Army Corps of Engineers: Evaluations of Flood Risk Management Projects Could Benefit from Increased Transparency

The Corps, among other things, constructs flood risk management projects to reduce flood damage in threatened communities nationwide in collaboration with nonfederal sponsors. The Corps prepares feasibility studies to inform decision makers whether a proposed project warrants federal investment. In the studies, the Corps formulates and evaluates alternative plans for achieving the project's objectives and assesses whether the benefits of constructing it outweigh its costs.

GAO was asked to review the methodology the Corps used in feasibility studies. This report examines, for 2015 through 2017, (1) the Corps' process for identifying and evaluating the benefits, costs, and effects of project alternatives; (2) the analyses the Corps used to recommend projects; and (3) the extent to which the Corps' economic analyses of benefits and costs are consistent with best practices.

GAO reviewed Corps guidance; examined planning documents and economic analyses in flood risk studies that the Corps had most recently completed from 2015 through 2017 from eight districts; and compared the Corps' economic analyses with best practices in GAO's Assessment Methodology.

In the eight flood risk management feasibility studies GAO reviewed (see figure), the U.S. Army Corps of Engineers (Corps) followed a six-step planning process consistent with its guidance to, among other things, identify and evaluate the beneficial and adverse effects of alternative plans for proposed projects. In doing so, the Corps used economic analyses to evaluate project-specific categories of potential monetary benefits and costs of alternative plans, such as flood damage reduction benefits and project construction costs. The studies also used separate analyses to evaluate other effects, such as on wildlife habitat and the health and safety of communities.

In the eight studies GAO reviewed, the Corps typically recommended the alternative plan with the greatest net benefit, but also relied on other analyses in certain cases, as allowed under Corps guidance. Corps officials said they relied on other analyses to determine the best project design, help make decisions, or respond to local sponsors' preferences. For example, in one study, the Corps recommended a plan that provided a levee 3 feet higher than the plan with the greatest net benefits, in response to the nonfederal sponsor's request.

The Corps' economic analyses in the eight studies were generally consistent with best practices, but did not fully adhere to practices for transparency. For example, most analyses did not discuss the implications of key limitations in the models and data used. Corps officials acknowledged that transparency could be improved through their review process. By having future analyses align with transparency best practices, the Corps can better inform decision makers about potential economic effects of flood risk projects.

GAO recommends that the Corps strengthen its feasibility study review process by including steps to ensure consistency with transparency best practices. The agency concurred with the recommendation.

The U.S. Army Corps of Engineers (Corps) is one of the world’s largest  public engineering, design, and construction management agencies. The  Corps provides public engineering services across the nation and the  world to help strengthen the nation’s security, protect and manage  aquatic ecosystems, reduce risks from disasters, and support  commerce. Through its Civil Works program, the Corps plans, designs,  constructs, operates, and maintains water resources development  projects to address the three primary priorities of the program: (1)  restoration, protection, and management of aquatic ecosystems; (2)  support of commercial navigation; and (3) flood risk management.  Among these three priorities, the Corps’ largest annual construction  budget requests are for the flood risk management mission. Floods are  the most common and costly natural disaster in the United States, with  over 20,000 communities subject to a substantial risk of flooding,  according to Federal Emergency Management Agency documentation.

The Corps conducts feasibility studies to inform Congress and others  whether a water resources development project warrants federal  investment. Feasibility studies are generally prepared by the Corps’  district offices and developed in collaboration with nonfederal sponsors,  who are commonly the source for project proposals. The cognizant  Corps division and headquarters provide review and oversight of the  studies. As part of the feasibility studies, the Corps formulates and  evaluates alternative plans, including a range of structural and  nonstructural measures and strategies, and compares the plans with  each other and with conditions in which no action is taken.

The Corps reviews the proposed project to assess whether the benefits of  constructing it outweigh its costs. According to Corps policy applicable to  planning all water resources development projects, this analysis of  benefits and costs is to be guided by the 1983 Economic and  Environmental Principles and Guidelines for Water and Related Land  Resources Implementation Studies (Principles and Guidelines) and the  Corps’ Planning Guidance Notebook (Planning Guidance). The Planning  Guidance is the guidance for implementing the Principles and Guidelines  and includes specific guidance for evaluating the benefits and costs of  alternative project plans for different types of projects. According to the  guidance, with certain exceptions, the alternative plan with the greatest  monetary net economic benefit consistent with protecting the nation’s  environment—referred to as the National Economic Development plan— is to be the recommended plan. Under the guidance, the Corps also has  the option to consider the monetary effects of alternative plans on  regional economic development, such as changes to regional income and  employment, and non-monetary effects of other social aspects, such as  public health and safety.

