On May 23rd, the Federal Office of Management and Budget (OMB) published OMB Circular No. A-94, Appendix C, which includes the Real Discount Rate for 2022.
OMB-based Discount Rates are essential for keeping pavement Life-Cycle Cost Analysis (LCCA) accurate, unbiased, and economically relevant.
The OMB-recommended 30-year Real Discount Rate for 2022 is 0.5%. This rate reflects the rigorous economic analysis from our country’s leading economic experts, setting a foundation for forecasting, budgeting, and financial management across the U.S.
Here in California, Caltrans utilizes Life-Cycle Cost Analysis (LCCA) to study the pavement alternatives on the state highway projects; an analytical technique that uses engineering and economic principles to evaluate long-term pavement investment options. However, in performing an LCCA for projects, Caltrans currently uses an outdated Real Discount Rate of 4.0% which was established back in 1998.
Currently, 16 State DOTs and the FAA are using OMB-based calculation data to keep their Discount Rates up to date.
Best practice guidelines for LCCA include using a Discount Rate which is regularly updated using the annual OMB publications. Otherwise, economic inefficiencies and biases develop, which increase the risk of wasteful spending.