OMB Circular A-94 — Benefit-Cost Analysis & Discount Rates for Federal Programs

OMB Circular A-94 ("Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs") is the OMB guidance document that governs how federal agencies analyze the economic merits of government investment decisions — building infrastructure, purchasing equipment, operating programs, offering loan guarantees, or leasing versus buying assets. Where Circular A-4 governs regulatory analysis (the cost-benefit justification for rules that impose requirements on the private sector), A-94 governs the government's own investment decisions: should we build this dam? Is this loan guarantee program cost-effective? Does this public works project generate net benefits for society?

The central analytical requirement is identical in both circulars: calculate the present value of costs and benefits, compare them, and show that benefits justify costs. The methodological details — especially the choice of discount rate — are critically important and have been the subject of significant revision. A-94 was originally issued in 1972 and substantially revised in 1992. In November 2023, following OMB's revision of Circular A-4, A-94 was updated to lower the primary discount rate from 7% real to 2% real for most benefit-cost analyses, aligning the two circulars' methodological frameworks. The Trump administration issued a further-revised A-94 in December 2025; the current discount-rate framework should be confirmed against the most recent A-94 issuance and Appendix C update before use. <!-- FACTCHECK 2026-05-11: 2024 A-94 update reportedly revoked April 8, 2025; Trump A-94 reissued December 2025 — verify current discount rate against latest Appendix C. — wiki-factcheck --> This change has substantial implications for long-horizon public investments — infrastructure, environmental remediation, water systems — where the choice of discount rate determines whether projects look economically viable.

Legal Authority

• 31 U.S.C. § 1111 — OMB general management authority; authorizes OMB to establish analytical standards for federal investment decisions and program justifications
• 31 U.S.C. § 1105 — President's budget submission requirements; requires the President's Budget to include information justifying proposed expenditures; A-94 provides the analytical framework for investment proposals in the budget
• OMB Circular A-94 (1972, most recently revised November 2023 and December 2025) — Establishes the benefit-cost analysis methodology, discount rate standards, cost-effectiveness analysis requirements, and present value calculation methods for federal investment decisions; Appendix C annually publishes the specific discount rates

Key Mechanics

A-94 governs the economic analysis of federal investment decisions — infrastructure construction, equipment acquisition, loan guarantee programs, and program spending with long-term effects — as distinct from the regulatory cost-benefit analysis governed by A-4 (which covers rules imposed on the private sector). The core requirement: for any significant federal investment, the agency must calculate the net present value (NPV) of all costs and benefits over the project's life, discounted to present value at OMB-prescribed rates. If NPV is positive, benefits exceed costs; if negative, costs exceed benefits. Key methodological choices: (1) Discount rate: A-94's Appendix C is updated annually; after the November 2023 revision (aligned with A-4), the primary rate was set at 2% real; the Trump administration revised A-94 in December 2025 (verify current Appendix C rate before use); the choice of discount rate is politically significant because lower rates favor long-horizon projects (infrastructure, environmental remediation) by inflating the present value of distant benefits; (2) Cost-effectiveness analysis: where benefits cannot be monetized, agencies should use cost-effectiveness analysis comparing programs that achieve the same objective; (3) Sensitivity analysis: required for uncertain estimates — agencies must show how NPV changes under different assumptions. A-94 applies to the budget process (justifying investments in the President's Budget) and to program management decisions (lease vs. buy, build vs. operate).

Overview

What This Circular Requires

When A-94 Analysis Is Required

A-94 analysis is required whenever a federal agency is evaluating:

• Major public investments: construction, major equipment acquisition, large-scale infrastructure projects
• Federal credit programs: direct loans, loan guarantees, and insurance programs (analyzed alongside the Federal Credit Reform Act requirements in A-11 Part 5)
• Lease-purchase decisions: whether to buy or lease assets (analyzed using specific Treasury borrowing rate guidance in A-94)
• Regulatory programs and grants: for regulations and grant programs, A-94 provides the methodological underpinning for benefit-cost analysis that A-4 applies more specifically to rulemakings
• Other significant resource allocation decisions: where the government is comparing alternative uses of federal resources with multiyear cost and benefit streams

The Benefit-Cost Framework

A-94 requires agencies to calculate the Net Present Value (NPV) of a program or investment — the present value of all future benefits minus the present value of all future costs, discounted to a common point in time using the OMB-specified discount rate. A positive NPV indicates that the investment generates net economic value for society; a negative NPV indicates the opposite.