You asked us to review the methodology the Corps used in its feasibility  studies to evaluate flood risk management project alternatives. For  calendar years 2015 through 2017—the most recent years in which  feasibility studies were completed at the time of our review—we  examined (1) the Corps’ process for identifying and evaluating the  benefits, costs, and effects of proposed flood risk management project  alternatives; (2) the analyses the Corps used to recommend projects; and  (3) the extent to which the Corps’ economic analyses of benefits and  costs are consistent with best practices.

To address our objectives, we obtained a list of Corps projects that were  recommended for construction based on feasibility or reevaluation studies  that Corps district offices completed through 2017, the most recent year  for which comprehensive data were available. We identified eight Corps  districts in which the Corps completed a feasibility or reevaluation study  for a flood risk management project from 2015 through 2017. We  selected for review the most recently completed study from each of these  eight districts. (See fig. 1.)

We reviewed the Corps’ final feasibility or reevaluation study for each  project and the accompanying economic analysis and cost estimation  appendices of each study, among other documents. Based on our  preliminary review of the information contained in the studies and our  objectives, we developed a data collection instrument to standardize our  documentation of the information from our review for all eight projects and  to facilitate summarization and analysis of the information. For each of the  eight projects, we obtained and analyzed information on (1) the location  and purpose of the project; (2) how the Corps identified, evaluated, and  compared project alternatives and selected a recommended plan; (3) how  the Corps identified and evaluated the specific benefits and costs of the  project alternatives, including the economic analysis of monetary benefits  and costs and the assessment of beneficial and adverse non-monetary  effects; and (4) the primary factors, models, and resources the Corps  used to calculate monetary benefits and costs. We then reviewed the  information entered into the data collection instruments to ensure, for  example, that benefits and costs were categorized consistently across  studies. To ensure accuracy, a GAO economist independently traced  each entry to its source document. While the results of our analysis of the  eight selected projects are not generalizable to all Corps flood risk  management projects, they provide illustrative examples of how the  Corps evaluated the benefits and costs for some of its projects  recommended for funding in recent years.

To examine (1) the Corps’ process for identifying and evaluating the  benefits, costs, and effects of proposed flood risk management projects  and (2) the analyses the Corps used to recommend projects, we reviewed  Corps guidance and information gathered from the Corps feasibility  studies in our data collection instrument. We reviewed the U.S. Water  Resources Council’s Principles and Guidelines, the Corps’ Planning  Guidance for implementing the Principles and Guidelines, and other  Corps guidance to identify the required project planning and evaluation  process. We reviewed the data we collected from the feasibility studies  that documented how the planning process was implemented for each  project—including descriptions of how the Corps identified and evaluated  the beneficial and adverse effects of flood risk management project  alternatives—and we compared these data with the Corps’ Planning  Guidance. We identified the specific types of monetary benefits and costs  the Corps evaluated in its studies, and the other categories of beneficial  and adverse effects evaluated in each of the eight studies. We also  reviewed the data we collected from the feasibility studies to identify how  the Corps analyzed monetary benefits and costs to select a project plan  for recommendation, the value of monetized benefits and costs for the  project alternatives that the Corps recommended, and what analyses the  Corps used to select these alternatives. We interviewed Corps  headquarters officials including the Chief Economist and an official from  the Corps’ project planning and review office regarding planning policy,  guidance, and oversight. We interviewed Corps officials in the Chicago,  Kansas City, and Wilmington district offices and gathered additional  information from the Nashville, New York, and San Francisco district  offices regarding their evaluation of benefits, costs, and effects in the  studies we reviewed.

