In the United States, the federal government uses benefit-cost analyses (BCAs) to inform decisionmaking on federal investments by comparing the monetized benefits and costs of alternative projects or programs. BCAs for U.S. Army Corps of Engineers (Corps or Army Corps) water resource projects have had a long and central role in the executive branch's recommendations to Congress on construction authorization for Corps projects. Disagreement persists about the use of BCAs in decisionmaking, how benefits and costs are captured and monetized, and how to value future benefits and costs. The debate on how to value future benefits and costs is related to the discount rate used to value future benefits and costs in the present. A discount rate converts a future stream of benefits into a "present value." (See the box titled "What is a Discount Rate?" and Appendix A for more information.) The higher the discount rate, the less present value is attributed to future benefits and costs. In the Water Resources Development Act of 1974 (WRDA 1974; P.L. 93-251 ), Congress required that federal agencies use in their evaluations of water resource projects a discount rate calculated annually using a formula established in S.Doc. 97 from 1962. This discount rate is a largely a function of the average yield of long-term government securities. For FY2016, the water planning discount rate was 3.125%. This report discusses the role and significance of discount rates in the economic evaluation of Corps projects. It also discusses the history of, theoretical underpinning for, and issues and criticisms of the water planning discount rate. This report is structured to first provide a primer on the Corps and the economic analysis of proposed projects. Second, the report explains how the discount rate used impacts the economic evaluation of projects and project alternatives. Two Corps projects are used to illustrate how projects with different streams of future costs and benefits are valued using different discount rates. The report then describes how each Corps project has two benefit-cost ratios because of the distinct discount rates applied during project development and during budget development (when the executive branch uses a 7% discount rate). The third section of the report focuses on the water planning discount rate. It discusses the history of the water planning discount rate and technical issues with the rate. A brief conclusion section is provided. Three appendices provide additional information. Appendix A includes a brief discussion of various approaches that economists use to derive a discount rate. Appendix B provides additional information on the economic evaluation of water resource projects; it includes information on the categories of benefits and costs included in evaluations, an overview of the evolution of federal planning guidance, and data on the water planning discount rate from 1957 through 2016. Appendix C provides a calculation of what the water planning discount rate would have been if it had been adjusted to remove the influence of inflation. Economists often disagree on the appropriate discount rate to use, especially for projects with implications for future generations and those related to natural resource consumption. The discount rate applied can influence which alternative for addressing a water resources problem is deemed most economically efficient and whether a BCA indicates that a project's net benefits justify federal investment. Consequently, Corps BCAs and their underlying assumptions, such as the discount rate, are central to current decisions that will influence the portfolio of federal water resource assets and the accompanying benefits, costs, and risks from these assets for decades to come. The quality and reliability of the BCAs shape the quality of decisionmaking and the efficacy of the federal and nonfederal spending on federal water resource projects. Today, Congress is faced with more demand for Corps projects than the agency can deliver at recent funding levels. Whereas the Corps uses the water planning discount rate for project planning, in recent years, the executive branch has chosen to use a different discount rate when selecting Corps construction projects to include in its annual budget request. Since the mid-2000s, the executive branch's approach to budgeting, known as performance-based budgeting, has focused its funding requests on a limited set of projects. The executive branch uses as a principal performance metric for a project's inclusion in its budget request the project's benefit-cost ratio (BCR) calculated with a 7% discount rate (i.e., ratio of the present value of benefits to the present value of costs discounted at 7%). For most water resource projects, which have concentrated up-front costs and benefits accruing over decades, the 7% discount rate results in a lower BCR than the BCR that was calculated in the planning process using lower water planning discount rates. Projects with BCRs less than 2.5 (calculated at a 7% discount rate) are largely excluded. An issue for Congress and nonfederal project sponsors is the uncertain prospects for construction for the suite of congressionally authorized projects that do not meet the executive branch's BCR threshold. The use of a 7% discount rate for executive branch budgeting for the Corps is consistent with general guidance from the Office of Management and Budget (OMB) for discounting federal programs; this guidance is elaborated