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An Introduction to Cost-Benefit Analysis (CBA) & Justice Policy for State Legislators

December 15, 2010

Senator Karen Fraser, Washington State Senate

Tina Chiu, Vera Institute of Justice

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December 15, 2010

Senator Karen Fraser, Washington State Senate

An Introduction to Cost-Benefit Analysis (CBA) & Justice Policy for State Legislators

Tina Chiu, Vera Institute of Justice

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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, launching in January 2011) •CBA Toolkit •Snapshots of CBA Literature •Podcasts, Videocasts, and Webinars •Roundtable Discussions •Community of Practice

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Today’s Agenda

Introduction and Housekeeping – 5 minutes

Basics of Cost-Benefit Analysis – 5 minutes

Presentation by Senator Fraser – 20 minutes

Questions and Answers – 25 minutes

Wrap Up – 5 minutes

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Key takeaways

• What is cost-benefit analysis?

• How is CBA helpful to legislators?

• How has CBA been used to assess justice policies?

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Housekeeping items

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This webinar is being recorded

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Cost-Benefit Analysis Basics

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CBA is (Take 1)

A comparative method for measuring changes in net social welfare resulting from government intervention into a private marketplace.

A comparison of the economic value of using a productive resource with the opportunity cost of using the resource. Projects or regulations are evaluated based on how they change net economic value.

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CBA is (Take 2)

An approach to policymaking

A systematic tool for evaluating public policy

A way to weigh options

A method for finding out what will achieve the greatest results at the lowest cost

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A spectrum of economic evaluations

Cost Analysis • How much does this program cost?

Cost-Effectiveness Analysis • How many outputs do I get for my dollar?

Cost-Benefit Analysis • How can I compare programs with different goals

and objectives?

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Advantages of CBA

Provides a framework for a comprehensive assessment of benefits and costs

Looks at the long-term and the short-term

Examines both tangible (financial) costs and benefits as well as intangible costs and benefits

Incorporates evidence of the effectiveness of outcomes

Asks what will yield the greatest net benefit to society

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CBA in 5 Steps

1. Determine the impact of the initiative

2. Determine whose perspectives matter

3. Measure costs

4. Measure benefits in dollars

5. Compare costs and benefits

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State Senator, State of Washington District includes Olympia, our state capital

Karen Fraser

Hello!

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I’m Co-Chair of the

My background: 18 years in the Senate 4 years in the House Former: County Commissioner, Mayor, City Council Member Senate responsibilities: Senate Majority Caucus Chair Senate Ways and Means Committee (Former Vice Chair; Former Capital

Budget Chair) Member and former Chair of Senate committees pertaining to environment,

energy, water Member of Committee on Natural Resources and Marine Waters Senate

Rules Committee Member

Washington State Institute for Public Policy

About me:

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A highly skilled, nonpartisan, independent, widely appreciated public policy research organization. Governed by a board of 2 legislators from each of the four partisan caucuses (generally budget committee members), nonpartisan legislative staff, high level executive branch appointees, and representatives from higher education institutions.

Washington State Institute for Public Policy

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Created in 1983 because legislators wanted: • Sustained capacity to do quality cost-benefit analysis for

some of the toughest problems • To use this analysis in formulating major public policy • To understand the long-term and not-so-obvious impacts of

policy options • To minimize government by anecdotes The Institute has continuously been funded by the Legislature, which also assigns its research projects through legislation.

Why did we create the Institute?

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The Institute’s goal

Do more with less

Identify evidence-based policy options that improve outcomes and save money

And we’ve done it!

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The Institute’s methods

How do we do it? IDENTIFY which programs or state policies work well, by:

a) Direct program evaluation and/or

b) Meta analysis (Analyzing others’ rigorously and objectively conducted research to determine the “average” effect on outcomes.)

Then …

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The Institute’s methods (continued)

CONSTRUCT a cost-benefit model specific to Washington that takes effects into account, and calculates the state’s “Return on Investment”.

Models use a variety of inputs specific to Washington such as: costs of charging and prosecuting a crime, therapy, incarceration, etc.

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Notes to other states

• WSIPP’s models can be adapted to other states, inputting their own data.

