There is a Benefit-Cost Analysis (BCA) requirement to access funding through FEMA’s Hazard Mitigation Assistance (HMA) grant programs. The BCA is the method used to calculate the future risk reduction benefits of a hazard mitigation project and compares those benefits to its costs.
A project is cost-effective when the Benefit-Cost Ratio (BCR) is 1.0 or greater at a 7% discount rate. A discount rate is the interest rate used in calculating the present value of expected yearly benefits and costs.
FEMA made great strides to simplify the BCA requirement by developing a toolkit and establishing pre-calculated benefits. However, communities still face challenges with demonstrating the cost effectiveness of their projects.
To reduce barriers and ensure federal funding can reach more communities, FEMA is adjusting how it calculates Benefit-Cost Analysis for two annual grant programs. The changes outlined below affect the Building Resilient Infrastructure and Communities (BRIC) and Flood Mitigation Assistance (FMA) grant programs for the FY22 application cycle.
FEMA will now consider a mitigation project cost-effective if, when using the 7% discount rate, the BCR is at least 0.75 or greater. When using the 3% discount rate, FEMA will consider projects cost-effective if the BCR is at least 1.0 or greater. Projects must also benefit disadvantaged communities and address climate change.
These changes encourage the use of climate-informed science to make our communities safer and reduce disaster suffering. Moreover, the modification is part of our commitment to a “people first” approach to make our entire nation resilient in the face of climate change.
The alternative cost-effectiveness methodology is in place only for the FY 2022 application period for the BRIC and FMA grant programs that opened on September 30, 2022. For questions about cost effectiveness and FEMA’s BCA software, contact the BCA Helpline 855-540-6744 or BCHelpline@fema.dhs.gov.