The Benefit-Cost Analysis discount rate has been adjusted from 3.1% to 7% following recent action by the Office of Management and Budget. On April 8, the Office of Management and Budget revoked a recent update to Circular No. A-94, “Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs,” to return the discount rate to the original amount set in October 1992.
FEMA uses the federal discount rate—an estimate of how the value of benefits and costs decreases over time—to calculate the net present value of proposed hazard mitigation projects.
The agency is working to ensure all aspects of the Benefit-Cost Analysis aligns with this new guidance, at the Department of Homeland Security and administration’s direction. The Benefit-Cost Analysis web page is updated to include the 7% discount rate.
A cost-effectiveness determination is required for all mitigation projects as a basic eligibility requirement. In many cases, this means performing a Benefit-Cost Analysis. To learn how to streamline a Benefit-Cost Analysis, visit FEMA.gov.
Hazard Mitigation Assistance projects that have not been awarded by FEMA as of April 8 must use the 7% discount rate when performing a Benefit-Cost Analysis to calculate cost effectiveness. This applies to all projects, including those that require review for additional federal funding or phased projects.
Public Assistance projects that have not been awarded by FEMA as of April 8 should also use the 7% discount rate when performing a Benefit-Cost Analysis to demonstrate cost effectiveness.
FEMA will continue to update the Benefit-Cost Analysis Toolkit and will release additional guidance on applicability, timing and content. The toolkit provides guidance and instructions for the entire process of performing a full Benefit-Cost Analysis.