GAO Report Highlights Economic Performance Measure

The quality of the economic performance assessment of federal programs has improved, but gaps still remain in the application of the measures used, according to the latest report by the U.S. Government Accountability Office (GAO).

Released this week, the GAO report highlights the findings and recommendations of a panel it convened in December 2004 to discuss economic performance measures. The panel of government and academe participants sought to discuss the use of economic analysis, such as benefit cost or cost effectiveness, for helping to assess federal programs' performance. Participants were selected based on various qualifications related to the subject matter. Their findings, as expressed in the report, include:

• The quality of the economic performance assessment of federal programs has improved but is still highly variable and not sufficient to adequately inform decision-makers.
• The gaps in applying economic performance measures are that they are not widely used, mechanisms for revisiting a regulation or program are lacking, retrospective analyses are often not done, and homeland security regulations present additional challenges and typically do not include economic analysis.
• Barriers include agencies’ lack of resources and only limited demand from decision-makers for benefit-cost analysis. In addition, some participants stated that other organizational barriers - stovepipes or silos - hinder communication.
• Some analytical issues affecting the application of economic performance measures are limited guidance on assessing unquantifiable benefits, equity, and distributional effects of federal actions; lack of agreement on some values for key assumptions; and lack of guidance on tools that do not monetize outcomes, such as multiobjective analysis.

The GAO report notes that the Office of Management and Budget assesses the economic performance of some federal actions, prospectively, through a review of proposed capital investments and regulations. However, these assessments "are often incomplete and inconsistent with general economic principles" and often are not useful for government-wide comparisons, being based on different assumptions for a core of economic variables.

To expand the use of measures, panelists suggested evaluating existing programs retrospectively and applying the measures to homeland security issues. Panelists also outlined a number of recommendations toward improving the general economic principles and guidance that economic performance analysis is based upon: developing a minimum set of principles and abbreviated guidelines for economic performance analysis; developing one-page summaries and scorecards of analysis results; standardizing some key values for assumptions; and, creating an independent and flexible organization to provide guidance and develop standards.

Highlights of a Workshop on Economic Performance Measures is available as a PDF at: http://www.gao.gov/cgi-bin/getrpt?GAO-05-796SP

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