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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: March 16, 2001

SUBJECT: Office of Management and Budget Circular A-94 Discount Rates for Cost-Effectiveness Analysis of Federal Programs

SOURCE: Federal Register March 16, 2001, Vol. 66, No. 52, page 15302

AGENCIES: Office of Management and Budget (OMB)

ACTION: Revisions to Appendix C of OMB Circular No. A-94, Benefit-Cost Analysis of Federal Programs

SUMMARY: This revision to Appendix C of OMB Circular A-94 updates the interest rate and inflation assumptions used to prepare the budget of the U.S. government.

EDITOR'S NOTE: Copies of the updated Appendix C and OMB Circular A-94, can be obtained at http://www.whitehouse.gov/omb/circulars/index.html. Updates of Appendix C and a table of past years' rates are also available upon request from OMB's Office of Economic Policy at 202-395-3381.

EFFECTIVE DATES: March 16, 2001, through January 31, 2002.

FOR FURTHER INFORMATION CONTACT: Robert B. Anderson, Office of Economic Policy, Office of Management and Budget, 202-395-3381.

SUPPLEMENTARY INFORMATION: OMB Circular A-94 provides federal agencies with guidance on benefit-cost, cost-effectiveness, and lease-purchase analysis in evaluating federal activities. Appendix C, which is updated annually around the time of the president's budget submission to Congress, provides both "nominal" interest rates and "real" interest rates.

Nominal interest rates represent the future purchasing power of the dollar in that they reflect expected inflation. Nominal interest rates are commonly used in lease-purchase analyses to determine the most advantageous alternative.

Real interest rates represent constant-dollar values by measuring benefits and costs in units of stable purchasing power, as when determining the cost-effectiveness of a program. A real interest rate can be approximated by subtracting expected inflation from a nominal interest rate.

The following are the rates to be used through January 2002 when making such calculations:

Analyses of programs with terms different from these may use a linear interpolation. For example, a four-year project can be evaluated with a rate that is the average of the three-year rate and the five-year rate. Programs longer than 30 years may use the 30-year interest rate.

For comparison purposes, the following are the rates that were used last year:

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

Copyright 2001 by Panoptic Enterprises. All Rights Reserved.

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