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 2007.

FOR FURTHER INFORMATION CONTACT:

Robert B. Anderson, Office of Economic Policy, Office of Management and Budget, (202) 395-3381.

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

Revised January 2006.

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 2007. A copy of the updated appendix can be obtained in electronic form through the OMB home page at http://www.whitehouse.gov/omb/circulars/a094/ a94_appx-c.html , the text of the main body of the Circular is found at http://www.whitehouse.gov/omb/circulars/a094/a094.html , and a table of past years' rates is located at http://www.whitehouse.gov/omb/circulars/a094/dischist-2006.pdf . Updates of the appendix are also available upon request from OMB's Office of Economic Policy (202-395-3381).

Nominal Discount Rates. A forecast of nominal or market interest rates for 2006 based on the economic assumptions from the 2007 Budget are presented below. These nominal rates are to be used for discounting nominal flows, which are often encountered in lease-purchase analysis.

Real Discount Rates. A forecast of real interest rates from which the inflation premium has been removed and based on the economic assumptions from the 2007 Budget is presented below. These real rates are to be used for discounting real (constant-dollar) flows, as often required in cost-effectiveness analysis.

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.