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Slide 1
Cost-Benefit Analysis and Justice Policy: An Introduction for Budget and Finance Staff
July 10, 2012
Jonathan Ball, Director, Utah Office of the Legislative Fiscal Analyst Mike Clark, Chief Economist, Kentucky Legislative Research Commission Christian Henrichson, Senior Policy Analyst, Vera Institute of Justice
Slide 2 • July 10, 2012
This webinar will discuss:
• Differences between cost-benefit and fiscal impact analyses;
• Questions fiscal personnel should ask when reviewing cost-benefit studies; and
• Steps that fiscal offices need to take if they add cost-benefit analysis to their workload.
Slide 3 • July 10, 2012
Cost-Benefit Analysis and Justice Policy: An Introduction for Budget and Finance Staff
Jonathan Ball Director
Utah Office of the Legislative Fiscal Analyst
Mike Clark Chief Economist
Kentucky Legislative Research Commission
Slide 4
The Cost-Benefit Knowledge Bank for Criminal Justice (CBKB) is a project of the Vera Institute of Justice funded by the U.S. Department of Justice’s Bureau of Justice Assistance.
• Website (cbkb.org) • Cost-benefit analysis toolkit • Snapshots of CBA literature • Podcasts, videocasts, and webinars • Roundtable discussions • Community of practice • Technical assistance
Slide 5 • July 10, 2012
Agenda
• CBA and criminal justice
• Cost-benefit methods: Mike Clark
How CBA differs from fiscal impact analysis
Moving from fiscal impact to CBA
Questions to ask when using CBA to inform budget preparation
• Cost-benefit analysis in practice: Jonathan Ball
How CBA can influence budget decisions
What to consider when integrating CBA with fiscal analysis
• Questions and answers
Slide 6 • July 10, 2012
Housekeeping items
• Use the chat feature to send your questions at any time during the webinar.
• If you need webinar support or for troubleshooting: Type questions into the chat box. Call 800-843-9166. Send e-mail to [email protected].
• This webinar is being recorded.
• The recording and PowerPoint slides will be posted
on cbkb.org.
Slide 7 • July 10, 2012
Cost-benefit analysis and criminal justice
Slide 8 • July 10, 2012
What is cost-benefit analysis?
A type of economic analysis that compares the costs and benefits of policies and programs and that:
• includes the perspectives of multiple stakeholders;
• presents a long-term picture;
• uses dollars as a common measurement; and
• allows you to compare programs and policies that have different outcomes.
Slide 9 • July 10, 2012
CBA in criminal justice
• The Washington State Institute for Public Policy (WSIPP) has pioneered the use of cost-benefit analysis to provide policymakers with information on criminal justice programs.
• CBA is commonly used to communicate the results of outcome evaluations.
Research tells us “what works”; CBA tells is if what works is “worth the cost.”
• There is increasing public awareness that the most expensive options do not always yield the best outcomes.
• Cost-benefit analyses of criminal justice policies have investigated areas such as incarceration, supervision, drug courts, and crime prevention.
Slide 10 • July 10, 2012
Cost-benefit analysis methods
Slide 11 • July 10, 2012
How CBA differs from fiscal impact analysis
Slide 12 • July 10, 2012
Purposes of fiscal impact analysis
Fiscal impact analysis
• Attempts to show how a policy affects the budget;
• Estimates changes in expenditures or revenues; and
• Focuses on the financial position of a governmental unit.
Slide 13 • July 10, 2012
Purposes of cost-benefit analysis
Cost-benefit analysis
• Attempts to show how the benefits generated by a policy compare to the costs generated by the policy;
• Identifies the various outcomes of a policy;
• Identifies those who are affected;
• Places a value on the outcomes; and
• Compares all benefits to all costs.
Slide 14 • July 10, 2012
Different perspectives
Fiscal impact analysis evaluates policy from the perspective of the level of government considering the policy.
Cost-benefit analysis evaluates policy from the perspective of society:
• Level of government considering the policy
• Other levels of government
• Victims
• Offenders
• Others
Slide 15 • July 10, 2012
Example: Drug treatment program
Potential Costs and Benefits
Fiscal Impact Analysis
CBA
Salaries Overhead expenses Screening and assessment Lost wages of participants while in treatment Reductions in future drug-related crimes:
• Jail costs ?
• Court costs ?