To determine the extent to which the Corps’ economic analyses of  benefits and costs in flood risk management feasibility studies were  consistent with best practices, two GAO economists compared the  economic analyses for the eight selected studies with the five key  elements and related best practices of economic analyses defined in our  Assessment Methodology for Economic Analysis (Assessment  Methodology). The five elements are: objective and scope, alternative  identification and description, documentation, analysis of effects, and  transparency. Each key element consists of economic concepts that  represent best practices. Based on our comparison, we determined  whether the Corps’ economic analyses considered and properly adhered  to each of these key elements. We use “generally met” to indicate that an  economic analysis considered and generally followed the best practices  in a key element and “partly met” to indicate that an economic analysis  only partly considered and followed the best practices in a key element.  These key methodological elements are not intended to be exhaustive or  to supersede or alter relevant federal and agency requirements for  economic analysis.

We conducted this performance audit from March 2018 to November  2019 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform our audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.

Most communities in the nation experience some kind of flooding, which  may occur after substantial spring rains, heavy thunderstorms, winter  snow thaws, or heavy storms over a large body of water. Flood risk  management includes the appropriate use of structures such as levees  and floodwalls, as well as nonstructural measures such as land  acquisition and structure relocation, to reduce the risk of loss of life,  reduce long-term economic damage to the public and private sectors, and  improve the natural environment. Flood risk management is one of the  Corps’ three primary missions. For fiscal years 2015 through 2017, the  Corps requested more than $3 billion for 71 construction projects that fell  within its three missions, of which the largest amount—$1.33 billion—was  for 33 construction projects in the flood risk management mission.

Located within the Department of Defense, the Corps has both military  and civilian responsibilities. Through the Civil Works Program, the Corps  plans, constructs, operates, and maintains a wide range of water  resources development projects such as navigation and flood risk  projects. The Assistant Secretary of the Army for Civil Works, appointed  by the President and confirmed by the Senate, sets the strategic direction  for the program and has principal responsibility for the overall supervision  of functions relating to the Army’s Civil Works Program. The Chief of  Engineers, a military officer, is responsible for execution of the civil works  and military missions. The Civil Works Program is organized into three  tiers: headquarters in Washington, D.C.; eight regional divisions; and 38  local district offices. (See fig. 2.)

Corps Water Resources Development Projects and Nonfederal Sponsors

The Corps develops water resource projects, including flood risk  management projects, in conjunction with nonfederal sponsors such as  state and local governments. According to Corps guidance, the planning  process for these projects begins with the nonfederal sponsor identifying  a problem and approaching the Corps to help develop a solution. Upon  congressional authorization for a study and appropriations to fund it, the  Corps and the nonfederal sponsor establish an agreement to conduct a  feasibility study for a potential project. The Corps initiates a feasibility  study by forming a project team comprised of Corps engineers,  economists, planners, and possibly other specialists such as nonfederal  consultants to conduct the study. The planning process the Corps uses to  carry out feasibility studies is described later in our report. Nonfederal  sponsors are to participate in the planning process, as well as remain  involved through project design, construction, and post-project operations  and maintenance. For example, for projects in which the Corps constructs  infrastructure such as a flood wall, the nonfederal sponsor is to assume  responsibility for monitoring and maintenance costs associated with the  flood wall after its construction.

Corps Water Resources Development Planning Guidance

The U.S. Water Resources Council’s Principles and Guidelines outlines  the principles and procedures the Corps is to follow for planning water  resources development projects, including those with flood risk  management objectives. The Principles and Guidelines states that the  federal objective of water resources development projects is to contribute  to national economic development while protecting the nation’s  environment. The Corps implements the planning process outlined in the  Principles and Guidelines by conducting feasibility studies for proposed  water resources development projects. The Corps’ Planning Guidance  provides detailed guidance on how to implement the general process  outlined in the Principles and Guidelines for planning water resource  projects. The Corps’ National Economic Development manuals provide  supplemental guidance for the economic analysis of different types of  projects—including flood risk management—and how to evaluate the  benefits and costs associated with each type of project.

