Do Mandatory Minimum Penalties and Penalty Relief Work? Evidence from California's Clean Water Program

Abstract

Designing and implementing policies to promote regulatory compliance with limited resources is a common challenge for regulators. We use mixed methods to explore these questions within California’s unique clean water program. In 1999, California introduced $3,000 mandatory minimum penalties for certain Clean Water Act violations, while allowing small communities with financial hardship to invest in compliance instead of paying penalties. We find that penalty enforcement was associated with decreased reporting violations across private facilities, but only suggestive reduction in selective effluent exceedances across public facilities. In-depth case studies suggest there may be considerable mismatch between the scale of penalties and compliance costs. We also provide suggestive evidence that penalty conversions reduced pollution limit violations, and highlight tensions between their eligibility criteria and environmental justice. Our work highlights how policy design and implementation fidelity shape regulatory effectiveness and equity, with lessons for regulators across policy domains.

Keywords: deterrence, compliance, environment, water quality, wastewater treatment