Hare Airport. Rather than using the hedonic price method, Frankel surveyed 200 realtors and 70 appraisers fi-om 35 suburban communities surrounding O'Hare Airport. Two of the survey questions addressed the issue of valuation of properties exposed to different levels of aircraft noise. At background noise levels (60-65 dB), 49% of the survey respondents estimated that this noise level would have little or no effect on property values (Frankel, 1991 at 103). However, at severenoise levels (75-80 dB and above), 0nly 2.3% of the respondents thought there would be no effect, and 41% estimated that property values would decline by 25% Or more. At severe noise levels, the median reductions for singlefamilyhomes were 21.6% for realtors and 16.5% for appraisers. The mean reductions were 16.4% and 12.7%, respectively (Frankel, 1991 at 105). Using the medians and a difference of 15 dB over the background, the NDI for single-family homes at severe noise levels is -1.10% to -1.44% per dB (Frankel, 1991 at 107). Using the means, the NDI is -0.85 to -1.09% per dB for houses located at 75-80 dB and above. 56. Frankel (1991 at 107) compares the survey results with estimates obtained from hedonic price studies. He uses a mean NDI estimate from Nelson (1980), and compares that NDI value and his survey estimates at four different noise levels (62.5, 67.5, 72.5, and 77.5 dB). At the two lower noise levels, the hedonic price estimates and the survey estimates are similar. However, at the two higher noise levels, Frankel (1991 at 107) concludes that the hedonic estimates fall below the survey estimates. Frankel (1991 at 107) offers several possible explanations for this result, including a nonlinear NDI; differences in local residential markets and airport environments; interactions between housing characteristics and aircraft noise; and asymmetric information in housing markets, which limits the efficient operation of the market. Frankel (1991 at 108) concludes that the NDI at noise levels of 80+ dB is about -0.90% per dB. This conclusion is supported by two studies in Table 3 that included more ample information on noise levels above 80 dB. The study by Blaylock (1977) for Dallas obtained an NDI of -0.99% and the study by Levesque (1994) for Winnipeg obtained an NDI of-1.30% per dB.

J

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23 57. A second survey study was conducted by Feitelson et al. (1996). The authors' survey design was based on 10 noise scenarios and a telephone survey of 426 homeowners and 274 renters in three communities near a major hub airport. This study employed Contingent Valuation (CV) survey methods to analyze two interrelated decisions by homeowners. First, respondents were asked to state their willingness to buy a house at different noise levels. Second, ifa respondent was willing to buy a house, they were next asked to state their willingness to pay to avoid different aircraft noise exposures. Renters were asked similar questions about their willingness to rent and the rental premium for quiet. Thus, valuation is modeled as the outcome of a two-stage process: (I) the respondent determines whether he or she is willing to consider buying a residence; and (2) if the answer to this question was affirmative, then the respondent is asked to state their willingness to pay for the residence and its associated level of noise exposure. Hence, survey responses are obtained for the number of individuals who are unwilling to buy noisy properties at any price. If this number is large, the resulting housing market is "thin," or segmented (Feitelson et al., I996 at 4; Frankel, 1991 at I00). 58. Feitelson et al. (1996 at 10) fmd that a larger number of individuals are unwilling to purchase a home (or rent) at severe noise levels, especially if overflights are involved. Almost half (~15.1%) of the survey respondents were unwilling to buy a home that was exposed to severe noise and subject to overflights. For renters, the similar figure was 34.7%. Feitelson et al. (I996 at 11) conclude that the survey responses imply that the housing market near airports is segmented. An increasingly larger number of buyers are unwilling to consider the purchase of a property as the noise level rises, at any discount from the sale price. Comparing background noise exposure to severe noise exposures (1525 dB difference), Feitelson et al. (1996 at 12) derive an NDI estimate of-2.4% to -4.1% per dB for homeowners and -1.8% to -3.0% per dB for renters. Compared to hedonic price estimates, the higher NDI includes the loss of use value incurred by homeowners who experience a severe noise exposure and who wish to sell their house. Excluding the zero valuation responses, Feitelson et al. (1996 at 11) derive an NDI at severe noise levels of-I.5% to -2.4% per dB for house prices and -0.9% to -1.5% per dB for rentals. These values agree substantially with the estimates obtained by Frankel (1991). 59. Both survey studies yield estimates that exceed the mean NDI of-0.7% per dB derived in Table 4. Combining the results in the two survey studies, a conservative range of estimates for the NDI at 80+ dB is -0.85 to -1.5% per dB. Hence, an average $128,000 residence located at 65 dB in CY99 was diminished in value by $16,320 to $28,800 if the change in noise exposure due to ARS-2 was 15 dB and $21,760 to $38,400 if the change was 20 d13.