• Victim costs
Benefits to program participants
Slide 16 • July 10, 2012
Different time perspectives
-$3,000
-$2,000
-$1,000
$0
$1,000
$2,000
2013 2014 2015 2016 2017 2018 2019 2020
Training Costs Higher Earnings
Fiscal impact analysis may focus only on the
budget cycle.
CBA includes all future benefits and costs attributable to the policy.
Slide 17 • July 10, 2012
Different accounting
Fiscal impact analysis
• Costs are calculated based on nominal values.
Cost-benefit analysis
• Benefits received today are typically more highly valued than similar benefits received 10 years from now.
• To address this, CBA discounts future benefits and costs to determine their present values.
Slide 18 • July 10, 2012
Different accounting
Cost and benefits of a project ($ millions)
Year Benefits Costs Net Calculation* Net Present
Value
0 - (1.50) (1.50) / (1.06)0 = (1.50)
1 0.75 - 0.75 / (1.06)1 = 0.71
2 0.75 - 0.75 / (1.06)2 = 0.67
3 0.75 - 0.75 / (1.06)3 = 0.63
Total 0.75 0.50
*Discounted at a rate of 6%
Slide 19 • July 10, 2012
Marginal costs and benefits
Marginal costs and benefits reflect only the additional costs or benefits resulting from the policy.
Both fiscal impact analysis and CBA should measure marginal costs and benefits.
Fiscal impact analysis: change to expenditures or revenues
CBA: change to benefits and costs
Slide 20 • July 10, 2012
Moving from fiscal impact analysis to cost-benefit analysis
Slide 21 • July 10, 2012
Measuring the policy outcomes
• Review the research studies, pilot projects, or other evaluations of similar policies.
Criminal justice research often compares recidivism of individuals who received treatment and those who did not.
Example: Two years after treatment:
20% of program participants committed a drug felony.
25% of nonparticipants committed a drug felony.
Slide 22 • July 10, 2012
Measuring the policy outcomes
Research findings must be translated into outcomes in your justice system.
This requires an understanding of your justice system and those it serves, such as:
• How many people the program/policy would serve;
• What types of crimes would those served likely have committed in the absence of the program/policy and when; and
• How individuals committing these crimes would have moved through the justice system.
Slide 23 • July 10, 2012
Valuing outcomes How much would residents be willing to pay to avoid or accept the outcomes?
• Talk with experts.
• Conduct primary research.
Has potentially greater validity
Requires time and expertise
• Review secondary research.
The process is faster and easier.
Past results might not fit your situation.
Slide 24 • July 10, 2012
Valuing outcomes
Crime Miller et al. McCollister et al. Household burglary $2,145 $6,462 Robbery $18,591 $42,310 Assaults $21,451 $107,020 Rape/sexual assaults $124,419 $240,776 Murder $4,380,559 $8,982,907
Sources : McCollister, Kathryn, Michael T French, and Hai Fang. “The Cost of Crime to Society: New Crime-specific Estimates for Policy and Program Evaluation.” Drug and Alcohol Dependence, 108:1 (2010) 98-109. Miller, Ted R., Mark Cohen, and Brian Wiersema. Victim Costs and Consequences: A New Look. NCJ 155282, National Institute of Justice Washington D.C., 1996 Note: Cost estimates are stated in 2008 U.S. dollars.
Examples of past research on victim costs
Slide 25 • July 10, 2012
Questions to ask when using CBA to inform budget preparation
Slide 26 • July 10, 2012
Scope
Which perspectives does the CBA examine?
Taxpayers: federal, state, local, other
Victims
Other
Slide 27 • July 10, 2012
Scope
• Does the CBA clearly detail the impacts attributable to the policy?
CBA should show who pays the costs and who receives the benefits of the program.
CBA should show when benefits are accrued and costs are incurred.
Slide 28 • July 10, 2012
The research literature
Were the programs studied similar to the program currently being considered?
• A program might have different effects on different populations (such as adults vs. juveniles).
• Implementation may differ.
Funding
Staffing
Type of treatment
Slide 29 • July 10, 2012
The research literature
What does the research measure?
Studies often measure effects on crime in general rather than on specific types of crime.
This is a problem because different crimes have different avoided costs.
If a study found a 5% decrease in overall recidivism, we don’t know whether the program reduces the incidence of low-cost crimes or high-cost crimes.
Slide 30 • July 10, 2012
How robust are the results?
Will there be behavioral responses to the policy that could affect the outcomes?
A crackdown on drug crimes in one area might simply shift the location of the crimes.
