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We know what’s cost-effective. Now what?

Using cost-effectiveness to justify a future-oriented public investment is gaining currency.

In an era when budgets are tight and demand for accountability is growing, Minnesota public agencies and nonprofits are looking for ways to measure cost-effectiveness. Having evidence of a return on investment, it’s believed, will help move their issues closer to the front of the funding line with taxpayers and private donors.

Brookings Institution fellow Julia Isaacs, a former analyst for the Congressional Budget Office and Health and Human Services Department, was in Minnesota recently to speak about “Cost-Effective Investments in Children” at an event sponsored by the Minnesota Organization on Adolescent Pregnancy, Prevention and Parenting (MOAPP).

She says the cost-effectiveness theme does resonate on Capitol Hill. But viewing a specific policy through an economics lens also has limitations, especially when applied to education or children and families, where the contributing factors are complex, the results take time to materialize, and the payoffs are distributed across a range of beneficiaries.

Limitations to the theme
First, there’s the challenge of actually testing a program in a way that reliably measures its outcomes. This costs money upfront for a study designed to filter out other effects, conducted long enough to capture results adequately and replicated in different settings.

Second, determining economic impact requires a different set of analytic skills and, significantly, more money.

Third, positive influences on quality of life, health and other “normative” public goods may not be captured by measuring cost-avoidance or economic growth.

Fourth, there’s the political hurdle. Evidence of cost-effectiveness may not play well if it goes against conventional wisdom or threatens entrenched interests. The savings may be delayed beyond the tenure of the average elected official or the attention span of a taxpayer — and may not return directly to the funding organization.

And finally, if government doesn’t have the revenue to invest up front, the only way it can pursue “cost-effectiveness” is by cutting something else.

During discussion after Isaacs’ presentation, former Hennepin County Administrator Sandy Vargas, now president and CEO of the Minneapolis Foundation, described an instance in which county commissioners reluctantly had to shelve a home-nurse program they knew would save money over the long term, because they couldn’t find the new money to fund it.

Isaacs cautioned against the temptation to do “lite” or sound-alike versions of proven interventions — cutting some steps, using less skilled workers or otherwise diluting programs. The cost-benefit ratios may be lower with less investment.

Four suggested areas of investment
Isaacs’ research identified four areas of investment in children — covering from prenatal care to the teenage years — that merit expanded federal funding based on their cost/benefits. The return on investment came from lower health care costs, reduced crime and incarceration, improved educational attainment and increased lifetime earnings. While a dollar invested might return up to $8 depending on the program, the nongovernmental savings were typically higher, and in some cases, the government alone did not see a positive return.

The short-term, fragmented, special-interest approach that too often characterizes funding decisions produces less than public investment that is viewed long-term and holistically, with measurable outcomes defined at the start and accountability for achieving those results in the future.

As research continues to identify more ways government can cost-effectively make a positive difference in vital areas like child development and education, the public is more likely to support greater investment. Choices will still have to be made among competing needs and solutions, so policymakers must develop better ways to evaluate options and manage performance of the public’s investment.

But isn’t that better than fighting over what to cut next?

Charlie Quimby is a communication fellow at Growth & Justice, a nonpartisan economic think tank based in St. Paul.


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