The analysis must:

1. Identify all costs and benefits — including direct costs, indirect costs, opportunity costs, and externalities
2. Quantify and monetize costs and benefits wherever feasible
3. Define the baseline — the alternative against which the investment is measured (typically the status quo)
4. Account for the full life cycle — not just upfront costs but operating, maintenance, and eventual disposal costs over the project's useful life
5. Analyze alternatives — the preferred option should be compared to realistic alternatives, not just to "do nothing"
6. Conduct sensitivity analysis — show how the NPV changes under different assumptions about costs, benefits, and discount rates

In addition to NPV, agencies should calculate the Benefit-Cost Ratio (BCR) — the ratio of present-value benefits to present-value costs — and for programs where benefits are not easily monetized, a Cost-Effectiveness Analysis (CEA) that compares costs across alternatives that achieve the same objective (e.g., cost per quality-adjusted life year for health programs).

Lease-Purchase Analysis

One of A-94's most frequently applied provisions governs lease-purchase decisions — whether to buy or lease assets (buildings, vehicles, equipment). The analysis uses a different discount rate than standard benefit-cost analysis: the Treasury borrowing rate applicable to the life of the asset, rather than the general discount rate. This reflects the financial nature of the decision: the relevant comparison is the cost of government borrowing to buy vs. the cost of leasing.

A-94 specifies that agencies should generally prefer purchasing to leasing when the present value of purchase costs is lower than the present value of lease costs — an apparently obvious rule, but one that requires careful accounting of residual values, maintenance costs, flexibility premiums, and off-balance-sheet effects of operating leases. Real property leases (buildings and land) have specific A-94 guidance that interacts with GSA's leasing authority.

The Discount Rate: The Critical Parameter

The discount rate is the single most consequential methodological choice in any benefit-cost analysis with future effects. A higher discount rate means future benefits count for less in present-value terms — making long-term investments look less attractive. A lower discount rate does the opposite.

The 1992 guidance (in effect until 2024) specified:

• 7% real as the base case discount rate, representing the opportunity cost of capital displaced by federal spending (if the government doesn't spend this money, the private sector would invest it and earn approximately 7% real return)
• 3% real as an alternative sensitivity case, representing the social rate of time preference
• Both rates should be used, with 7% as the primary result

The 2024 update aligned A-94 with A-4's 2023 revision:

• 2% real replaces 7% as the primary discount rate for most benefit-cost analyses, reflecting updated empirical evidence on real interest rates, risk-free returns, and social rates of time preference
• 7% real remains as an alternative rate that agencies must also calculate and report
• Sensitivity analysis at multiple rates is required to show robustness of conclusions
• For intergenerational investments (those with effects extending beyond 30 years), agencies may use lower rates still, recognizing that discount rates approaching zero are appropriate for effects on future generations whose consumption is uncertain

The practical consequence of lowering the primary rate from 7% to 2% is significant for long-horizon investments. A project that generates $100 in benefits 30 years from now is worth:

• $13 in present value at 7% discount rate
• $55 in present value at 2% discount rate

This four-fold difference means that infrastructure projects, environmental remediation, and climate adaptation investments that looked economically marginal under the 7% rate may look clearly beneficial under the 2% rate.

Key Provisions

• Section 1 — Purpose: establishes that benefit-cost analysis is the primary tool for evaluating whether federal programs generate net social value
• Section 2 — Scope: defines which programs and decisions require A-94 analysis; applies to any program or project with federal costs or benefits spread over multiple years
• Section 3 — General principles: NPV is the primary metric; alternatives must be analyzed; sensitivity analysis is required; distribute effects (who gains and who loses) must be described
• Section 4 — Discount rates: primary rate 2% real (post-2024 update); alternative rate 7% real; intergenerational analyses may use lower rates; lease-purchase uses Treasury nominal borrowing rate
• Section 5 — Uncertainty: agencies must identify key uncertain parameters; Monte Carlo analysis or scenario analysis recommended for major investments
• Section 6 — Cost-effectiveness analysis: for programs where benefits cannot be monetized, cost-effectiveness analysis (cost per unit of outcome) is the appropriate alternative
• Section 7 — Lease-purchase: Treasury nominal borrowing rate governs; full life-cycle cost comparison required; preference for purchase when NPV of purchase is lower
• Appendix A — Discount rates: OMB publishes updated Treasury rates and nominal rates annually in an appendix revision; agencies should check for current rates before finalizing analyses