To identify the beneficial and adverse effects of each alternative plan  considered for a project, the Corps uses four categories of analysis  established in the Principles and Guidelines: (1) National Economic  Development, (2) Environmental Quality, (3) Regional Economic  Development, and (4) Other Social Effects, as shown in table 1. The  Corps’ Planning Guidance states that feasibility studies may evaluate the  effects of alternative plans using the four categories of analysis, but the  evaluations under two categories—National Economic Development and  Environmental Quality—must be presented in each feasibility study.  According to the Corps’ Planning Guidance, the National Economic  Development category requires an economic analysis of each plan’s  potential economic benefits and costs in monetary terms, while the  Environmental Quality category evaluates each plan’s potential  nonmonetary effects such as effects on habitat quality and quantity. The  Planning Guidance states that using these categories of analysis provides  a basis for determining which alternative plans should be eliminated from  consideration, modified, or selected for further analysis.

The Corps’ Multi-step Planning Process Identified and Evaluated Benefits, Costs, and Effects of Proposed Flood Risk Management Project Alternatives The Corps Identified and Evaluated the Economic, Environmental, and Other Effects of Proposed Alternatives Using a Multi- step Feasibility Study Process

The Corps’ followed the six-step planning process for water resources  development projects outlined in its Planning Guidance to identify and  evaluate the beneficial and adverse effects of alternative plans for flood  risk management projects and select a recommended plan for the eight  feasibility studies we reviewed. In the initial three steps of the planning  process, the Corps (1) identified the objectives and other parameters of  the project; (2) inventoried and forecasted water and related land  resources conditions within the planning area; and (3) formulated  alternative plans for further consideration. In the final three steps of the  planning process, the Corps (1) evaluated and analyzed each alternative  plan for its economic, environmental, and other effects, (2) compared the  alternative plans to each other, and (3) selected a recommended plan.  Corps officials told us that this six-step process is the basic template for  planning water resources development projects across all Corps mission  areas. (See fig. 3.) For each of the eight studies we reviewed, the Corps  followed this template and addressed each of the six steps in planning the  proposed flood risk management project, as we describe below.

Each study identified objectives, problems, opportunities, and constraints  for the project. According to the Corps’ Planning Guidance, identification  of problems and opportunities is the foundation for scoping the planning  process and should begin as soon as practicable after the decision to  initiate a feasibility study. Planning objectives describe the desired  results of the process by solving the problems and taking advantage of  the opportunities identified. Constraints are restrictions that limit the  planning process and are unique to each study. Such constraints can be,  for example, limitations imposed by policy or law. All of the studies we  reviewed had the objective of reducing or managing flood risk and damages in response to problems such as historic river or stream  flooding in the planning area. The studies identified opportunities, such as  improving the community’s understanding of flood risk and resiliency from  flood events. The studies also identified constraints, such as the need for  the plan to incorporate extensive transportation infrastructure within some  of the planning areas.

The studies inventoried historic and existing water and related land  resource conditions and forecasted future conditions within the planning  area relevant to the identified problems and opportunities from step one.  According to the Corps’ Planning Guidance, the Corps is to use  quantitative and qualitative descriptions of critical resources in the  planning area to define existing and future without-project conditions— that is, the conditions if no project is constructed. The defined without- project conditions provide the basis from which the Corps formulates  alternative plans and assesses impacts. The studies we reviewed  inventoried the existing conditions for the planning area. This inventory  included geology, groundwater, surface water, hydrology, water quality,  biological resources, cultural resources, land use, recreation, air quality,  climate change, transportation, public health and safety, public services,  utilities, socioeconomics, and environmental justice. The Corps used  these existing conditions to forecast the future without-project conditions,  such as increasing flood risk for residential and industrial development,  culturally significant communities, or specific infrastructure such as a  regional wastewater facility.

The studies formulated alternative plans for the project, including a range  of structural and nonstructural measures and strategies. According to the  Corps’ Planning Guidance, an alternative plan consists of a system of  management measures, that is, structural and/or nonstructural measures,  strategies, or programs formulated to meet the project objectives subject  to the planning constraints. The Corps is to identify a range of  alternative plans at the beginning of the planning process, screen the  plans, and refine them in subsequent iterations throughout the planning  process. The Planning Guidance also states that as the Corps develops  the alternative plans, it must consider the criteria of completeness,  efficiency, effectiveness, and acceptability. In the eight studies we  reviewed, the Corps followed an iterative approach to identify measures  and form alternative plans. For example, the studies generally identified  an initial array of structural and nonstructural measures for conceptual  screening, followed by the grouping of viable measures into alternative  plans for screening under the criteria, resulting in an array of plan  alternatives for more detailed analysis of the beneficial and adverse  effects (monetary and nonmonetary) of each. According to Corps officials,  flood risk management studies must consider a minimum of two plans— no action and an alternative—and one of the plans considered must be  nonstructural. All eight studies we reviewed adhered to this requirement  and considered a variety of alternative plans for each proposed flood risk  management project.