in Circular A-94. Since 1992, OMB has recommended a 7% discount rate (referred to herein as the OMB federal program discount rate) for BCAs of most federal programs. Prior to 1992, OMB had recommended a 10% discount rate. The OMB federal program discount rate is intended to reflect the pretax rate of return on capital in the private sector. There has been no adjustment in the rate since 1992. Figure 1 shows the two discount rates, the OMB federal program discount rate and the water planning discount rate (as calculated annually by formula) over more than four decades. Since the late 1990s, the water planning discount rate has been below the OMB federal program discount rate. Although there are no current proposals to alter the water planning discount rate, there are long-standing criticisms of the rate. Critics of the water planning discount rate have argued that a discount rate based on private capital returns (such as the OMB federal program discount rate) would be more appropriate than a Treasury-based rate. Economists have also criticized the Corps for its application of a nominal discount rate (i.e., the water planning discount rate includes inflation) to real values for benefits and costs, which do not include the influence of inflation. They suggest that the Corps should either measure benefits and costs in nominal terms and continue to discount using the nominal rate or continue measuring benefits and costs in real values but alter the water planning discount rate to make it a real rate (see Appendix C ). Supporters of a lower discount rate for Corps projects argue that lower discount rates are appropriate for planning public projects with longer lifetimes. Other stakeholders are concerned about the water planning discount rate's role in the Corps project development process and how a number of aspects of Corps BCA may favor certain project alternatives over others. For many Corps stakeholders, the current interest in the water planning discount rate is less a function of these long-standing debates and more part of the concern about the uncertain construction funding prospects for congressionally authorized projects that are below the BCR (at 7% discount rate) threshold used by the executive branch. Although these projects have brought attention to the water planning discount rate, actions to effectively address the funding challenges facing the universe of congressionally authorized Corps projects may reach well beyond adjustments to either the water planning discount rate or the budgeting discount rate. The U.S. Army Corps of Engineers is an agency within the Department of Defense that has both civil and military programs. Under its civil works mission, the Corps evaluates, plans, and implements water projects in three major areas: navigation, flood risk reduction, and aquatic environmental restoration. For more on Corps programs, see CRS Report R41243, Army Corps of Engineers: Water Resource Authorizations, Appropriations, and Activities , by [author name scrubbed] and [author name scrubbed]. The standard process for developing a Corps project consists of the following steps: Congressional study authorization is obtained for the Corps to study the water resource problem. The Corps performs a feasibility study if funds are appropriated. Congressional construction authorization is recommended by the executive branch if the feasibility study is favorable. Congress authorizes construction of the project in legislation. The Corps constructs the project if funds are appropriated. The process is not automatic. Appropriations are required to perform studies and to undertake construction; that is, congressional study and construction authorizations are necessary but alone are insufficient for the Corps to study and construct a project. For most types of projects, the Corps also is required by law to have a nonfederal sponsor share the study and construction costs. Nonfederal sponsors generally are state, tribal, county, or local agencies or governments. The objective of a Corps feasibility study is to formulate and recommend solutions to the identified water resources problem. During the first few months of a feasibility study, the Corps formulates alternative plans, investigates engineering feasibility, conducts BCAs, and assesses environmental impacts under the National Environmental Policy Act of 1969 (NEPA; 42 U.S.C. §4321). An important outcome of the feasibility analysis is a determination of whether the project warrants further federal investment. For projects that are largely designed to produce economic benefits, such as flood damage reduction projects and navigation projects, the identification of a federal interest and the selection of the alternative to recommend for construction are often determined by the results of the BCA. Once a preferred alternative has been selected, the recommendation for congressional authorization is often based on whether the benefits exceed the costs. Once the final feasibility report is available, the Chief of Engineers signs a recommendation on the project, known as the Chief's Report or Chief of Engineers report. The Corps submits the completed Chief of Engineers report and the accompanying feasibility report to the congressional authorizing committees (33 U.S.C. §2282a) and also transmits the Chief's Report to the Assistant Secretary of the Army (Civil Works) and to OMB to review the report and recommendation for consistency with the Administration's policies.