Editor’s Note: This is a three-part series about the OMB’s discount rate and why it’s important to transportation construction officials in both the industry and public sector. Look for parts two and three in our next two issues of ACPA TODAY.
The Office of Management & Budget (OMB) has updated the discount rate for calendar year 2021, revealing that for the first time in history, the 30-year real discount rate is negative (-0.3 %). In 2020, the rate was 0.4 % and over the past 10 years the rate averaged 1.38 %.
The term real discount rate, also known as the real interest rate, is commonly used in engineering economics to refer to the rate of change over time in the true value of money, considering fluctuations in both investment interest rates and the rate of inflation.
A negative real discount rate reflects that under the current economic conditions, the rate of monetary inflation is higher than the rate of earned interest. In other words, the money is losing its value (buying power) faster than you can increase its value by investing it. This has interesting implications for comparisons of concrete and asphalt pavements.