The studies evaluated each alternative plan—including its beneficial and  adverse effects—through a comparison of the with-project and without- project conditions. According to the Corps’ Planning Guidance, evaluation consists of (1) forecasting the most likely with-project (e.g., with the  alternative plan constructed) condition expected under each alternative  plan; (2) comparing each with-project condition to the without-project  condition and documenting the differences between the two; (3)  characterizing the beneficial and adverse effects; and (4) identifying the  plans that will be further considered in the planning process. The  studies we reviewed used the categories established in Corps guidance— the National Economic Development and Regional Economic  Development categories for monetary benefits and costs and the  Environmental Quality and Other Social Effects categories for  nonmonetary (quantitative and qualitative) effects—to evaluate and  display the beneficial and adverse effects of plan alternatives. The  categories and specific types of monetary benefits and costs and  nonmonetary effects that the Corps evaluated varied for each study  depending on the planning area conditions and the measures and  strategies included in the alternative plans. In the studies we reviewed,  the economic analyses of monetary effects generally resulted in an  estimated net dollar value of benefits (benefits minus costs) expected with  each alternative in place, while the analysis of nonmonetary effects  generally resulted in a Corps judgment about the net qualitative effect or  net quantitative effect (e.g., net units of habitat created) for each  alternative.

The studies compared the alternative plans based on the economic  analysis of benefits and costs and on the evaluations of environmental  and other effects. According to the Corps’ Planning Guidance, the  alternative plans (including the no-action plan) are to be compared with  each other, with emphasis on the outputs and beneficial and adverse  effects that will have the most influence in the decision-making process.  Such a comparison is to include monetary and nonmonetary benefits and  costs and identify and document trade-offs to support the final  recommendation. In the studies we reviewed, the Corps compared project  effects in a variety of ways, for example, in a series of narratives  describing the beneficial and adverse effects of alternative plans, or a grid  for side-by-side comparison of selected effects for plan alternatives. In  some studies, this comparison included an incremental process in which  the Corps considered incorporating additional measures or approaches  into an alternative to further optimize the trade-off between beneficial and  adverse effects. The result of this step was a final group of plans that the  Corps considered for recommendation.

The Corps recommended a plan based on the comparison of the  alternative plans. According to the Corps’ Planning Guidance, the Corps  should recommend a single alternative plan that must be shown to be  preferable to taking no action (if no action is not recommended) or  implementing any of the other alternatives considered during the planning  process. In the studies we reviewed, the recommended plan and the  rationale for its selection were identified in the analyses and underwent  internal technical review at the district, division, and headquarters levels.  The Chief of Engineers signed and submitted the proposed plan for the  project—known as the Chief’s Report—to the Office of the Assistant  Secretary for review, and the Secretary submitted the report to Congress  for authorization.

The Corps Used Economic Analyses in Its Feasibility Studies to Evaluate Project-Specific Benefits and Costs and Used Additional Analyses to Evaluate Other Effects

All eight of the studies we reviewed included step 4 of the Corps’ six-step  planning process: an economic analysis of the benefits and costs of each  proposed project as well as an Environmental Quality analysis, as called  for in the Corps’ Planning Guidance. The inclusion of the other two  types of analyses—Regional Economic Development and Other Social  Effects—are not required, but six of the studies included them. The  Principles and Guidelines provide the Corps with general flexibility to  choose which benefit and cost categories to include in these analyses.  The Corps’ Planning Guidance states the federal government’s and  project’s objectives guide the planning process, which includes benefit  and cost category selection.