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24 The Environmental Protection Agency found that a DNL of 75 dB and above is associated with potentially severe health and welfare effects. A recent study of noise and school environments found that aircraft noise impaired children's reading comprehension and recognition memory. Because school quality is a factor that determines property values, this finding is potentially important for residents of Virginia Beach and Chesapeake, Virginia, and future property values. 60. The EPA's (1982a at 52) Guidelines for Noise Impact Analysis examines the possible effects of DNL values that exceed 75 dB. EPA (1982a at 56) recommends that if outdoor noise exposure exceeds three hours a day at a DNL of 75 dB or above, it is important to look for potential severe health effects. First, for some people, noise-induced hearing loss begins to occur at 75 dB. The adverse effect of noise on hearing rapidly accelerates as noise exposure increases, and the possibility of hearing loss is an indicator of other adverse health and welfare effects (EPA, 1982a at 55). Second, those persons who are frequently outdoors are at greatest risk, including young children, retired persons living in warm climates, and persons in certain outdoor occupations. The adverse effects on human health and welfare of DNL 75+ can be summarized as follows (EPA, 1982a at C-l): Type of Adverse Effect ¯ Hearing Loss Magnitude of Effect at 75 dB and Above May begin to occur in sensitive individuals, depending on actual noise levels received at-ear. Noise is one of several factors producing stress-related health effects, such as high-blood pressure. Some disturbance of normal conversation. Sentence intelligibility is approximately 98% at 60 dB indoors (2m). Very significant disturbance of normal voice conversation. Speech intelligibility is zero at 2m at 75 dB outdoors. Approximately 37% of the population will be highly annoyed at 75 dB, 53% at 80 dB, and 72% at 85 dB. Very severe. Significant complaints and vigorous actions. Noise is likely to be the most important of all adverse aspects of the community environment.

¯ Risk of non-auditory health effects ¯ Speech : indoor

¯ Speech - outdoor

¯ High Annoyance

¯ Community Reaction ¯ Community Attitudes

61. Second, with respect to noise-induced sleep loss, Suter (1991 at 21) states that sleep interference is one of the critical components of community annoyance. Sleep loss can produce shortterm adverse effects, such as mood changes and decrements in task performance the next day, with the possibility of more serious effects on health and well-being if sleep loss continues over long periods (Surer, 1991 at 21). Sleep interference will tend to occur at maximum outdoor sound levels of 65 dB or

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(9) The July 1999 average assessed residential value in Virginia Beach was about $128,000. This value is used to illustrate the determination of monetary damages. Using the NDI of-1.0% per dB for an average property exposed to 60-64 dB in CY98, the monetary damage will be $6,400 for a 5 dB increase in exposure; $12,800 for a 10 dB increase; and $19,200 for a 15 dB increase due to ARS-2. (10) Damages will be greater for properties exposed to 80+ d13. Using an NDI of-1.5% per dB for an average property exposed to 65-70 dB in CY98, the monetary damage will be $19,200 for a 10 dB increase in exposure; $28,800 for a 15 dB increase; and $38,400 for a 20 dB increase due to ARS-2.

I declare and affirm under.penalty of perjury that the foregoing is true and correct to the best of my knowledge, information, and belief.

Jon P. Nelson, Ph.D.