Slide 31 • July 10, 2012
How robust are the results?
Do changes in the assumptions have a substantial effect on the results?
CBA ($ millions)
Year Benefits Costs Discounted
at 5% Discounted
at 4%
1 - (4.00) (4.00) (4.00)
2 - (4.00) (3.81) (3.85)
3 3.00 - 2.72 2.77
4 3.00 - 2.59 2.67
5 3.00 - 2.47 2.56 Net Present
Value (0.03) 0.16
Slide 32 • July 10, 2012
Application
To what alternative policy should the CBA be compared?
A program might be compared to:
Status quo
Other programs with similar objectives
Programs that provide different services
• Workforce training
• Health care
Slide 33 • July 10, 2012
Cost-benefit analysis in practice
Slide 34 • July 10, 2012
How CBA can influence budget decisions
Slide 35 • July 10, 2012
Fiscal notes are not CBAs
Fiscal notes are a tool used to help balance the budget. They are NOT:
An expression of benefits
A measure of impact on society
Intended to influence passage of a bill
Slide 36 • July 10, 2012
Two examples of CBA in budgeting
“Cost of Crime: A Cost/Benefit Tool for Analyzing Utah Criminal Justice Program Effectiveness” (University of Utah, 2005) http://ucjc.law.utah.edu/wp-content/uploads/58.pdf Indirectly influenced budget priorities Policy decision consistent with cost-benefit results
“Evaluation of the Drug Offender Reform Act: DORA Pilot” (University of Utah, 2008-2010)
http://ucjc.law.utah.edu/archives/390 Directly influenced decision Policy decision inconsistent with cost-benefit results
Slide 37 • July 10, 2012
“Cost of Crime,” 2005
Slide 38 • July 10, 2012
DORA pilot, 2008-2010
Source: “Evaluation of Drug Offender Reform Act:: DORA Pilot,” Utah Criminal Justice Center, November 2010, p. 7.
Slide 39 • July 10, 2012
What to consider when integrating CBA with fiscal analysis
Slide 40 • July 10, 2012
Challenges to CBA in budget process
• Data availability
• Volume/capacity
• Time
• Risk
Slide 41 • July 10, 2012
Performance notes: A first step toward CBA in Utah
Fiscal Notes Performance Notes
Bills to analyze All (1,000+)
New or expanded programs (~50)
Analysis must be completed to vote on a bill? Yes No
Time frame to conduct analysis 3 days 9 days
Agency that conducts analysis Office of the
Legislative Fiscal Analyst
Recipient state agency
Measurements of outcomes included? No Yes
State auditor follows up to ensure policy meets objectives? No Yes
Slide 42 • July 10, 2012
A place to start: performance
Slide 43 • July 10, 2012
Questions and answers
Slide 44 • July 10, 2012
Questions
Jonathan Ball Director
Utah Office of the Legislative Fiscal Analyst
Mike Clark Chief Economist
Kentucky Legislative Research Commission
Slide 45 • July 10, 2012
Follow-up
Before you log out of the webinar, please complete the evaluation form.
To receive information and notifications about upcoming webinars and other events:
• Visit the Cost-Benefit Knowledge Bank for Criminal Justice at cbkb.org.
• Subscribe to receive updates from CBKB.
• Follow us on Twitter at twitter.com/CBKBank.
Slide 46 • July 10, 2012
Contact information
Jonathan Ball Director
Utah Office of the Legislative Fiscal Analyst
Mike Clark Chief Economist
Kentucky Legislative Research Commission
Slide 47
The Cost-Benefit Knowledge Bank for Criminal Justice (CBKB) is a project of the Vera Institute of Justice funded by the U.S. Department of Justice’s Bureau of Justice Assistance.
• Website (cbkb.org) • Cost-benefit analysis toolkit • Snapshots of CBA literature • Podcasts, videocasts, and webinars • Roundtable discussions • Community of practice • Technical assistance
Slide 48 • July 10, 2012
Thank you!
Slide 49
This project is supported by Grant No. 2009-MU-BX K029 awarded by the Bureau of Justice Assistance. The Bureau of Justice Assistance is a component of the Office of Justice Programs, which also includes the Bureau of Justice Statistics, the National Institute of Justice, the Office of Juvenile Justice and Delinquency Prevention, and the Office of Sex Offender Sentencing, Monitoring, Apprehending, Registering, and Tracking. Points of view or opinions in this document are those of the author and do not represent the official position or policies of the United States Department of Justice.
