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Cost-Benefit Analysis and Justice Policy: An Introduction for Budget and Finance Staff

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  • 1. Cost-Benefit Analysis and Justice Policy:An Introduction for Budget and Finance StaffJuly 10, 2012Jonathan Ball, Director, Utah Office of the Legislative Fiscal AnalystMike Clark, Chief Economist, Kentucky Legislative Research CommissionChristian Henrichson, Senior Policy Analyst, Vera Institute of Justice Slide 1
  • 2. 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 2 • July 10, 2012
  • 3. Cost-Benefit Analysis and Justice Policy:An Introduction for Budget and Finance Staff Jonathan Ball Mike Clark Director Chief Economist Utah Office of the Legislative Kentucky Legislative Fiscal Analyst Research Commission Slide 3 • July 10, 2012
  • 4. The Cost-Benefit Knowledge Bank for Criminal Justice (CBKB)is a project of the Vera Institute of Justice funded by theU.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 4
  • 5. 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 5 • July 10, 2012
  • 6. 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 help@readytalk.com.• This webinar is being recorded.• The recording and PowerPoint slides will be posted on cbkb.org. Slide 6 • July 10, 2012
  • 7. Cost-benefit analysisand criminal justice Slide 7 • July 10, 2012
  • 8. What is cost-benefit analysis?A type of economic analysis thatcompares the costs and benefits ofpolicies 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 8 • July 10, 2012
  • 9. 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 9 • July 10, 2012
  • 10. Cost-benefit analysismethods Slide 10 • July 10, 2012
  • 11. How CBA differs fromfiscal impact analysis Slide 11 • July 10, 2012
  • 12. Purposes of fiscal impact analysisFiscal 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 12 • July 10, 2012
  • 13. Purposes of cost-benefit analysisCost-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 13 • July 10, 2012
  • 14. 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 14 • July 10, 2012
  • 15. Example: Drug treatment program Fiscal ImpactPotential Costs and Benefits Analysis CBASalaries  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 15 • July 10, 2012
  • 16. Different time perspectives Training Costs Higher Earnings$2,000$1,000 $0 2013 2014 2015 2016 2017 2018 2019 2020-$1,000-$2,000-$3,000 Fiscal impact analysis may focus only on the budget cycle. CBA includes all future benefits and costs attributable to the policy. Slide 16 • July 10, 2012
  • 17. Different accountingFiscal impact analysis• Costs are calculated based on nominal values.Cost-benefit analysis• Benefits received today are typically more highly valued than similar benefits received 10 years from now.• To address this, CBA discounts future benefits and costs to determine their present values. Slide 17 • July 10, 2012
  • 18. Different accountingCost and benefits of a project ($ millions) Net PresentYear Benefits Costs Net Calculation* 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 = 0.63Total 0.75 0.50*Discounted at a rate of 6% Slide 18 • July 10, 2012
  • 19. 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 19 • July 10, 2012
  • 20. Moving fromfiscal impact analysisto cost-benefit analysis Slide 20 • July 10, 2012
  • 21. 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 21 • July 10, 2012
  • 22. Measuring the policy outcomesResearch findings must be translated into outcomes inyour justice system.This requires an understanding of your justice systemand 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 22 • July 10, 2012
  • 23. Valuing outcomesHow much would residents be willing to pay to avoid oraccept 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 23 • July 10, 2012
  • 24. Valuing outcomes Examples of past research on victim costsCrime Miller et al. McCollister et al.Household burglary $2,145 $6,462Robbery $18,591 $42,310Assaults $21,451 $107,020Rape/sexual assaults $124,419 $240,776Murder $4,380,559 $8,982,907Sources :McCollister, Kathryn, Michael T French, and Hai Fang. “The Cost of Crime to Society: New Crime-specific Estimates for Policy and Program Evaluation.” Drug and Alcohol Dependence, 108:1 (2010)98-109.Miller, Ted R., Mark Cohen, and Brian Wiersema. Victim Costs and Consequences: A New Look. NCJ155282, National Institute of Justice Washington D.C., 1996Note: Cost estimates are stated in 2008 U.S. dollars. Slide 24 • July 10, 2012
