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Economic Guidance Summary The Basis for Benefit-Cost Analysis in the Corps.

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Presentation on theme: "Economic Guidance Summary The Basis for Benefit-Cost Analysis in the Corps."— Presentation transcript:

1 Economic Guidance Summary The Basis for Benefit-Cost Analysis in the Corps

2 Objective: The student will become familiar with the concepts outlined by the Principles & Guidelines and will be able to describe: Federal Objective System of Accounts General Measurement Approaches Discount Rates, Period of Analysis, Planning Horizon

3 Brief History of Economic Analysis Flood Control Act of 1936—Section I Bureau of the Budget Circular A-47 (12/52) Green Book (5/58) Senate Document 97 (5/62) WRPA ’65 Principles & Standards (9/73) P&S Amended (8/74) NED Procedures (12/79) Principles & Guidelines (3/83)

4 Economic and Environmental Principles and Guidelines for Water and Related Land Resources Implementation Studies March 10, 1983

5 Principles The principles are intended to insure proper and consistent planning by federal agencies in the formulation and evaluation of water resource implementation studies.

6 Contents of the Statement of Principles Purpose & Scope Federal Objective State & Local Concerns International Concerns Alternative Plans Plan Selection Accounts Discount Rate Period of Analysis Risk and Uncertainty Cost Allocation Planning Guidelines Effective Date

7 Guidelines Standards and procedures, in the form of guidelines, have been issued to ensure consistency of Federal agency planning.

8 Selected Topics This Week Federal Objective Discount Rate Period of Analysis System of Accounts Planning Process Forecasting Risk and Uncertainty Multiple Purpose Projects Evaluation Process by Purposes

9 Federal Objective The Federal objective of water and related land resources planning is to contribute to national economic development consistent with protecting the Nation’s environment, pursuant to national environmental statutes, applicable executive orders, and other Federal planning requirements.

10 Four Accounts National Economic Development Environmental Quality Regional Economic Development Other Social Effects

11 Contents of Guidelines Chapter I – Standards Chapter II – National Economic Development (NED) Benefit Evaluation Procedures Chapter III – Environmental Quality (EQ) Evaluation Procedures

12 NED Effects (National Economic Development) Increase value of national outputs of goods and services Output resulting from external economies Value associated with use of un- or under-employed resources Opportunity costs of resources used

13 NED Costs Opportunity costs of resources used in plan Implementation outlays Associated costs Other direct costs

14 General Measurement Standard The value of goods and services is defined as the willingness of their users to pay for them.

15 WTP Measurement Techniques of Outputs With $ Values Actual or simulated market price Change in net income Cost of the most likely alternative Administratively established values

16 Outputs vs. Effects Outputs are intended beneficial effects Project purposes Federal Interest Typically NED and NER Effects Intended and unintended Positive and negative Tallies across all four accounts

17 Environmental Quality (EQ) Account Displays non-monetary effects on ecological, cultural and aesthetic resources. Positive and adverse effects of ecosystem restoration plans Required to display

18 Evaluation Process for Ecosystem Outputs Cost Effectiveness Compare Costs To Provide Envir Output Costs of Measure / Outputs ( e.g., H.U) Incremental Analysis Compare Cost Effective Measures Is Measure Worth It?

19 Regional Economic Development (RED) Account Changes in the distribution of regional economic activity Discretionary to display

20 RED Benefits Regional income Transfers Regional employment Transfers

21 Other Social Effects (OSE) Urban and community impacts Life, health and safety factors Displacement Long-term productivity Energy requirements and energy conservation

22 Period of Analysis Planning horizon Same for all alternatives Can vary from project-to-project Lesser of 100 years or period of time over which plan accrues significant benefits or costs (Normally 50 years)

23 Planning Horizon Period of Analysis Project Life Construction Period Study Period

24 The Current Discount Rate for the Corps is 4 5/8% Rule of Thumb: With discount rates below 6%, a project will need $1 in Avg Annual Benefits for every $15 in project costs to produce a BCR>1.

25 Recent Enhancements DE Presentations of Decision Documents Report Summary Planning Models Improvement Program Peer Review Planning in a Collaborative Environment Combined Plans

26 DE Presentations Additional accountability for quality of decision documents Better documentation and support of analysis Ready to answer questions and participate in issue resolution Ready to provide rationale for plan selection and final recommendation.

27 Summary Report Summary of key facts, issues and uncertainties Provide input for report preparation on expected project performance Benefits Costs

28 Planning Models Improvement Program Review, improve and validate analytical tools and models Certification process based on peer support/review for technical soundness and usability Economists will: Identify, in PMP, models/tools to be used for economic analysis Coordinate with PCXs for ITR/Certification Provide documentation for certification if proponent for a model Use certified models when available

29 Peer Review To ensure the quality and credibility of Corps decision documents Technical quality Independence of review Responsiveness Documentation Shared Lessons Learned Scientific and engineering information underlying decisions and recommendations will be reviewed to ensure its technical quality.

30 Planning in a Collaborative Environment Enhance collaborative approach to water resources management Watershed/system vs. site specific Multiple purposes / multiple partnerships Fully utilize flexibility and authority of P&G Evaluate, display and compare the full range of alternative plans effects across all 4 P&G accounts. May select any candidate plan with net beneficial effects (based on 4 accounts) with ASA exemption. Must identify NED Plan.

31 Combined Plans Modern day multipurpose planning - strive to achieve environmental sustainability (EOPs) “Seek balance and synergy among human development activities and natural systems by designing economic and environmental solutions that support and reinforce one another.”, Environmental Operating Principles, March 2002 Contribute to environmental sustainability as defined in EOP’s by formulating Combined NED/NER plans Combined NED/NER Plan = Combined Plan

32 Summary: Principles and Guidelines Collaborative Planning Federal Objective 4 Accounts: NED, EQ, RED, OSE Willingness To Pay Discount Rates, Period of Analysis, Planning Horizon

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