New Report Finds Cost-Benefit Analyses Improve Budget Choices & Taxpayer Results

A new report shows cost-benefit analyses have helped states make better investments of public dollars by identifying programs and policies that deliver high returns. However, the majority of states are not yet consistently using this approach when making critical decisions. This 50-state look at cost-benefit analysis, a method that compares the expense of public programs to the returns they deliver, was released today by the Pew-MacArthur Results First Initiative, a project of The Pew Charitable Trusts and the John D. and Catherine T. MacArthur Foundation.

The study, "States' Use of Cost-benefit Analysis: Improving Results for Taxpayers", comes at a time when states are under continuing pressure to direct limited dollars toward the most cost-effective programs and policies while curbing spending on those that do not deliver. The report is the first comprehensive study of how all 50 states and the District of Columbia analyze the costs and benefits of programs and policies, report findings, and incorporate the assessments into decision-making. It identifies key challenges states face in conducting and using the analyses and offers strategies to overcome those obstacles. The study includes a review of state statutes, a search for cost benefit analyses released between 2008 and 2011, and interviews with legislators, legislative and program evaluation staff, executive officials, report authors, and agency officials.

Overall, 10 states—Florida, Kansas, Minnesota, Missouri, New York, North Carolina, Utah, Virginia, Washington, and Wisconsin—were leading the way in using cost-benefit analysis to generate answers about programs' return on investment and to drive policy decisions, particularly in their largest budget areas. Twenty-nine states and the District of Columbia had mixed results, using cost-benefit analyses but less effectively or consistently. Eleven were trailing behind: Arizona, Idaho, Kentucky, Montana, Nevada, North Dakota, Rhode Island, South Carolina, South Dakota, West Virginia, and Wyoming.

“States that are committed to ensuring that taxpayer funds are spent effectively are turning to cost-benefit analysis,” said Gary VanLandingham, director of the Pew-MacArthur Results First Initiative. “Many policymakers are looking for information that would allow them to target cuts more strategically, rather than make across-the-board reductions that treat effective and ineffective programs alike. Policy and spending choices should be based on evidence about what works and what does not. The bottom line is while the use of cost-benefit analysis is growing, states should be making wider and better use of this approach.”

"Policymakers today are pressed from all sides to make policy decisions quickly and often with little evidence," said Valerie Chang, Director of Policy Research for the MacArthur Foundation. "This report shows that many states are taking the lead on partnering with organizations and developing tools that reveal which policies work in a cost-effective way. We hope it will galvanize states to embrace cost-benefit analysis in the spirit of better serving their communities and taxpayers."

Researchers evaluated states on their use of cost-benefit analysis using three criteria.

• Production: the number of cost-benefit studies released per year during the four-year study period. All 50 states and the District of Columbia conducted at least one study between 2008 and 2011.States conducted at least 348 cost-benefit analyses over the four-year period, with the majority concentrated in 12 states. Most of these reports focused on major budget priorities, including health and social services, criminal justice, economic development, transportation, and the environment and natural resources. 
• Scope: whether or not these studies assessed multiple program options to compare policy solutions. Twenty-nine states and the District of Columbia conducted at least some studies that evaluated multiple policy options for making smarter investments of public dollars. For example, the Prevention Research Center for the Promotion of Human Development in Pennsylvania examined the return on investment for seven research-based delinquency prevention programs. Using cost-benefit analysis, the study assessed each program's costs and benefits to the state, which ranged from $1 to $25 in benefits per $1 invested, with savings as high as $130 million for a single program.
• Use: whether and the extent to which study findings influenced budget and policy decisions. Thirty-six states reported that at least one of their cost-benefit analyses influenced policy decisions or debate. This included either having a direct impact on budget and policy actions—such as increasing funding for effective programs and cutting or eliminating low-return ones—or more generally initiating and informing public and political discourse about issues. Alaska, for instance, used cost-benefit analysis to determine that a $4 million annual investment in intervention and preventive programs would cut the prison population by 10 percent over a 30-year period and reduce the need for additional prison construction, averting $445 million in spending and saving $321 million. In response to the findings, the legislature expanded funding for substance abuse treatment and alternative juvenile justice programs and created a new deputy secretary position at the Department of Corrections to focus on inmates' reentry to society.

The Pew-MacArthur Results First Initiative is a new project that is working with states to implement an approach that uses the latest research to determine the return on investment for a broad range of programs. The Initiative provides technical assistance to states to help them adopt and apply the model to their own policies and programs. The project is currently working with 14 states: Connecticut, Florida, Idaho, Illinois, Iowa, Kansas, Massachusetts, Mississippi, New Mexico, New York, Oregon, Rhode Island, Texas, and Vermont. The model was first developed and used by the Washington State Institute for Public Policy.

Find the full report at: www.pewstates.org/States-Cost-Benefit-Analysis

The Pew-MacArthur Results First Initiative

The Pew-MacArthur Results First Initiative, a project of The Pew Charitable Trusts and the John D. and Catherine T. MacArthur Foundation, works with states to implement an innovative cost-benefit analysis approach that helps them invest in policies and programs that are proven to work.

The Pew Charitable Trusts

The Pew Charitable Trusts is driven by the power of knowledge to solve today's most challenging problems. Pew applies a rigorous, analytical approach to improve public policy, inform the public, and stimulate civic life.

MacArthur Foundation

The John D. and Catherine T. MacArthur Foundation supports creative people and effective institutions committed to building a more just, verdant, and peaceful world. In addition to selecting the MacArthur Fellows, the Foundation works to defend human rights, advance global conservation and security, make cities better places, and understand how technology is affecting children and society. www.macfound.org