  • 25. Questions to ask whenusing CBA to informbudget preparation Slide 25 • July 10, 2012
  • 26. ScopeWhich perspectives does the CBA examine?  Taxpayers: federal, state, local, other  Victims  Other Slide 26 • July 10, 2012
  • 27. Scope• Does the CBA clearly detail the impacts attributable to the policy?  CBA should show who pays the costs and who receives the benefits of the program.  CBA should show when benefits are accrued and costs are incurred. Slide 27 • July 10, 2012
  • 28. The research literatureWere the programs studied similar to the programcurrently being considered?• A program might have different effects on different populations (such as adults vs. juveniles).• Implementation may differ.  Funding  Staffing  Type of treatment Slide 28 • July 10, 2012
  • 29. The research literatureWhat does the research measure?Studies often measure effects on crime in generalrather than on specific types of crime.  This is a problem because different crimes have different avoided costs.  If a study found a 5% decrease in overall recidivism, we don’t know whether the program reduces the incidence of low-cost crimes or high-cost crimes. Slide 29 • July 10, 2012
  • 30. How robust are the results?Will there be behavioral responses to the policy thatcould affect the outcomes?A crackdown on drug crimes in one area might simplyshift the location of the crimes. Slide 30 • July 10, 2012
  • 31. How robust are the results?Do changes in the assumptions have a substantialeffect on the results?CBA ($ millions) Discounted Discounted Year Benefits Costs at 5% 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 31 • July 10, 2012
  • 32. ApplicationTo 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 32 • July 10, 2012
  • 33. Cost-benefit analysisin practice Slide 33 • July 10, 2012
  • 34. How CBA can influencebudget decisions Slide 34 • July 10, 2012
  • 35. Fiscal notes are not CBAsFiscal 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 35 • July 10, 2012
  • 36. 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 36 • July 10, 2012
  • 37. “Cost of Crime,” 2005 Slide 37 • July 10, 2012
  • 38. DORA pilot, 2008-2010Source: “Evaluation of Drug Offender Reform Act:: DORA Pilot,” Utah Criminal Justice Center, November 2010, p. 7. Slide 38 • July 10, 2012
  • 39. What to considerwhen integrating CBAwith fiscal analysis Slide 39 • July 10, 2012
  • 40. Challenges to CBA in budget process• Data availability• Volume/capacity• Time• Risk Slide 40 • July 10, 2012
  • 41. Performance notes: A first step toward CBA in Utah Fiscal Notes Performance Notes All New or expandedBills to analyze (1,000+) programs (~50)Analysis must be completed Yes Noto vote on a bill?Time frame to conduct analysis 3 days 9 days Office of theAgency that conducts analysis Legislative Fiscal Recipient state agency AnalystMeasurements of outcomes No Yesincluded?State auditor follows up to No Yesensure policy meets objectives? Slide 41 • July 10, 2012
  • 42. A place to start: performance Slide 42 • July 10, 2012
  • 43. Questions and answers Slide 43 • July 10, 2012
  • 44. Questions Jonathan Ball Mike Clark Director Chief Economist Utah Office of the Kentucky Legislative Legislative Fiscal Analyst Research Commission Slide 44 • July 10, 2012
  • 45. Follow-upBefore you log out of the webinar, please completethe evaluation form.To receive information and notifications about upcomingwebinars 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 45 • July 10, 2012
  • 46. Contact information Jonathan Ball Mike Clark Director Chief Economist Utah Office of the Kentucky Legislative Legislative Fiscal Analyst Research Commission jball@le.utah.gov Mike.Clark@lrc.ky.gov Slide 46 • July 10, 2012
  • 47. The Cost-Benefit Knowledge Bank for Criminal Justice (CBKB)is a project of the Vera Institute of Justice funded by theU.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 47
  • 48. Thank you! Slide 48 • July 10, 2012
  • 49. This project is supported by Grant No. 2009-MU-BX K029awarded by the Bureau of Justice Assistance. The Bureau ofJustice Assistance is a component of the Office of JusticePrograms, which also includes the Bureau of Justice Statistics,the National Institute of Justice, the Office of Juvenile Justiceand Delinquency Prevention, and the Office of Sex OffenderSentencing, Monitoring, Apprehending, Registering, andTracking. Points of view or opinions in this document are thoseof the author and do not represent the official position orpolicies of the United States Department of Justice. Slide 49