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EXHIBIT B

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19 this estimate is -0.67 ~: 1.96 (0.20) = -0.28 to -1.06. Among the estimates reported in Table 3, the 95% confidence interval includes all NDI values with the exception of four values (Baltimore, Los Angeles, Washington, D.C., and Winnipeg). The large negative estimates for JFK and La Guardia Airports are not included in the regression analysis due to lack of standard errors.

rsis Table 4. Summary of the Meta-Anal, of Airport Noise and Property Values Statistical Measure Simple mean NDI (unwt.) Median NDI (unwt.) Fixed-effect mean NDI (weighted) Random-effect mean NDI (weighted) Meta-regression coefficient. (unwt.) Meta-regression coefficient (wt.) NDI value (std.dev.) Comments on Measure

-0.75 (0.30)* Ignores precision; includes JFK and La Guardia -0.67 Ignores precision; includes JFK and La Guardia

-0.58 (0.04)* Uses inverse variance weights; sampling error only -0.59 (0.04)* Uses inVerse variance weights adjusted for between-study variability of estimates "-0.83 (0.31)* White's correction for heteroskedasticity -0.51 (0.14)* Wt. regr. with inverse variance weights

Meta-regression coefficient (wt.) -0.67 (0.20)* Wt. regr. with optimal inverse standard error weights Source: Nelson (2004); attached. Asterisks indicate statistically significant at the 95% level.

47. An NDI of-0.67% per dB is consistent with my earlier review of the empirical literature. For example, in Nelson (1980), I found that the simple mean NDI for a sample of twelve airports was -0;62% (Nelson, 1980 at 43). In a pooled statistical analysis for six airports, I reported a mean NDI of -0.55% (Nelson, 1979 at 327). Recent studies for other countries also agree with this result. For example, a recent study for Geneva, Switzerland used geographical information system (GIS) data and found a noise discount of-0.7% per dB (Baranzini and Ramirez 2005). Lastly, studies of airport expansions and closures also have found property value effects from anticipated changes in noise exposure (Jud and Winkler 2005; Konda 2002). While these studies do not estimate an NDI, they do serve to demonstrate that market dynamics do not greatly alter the negative effects. In summary, 27 Of 31 estimates of the NDI are negative and statistically significant at the 95% level or better. This is convincing evidence that aircraft noise is negatively capitalized into residential property values. A synthesis of this evidence using meta-analysis yields an NDI of about 0.7% per additional dB (above background noise levels).

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EXHIBIT C

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS

CAROL AND ROBERT TESTWUIDE, et al., )

)
Plaintiffs, v. THE UNITED STATES OF AMERICA, Defendant. )

)
) No.: O1-201L

)
)

)
)

Judge Victor J. Wolski

PLAINTIFFS' REBUTTAL TO THE EXPERT REPORT OF DR. DAVID DALE-JOHNSON (Analyses of the Impact of the Realignment on House Values)

JON P. NELSON, PKD.

December 12, 2005

,/

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2 4. In order to evaluate these claims, I will first develop the methodology used to conduct a repeat sales analysis, including an examination of the sampling and measurement procedures used by Dr. DaleJohnson. The methodology of a repeat sales analysis is subject to a number of well-known problems, all of which are largely ignored in his report. Second, building on my criticisms of his work, I present alternative regression estimates for the repeat sales model that demonstrate that the "Change in Noise" coefficient is negative and statistically significant. Furthermore, these negative effects agree with the noise damage estimates presented in my Expert Report (Nelson report, p. 29). Thus, using the same basic methodology and data available to Dr. Dale-Johnson, l demonstrate that plaintiffs" damage formula is statistically sound and correct. Third, I examine selected aspects of Dr. Dale-Johnson's event study analysis. Fourth, I evaluate his hypothesis for his null findings, i.e., the transfer of U.S. Navy personnel to the Virginia Beach area and the possible effects (if any) of this transfer on housing demand and values.