• The MacArthur Foundation and the Pew Center on the States provided funds to support these efforts, with an eye toward future usage by other interested states.

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Washington State’s six major successes in the

criminal justice field

Using options identified through the Institute’s evidence-based process

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Enacted and funded several evidence-based juvenile justice crime prevention, and juvenile programs in the late 1990s and early 2000s. Effectiveness results:

Programs targeted toward youth with the highest potential to recidivate. Reduced juvenile crime.

Cost savings results:

Closure of some state juvenile rehabilitation institutions due to reduced need. Reduced state capital and operating costs.

Success #1

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Increasing investments in delivering programs to offenders that meet offenders’ deficits, including: a)drug courts b)programs during and after incarceration such as, education, vocational training, chemical dependency therapy and others.

Effectiveness results: Reduced crime and recidivism Reduced incarceration

Cost savings results: Reduced criminal justice costs by an amount greater than increased program costs. Delayed for 10 years the construction of a new 2000 bed, $250 million prison. This saved annual $18 million debt service and $45 million operating costs for each of the next 25 years. This totals: $63 million savings per year, for a total of $630 million in 10 years.

Success #2

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Closed the last, very old, “island” prison in the US, (a gift from the federal government long ago) and relocated hundreds of inmates to more cost-effective, newer prisons.

Cost savings results: Significant cost reductions in operations, maintenance, ferry transportation, subsidized staff living costs, and more.

Success #3

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Reduced prison sentences for low risk drug offenders, with transfer of fiscal savings to drug courts and to other state government funding obligations. Effectiveness results:

Less crime

Cost savings results: Reduced criminal justice system costs.

Success #4

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Sentencing review of potential savings from reduced incarceration This current effort is evaluating early release options for targeted moderate and low risk offenders, and using cost savings from reduced incarceration for:

a) increased treatment programs for high risk offenders to reduce their risk of recidivism; and

b) other state budget needs.

Success #5

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“Early Childhood Education” is now included as part of the State’s K-12 “Basic Education Program” funded by the State. Effectiveness results:

Improves future educational success for kids. Reduces crime.

Cost savings results:

Reduces criminal justice system costs. Increases effectiveness of education expenditures. Net cost-benefit ratio is positive: benefits exceed costs.

Success #6

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K-12 Education Early Childhood Education

Child Abuse and Neglect Substance Abuse

Mental Health Developmental Disabilities

Teen Births Employment

Public Assistance Public Health

Housing

Publications available at: www.wsipp.wa.gov

Other areas of Institute work

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How did we achieve such success in the criminal justice field?

We relied on the Institute’s 3-PART APPROACH TO RESEARCH

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1) Rigorous evaluations of REAL WORLD efforts. Careful study of other studies that have been conducted rigorously and fairly. Identify what really works and what doesn’t from quality comparative studies.

2) Rigorous analysis of the economics of alternatives. Computation of benefits, costs, and risk (return on investment) to Washington taxpayers for each policy option.

3) Identification of a “portfolio” of options that could affect statewide outcomes. This includes evaluating the risk of failure of each option.

The Institute’s 3-part approach

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Steve Aos, Director Washington State Institute for Public Policy

Phone: 360-586-2740 Email: saos@wsipp.wa.gov

Institute Publications: www.wsipp.wa.gov

Senator Karen Fraser, Board Co-Chair Washington State Institute for Public Policy

Phone: 360-786-7642 Email: Karen.Fraser@leg.wa.gov

For further information & consultation

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Thank you for your interest.

May I respond to questions?

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Wrapping Up

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Key takeaways

• What cost-benefit analysis is

• How CBA is helpful to legislators

• How CBA has been used to assess justice policies

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Follow up

• Please complete our evaluation form

• To receive information and notifications about our site launch, upcoming webinars, and other events

• Follow us on Twitter at http://www.twitter.com/CBKBank

• Future webinars will cover • A step-by-step guide to conducting CBAs for justice policies • Evaluations and CBAs

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Contact Information

Tina Chiu tchiu@vera.org (212) 376-3038

cbkb@cbkb.org

http://www.vera.org/cba

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This project was 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, the SMART Office, and the Office for Victims of Crime. 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.

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Thank you!