How It Affects You

If you work at a federal agency as a budget analyst or program officer: Every major capital investment, new program proposal, or significant grant initiative that goes through the budget process should be supported by an A-94-compliant benefit-cost or cost-effectiveness analysis. In practice, this means: identify costs and benefits over the full life of the program, discount them at the OMB-specified rate, calculate NPV, and present sensitivity analysis. The 2024 shift to 2% as the primary rate changes the results for any analysis with long-term effects — if you're working from a prior analysis that used 7%, update it. For lease-purchase decisions (common for office space, vehicles, and equipment), use the Treasury borrowing rate from A-94's annual appendix update, not the general discount rate.

If you are a federal contractor providing program evaluation or economic analysis services: A-94 defines the methodological standard your analyses must meet to satisfy OMB review. Contracting officers and program managers at agencies increasingly require A-94 compliance certifications for major economic analysis contracts. Know the current discount rates (check the most recent A-94 appendix revision at whitehouse.gov/omb), use NPV as the primary metric, include sensitivity analysis at both the primary and alternative rates, and present distributional effects. Agencies will use your analysis to justify budget requests — OMB examiners will challenge analyses that cut corners on sensitivity analysis or fail to fully account for life-cycle costs.

If you are a grant applicant or project sponsor seeking federal funding: Federal agencies evaluate grant applications and project proposals partly on cost-effectiveness — whether the federal investment generates commensurate public benefits. Understanding A-94's framework helps you structure grant applications to speak the language of federal budget analysis: describe your project's benefits quantitatively where possible, identify the baseline (what happens without the grant), and show that costs are reasonable relative to expected outcomes. For infrastructure projects seeking federal loans or loan guarantees, A-94's credit program guidance applies — the agency evaluates the subsidy cost (default risk) using A-11 Part 5 methodology, not simple loan terms.

If you are a researcher, journalist, or policy analyst: A-94 analyses are not always public documents — unlike regulatory RIAs, which must be published with proposed and final rules, A-94 analyses are primarily internal budget justification documents. However, major project analyses are often released in Environmental Impact Statements, budget justifications, Congressional Budget Justification books, and GAO program evaluations. The 2024 discount rate update is a significant methodological change that will show up in long-term project analyses — infrastructure, water, climate adaptation. Comparing pre- and post-update analyses of the same projects reveals how much of the apparent cost-benefit case for a project depends on the choice of discount rate.

A-94 vs. A-4: Knowing Which Circular Applies

These two circulars address related but distinct analytical questions:

Both circulars now use the same primary discount rate (2% real), reflecting OMB's 2023–2024 alignment of the two frameworks. This is a deliberate policy choice to ensure that regulatory analysis and program investment analysis rest on consistent methodological foundations.

State and Local Government Implications

A-94 directly governs federal agency decisions, not state or local government decisions. However, when states and localities seek federal grants, loans, or loan guarantees — especially for major infrastructure projects through programs like TIFIA (transportation loans), CWSRF (clean water revolving funds), or WIFIA (water infrastructure loans) — the federal agency evaluating the application applies A-94 methodology to assess whether the project generates sufficient public benefits to justify federal participation. State project sponsors who understand A-94 can structure their proposals to demonstrate NPV-positive outcomes using the federal methodology.

Recent Developments

• 1992 — Major revision establishing the 7% and 3% discount rate framework that governed federal investment analysis for three decades
• September 2023 — OMB revised Circular A-4, lowering the primary regulatory analysis discount rate from 7% to 2% real
• 2024 — OMB updated A-94 to align with A-4's discount rate changes; primary rate changed from 7% to 2% real; 7% retained as alternative scenario; intergenerational rate guidance added
• Ongoing — Infrastructure Investment and Jobs Act (IIJA, 2021) and Inflation Reduction Act (IRA, 2022) created large pools of federal investment funding; agencies administering these programs are applying A-94 methodology to project evaluation, with the lower discount rate making more long-horizon projects look NPV-positive