II. Repeat Sales Methodology The repeat sales model is commonly used to construct real estate price indices. It is subject to several methodological and econometric problems that require caution in its application. Two widely discussed problems are aggregation bias and sample selection bias. A. The Repeat Sales Model 5. As an econometric technique, the repeat sales method was first developed in 1963, and it has been widely used in recent years to develop housing price indices. Consequently, the econometric problems or difficulties associated with this technique are well known. The repeat-sales model as applied to environmental effects or damages was pioneered in I982 by Dr. Raymond Palmquist? Assume a significant environmental "event" that occurs at a specific date in time and which has different measurable physical effects on residential properties. In the case ofNAS Oceana, the transfer of 10 squadrons of F/A-l 8 aircraft occurred during December 1998 to September 1999, With 2 squadrons arriving in December 1998, 6 squadrons in July 1999, and 2 squadrons in late September 1999. Thus, in Dr. Dale-Johnson's analysis, the "event date" or "base quarter" is the second quarter of 1999 (April-June 1999), which is the quarter just before the increase in noise levels. The physical effects of this event refer to different changes in noise exposure, e.g., +0, 5, 10, or 15 dB changes measured relative to the

J R.B. Palmquist, "Measuring environmental effects on property values without hedonic regressions," Journal of Urban Economics, t I (1982): 333-47. I am aware of only one other study that uses the repeat sales method for aircraft noise; see N2q. Knickerbocker, "Aircraft Noise and Property Values," Unpub. Ph.D. dissertation, University of Maryland, 1991. This study of National Airport finds negative effects that agree generally with other studies for National Airport and other airports, i.e, the noise discount is -I.29% per dB (p. 149).

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pre-event exposure level. The important reasons for using a sample of repeat sales of residential properties are: (I) it might eliminafe the necessity to collect numerous housing features required for the hedonic price model; (2) it focuses the analysis on the change in environmental quality and damages; and (3) it can be used to construct housing price indices for additional analysis of the event. 6. The repeat sales model is based on the notion that there exists a set of residential properties that were Sold before and after the event, and which did not change except for the differences in noise exposure. Consider two residential properties, both of which were sold for $100,000 in 1998 and which sold again in 2000. Assume that neither property underwent any structural, environmental, or neighborhood quality changes during 1998-2000, except that Property A experienced a I0 dB increase in noise exposure in July 1999 and Property B did not. If Property B was sold for $120,000 in 2000, the appreciation was $20,000 or 20%. According to plaintiffs' damage formula, Property A should appreciate less in value. Suppose that Property A sold for $110,000 in 2000 or a 10% appreciation. Hence, the damage due to the increase in noise was $10,000 or -1% per dB change in noise exposure. 7. A more technical description of the repeat sales model helps reveal some of the assumptions that underlie the model and analysis. The starting point is the standard semi-log hedonic price function

(1)

In(Pit) = ~t + I3"Zi + YNit + 6Air + uit

where ln(P~) is the log of the sales price of house i at time t; Zi is a vector of housing characteristics that do not vary with time; Nn is the noise exposure level at time t; A~tis the age of the house; and ua is the error term (aka the "residual"). The error term captures the effects of omitted variables, measurement errors, and purely random or stochastic aspects of the data. The depreciation rate due to age is given by 6. The noise damage index or hedonic price of noise in percentage terms is given by "/x 100. The expected sign ofy is negative. 8. For the repeat sales model to be appropriate, there must be a sale of each property before and after the event date. Suppose the earlier sale of the property occurred at time t and the second (or subsequent) sale occurred at time s. The first sale occurs before the event and the second sale occurs after the event. For these houses, the price-relative is given by (P~/P,). Using the log transformation, the rate of appreciation function for the repeat sales model is given by

(2)

In Pa - ln~P~ = ~s- ~ + 13"(Zi - Z~) + y(N~- N-0 + 6(Aa- AO + (u~- uO

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Using an assumption due to Dr. Palmquist, houses are assumed to depreciate geometrically with age. The age variable is eliminated by a uniform adjustment of the price-relative using an independent estimate of the depreciation rate. The values of the constant terms, ccs and cq, form a house price index. These values are the estimated coefficients for dummy variables indicating the quarter(s) of sale.2

B. Aggregation Bias and Sample Selection Bias 9. In the standard hedonic model, [3 is a vector of parameters to be estimated. In the repeat sales model, this is not necessary because the Z variables are constant over time. Hence, the repeat sales model requires a sample of properties for which the structural, environmental, and neighborhood features of the houses are unchanged between time t and time s. This condition is referred to as the constant quality assumption and violation of this assumption is called aggregation bias. 10. While the repeat sales model can eliminate the necessity to collect data on housi