02-2771. Discount Rates for Cost-Effectiveness Analysis of Federal Programs

AGENCY:

Office of Management and Budget.

ACTION:

Revisions to appendix C of OMB Circular A-94.

SUMMARY:

The Office of Management and Budget revised Circular A-94 in 1992. The revised Circular specified certain discount rates to be updated annually when the interest rate and inflation assumptions used to prepare the budget of the United States Government were changed. These discount rates are found in Appendix C of the revised Circular. The updated discount rates are shown below. The discount rates in Appendix C are to be used for cost-effectiveness analysis, including lease-purchase analysis, as specified in the revised Circular. They do not apply to regulatory analysis.

DATES:

The revised discount rates are effective immediately and will be in effect through January 2003.

FOR FURTHER INFORMATION CONTACT:

Robert B. Anderson, Office of Economic Policy, Office of Management and Budget, [phone].

Amy C. Smith,

Associate Director for Economic Policy, Office of Management and Budget.

Appendix C (Revised February 2002)

Discount Rates for Cost-Effectiveness, Lease Purchase, and Related Analyses

Effective Dates. This appendix is updated annually around the time of the President's budget submission to Congress. This version of the appendix is valid through the end of January 2003. Copies of the updated appendix and the Circular can be obtained in an electronic form through the OMB home page, http://www.whitehouse.gov/​OMB/​circulars/​index.html. Updates of the appendix are also available upon request from OMB's Office of Economic Policy (202-395-3381), as is a table of past years' rates.

Nominal Discount Rates. Nominal interest rates based on the economic assumptions from the budget are presented below. These nominal rates are to be used for discounting nominal flows, which are often encountered in lease-purchase analysis.

Nominal Interest Rates on Treasury Notes and Bonds of Specified Maturities

[In percent]

3-year	5-year	7-year	10-year	30-year
4.1	4.5	4.8	5.1	5.8

Real Discount Rates. Real interest rates based on the economic assumptions from the budget are presented below. These real rates are to be used for discounting real (constant-dollar) flows, as is often required in cost-effectiveness analysis.

Real Interest Rates on Treasury Notes and Bonds of Specified Maturities

[In percent]

3-year	5-year	7-year	10-year	30-year
2.1	2.8	3.0	3.1	3.9

Analyses of programs with terms different from those presented above may use a linear interpolation. For example, a four-year project can be evaluated with a rate equal to the average of the three-year and five-year rates. Programs with durations longer than 30 years may use the 30-year interest rate.