Economic Guidance Summary

The Basis for Benefit-Cost Analysis in the Corps

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

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)

Economic and EnvironmentalPrinciples and Guidelines forWater and Related Land Resources Implementation Studies

March 10, 1983

Principles

The principles are intended toinsure proper and consistentplanning by federal agenciesin the formulation andevaluation of water resourceimplementation studies.

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

Guidelines

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

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

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.

Four Accounts

National Economic Development Environmental Quality Regional Economic Development Other Social Effects

Contents of Guidelines

Chapter I – Standards Chapter II – National Economic Development

(NED) Benefit Evaluation Procedures Chapter III – Environmental Quality (EQ)

Evaluation Procedures

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

NED Costs

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

General Measurement Standard

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

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

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

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

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?

Regional Economic Development (RED) Account

Changes in the distribution of regional economic activity

Discretionary to display

RED Benefits

Regional income Transfers

Regional employment Transfers

Other Social Effects (OSE)

Urban and community impacts Life, health and safety factors Displacement Long-term productivity Energy requirements and energy

conservation

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)

Planning Horizon

Period of Analysis

Project Life

ConstructionPeriod

StudyPeriod

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.

Recent Enhancements

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

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.

Summary Report

Summary of key facts, issues and uncertainties Provide input for report preparation on

expected project performance Benefits Costs

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

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.

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.

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

Summary:

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

Horizon