The monetary benefits most commonly included in the economic  analyses of the Corps feasibility studies we reviewed were reduced  damages and emergency costs avoided, as shown in table 2. The Corps  included reduced damage benefits in each of the eight studies we  reviewed. Reduced damages result from actions such as performing  physical modifications to property designed to reduce the frequency of  flood damage, relocating structures, or installing flood warning and  preparedness systems. For example, a feasibility study for a proposed  project in the New York District outlined a plan to modify channels that  line the Mamaroneck and Sheldrake Rivers with the goal of reducing the  risk of life and property damage within the Village of Mamaroneck. The  Corps also included emergency costs avoided as benefits in four of the  eight studies we reviewed. Emergency costs include expenses resulting  from a flood that otherwise would not be incurred. For example, some of  the emergency costs avoided for this proposed project in the New York  District included the costs of evacuation, reoccupation, flood fighting, and  increased operations, police, fire, and military patrol. Depending on the  potential effects of the plan alternatives considered, some studies  included monetary benefits from recreation, reduced maintenance costs,  flood insurance administrative savings, or reduced transportation  disruptions in their economic analyses, but these were not commonly  considered in the studies we reviewed.

The Corps considered a variety of monetized costs in its economic  analyses for feasibility studies we reviewed, as shown in table 3. Among  the most commonly included costs in each of the eight studies were for  construction; operation, maintenance, repair, replacement, and  rehabilitation (OMRR&R); and real estate. Specifically:

Construction costs. These are the direct costs of installing project  measures. For example, the Honolulu District study included the costs  of constructing six in-stream debris and detention basins above a  watershed, floodwalls along a canal, an earthen levee, and two pump  stations.

OMRR&R costs. These represent the current monetary value of  materials, equipment, services, and facilities needed to operate the  project and make repairs, rehabilitations, and replacements necessary  to maintain project measures in sound operating condition during the  period of analysis. For example, the Wilmington District study  included OMRR&R costs for conducting visual inspections of the  levee, mowing twice a year, and conducting video inspections of pipes  and culverts every 5 years.

Real estate costs. These include activities such as buying out  residential structures and demolishing them. For example, the San  Francisco District study included real estate costs to acquire  approximately 900 acres of city-owned land for ecosystem restoration  and levee, road, and temporary work easements.

Depending on the potential effects of the plan alternatives considered,  some of the studies we reviewed included environmental costs;  relocations; planning, engineering, and design; and the costs for cultural  resource preservation, recreation, and flood warning systems.

In addition to the required economic analysis of benefits and costs, the  Corps included other analyses to evaluate monetary and nonmonetary  project effects in the flood risk management feasibility studies we  reviewed. These included the Environmental Quality, Regional Economic  Development, and Other Social Effects analyses. All the studies we  reviewed included the Environmental Quality analysis; six studies  included the Regional Economic Development or Other Social Effects  analyses, as shown in table 4. Corps officials said the additional  analyses were included in studies because the analyses were needed to  determine the best project design, help make planning decisions, or  respond to local sponsors’ preferences.

Examples of some additional analyses conducted in different districts  include the following:

Regional Economic Development effects. In the Sacramento  District study, the Corps considered ways reduced flooding could  increase local business revenue and short-term construction  employment but reduce employment because of loss of damage to  businesses, among other effects. The Corps also considered how its  expenditures for various services and products during the project  were expected to generate additional economic activity, such as  through additional jobs, income, and sales. In this case, the Corps  estimated the project might add 18,930 jobs in the region. According  to a 2011 Corps handbook, considering Regional Economic  Development effects can provide a better understanding of the overall impact to the region. Doing so also examines the potential impacts  mainly to the localized or regional economic area, instead of the  nation as a whole.

Other Social Effects. In the Wilmington District study, the Corps  considered security of life, health, and safety; preservation of historic  significance; and the impacts to cultural resources. According to a  2009 Corps handbook, considering the Other Social Effects analysis  has great potential value for better ensuring that water resources  solutions address a broad array of issues and concerns that better  meet stakeholder needs and expectations.

The Corps’ Evaluations Used Economic Analyses to Identify Project Alternatives with Greatest Net Benefits but Relied on Other Analyses for Some Recommendations

In most of the studies we reviewed, the Corps recommended the  alternative plan with the greatest net economic benefits based on the  results of its economic analyses. In some cases, however, the Corps  relied on other analyses to address different project objectives or the  preferences of the local nonfederal sponsors. The Corps’ Planning  Guidance directs that the project alternative with the greatest net  economic benefit, consistent with protecting the nation’s environment, be  selected for recommendation unless an exception is granted. The  Assistant Secretary of the Army for Civil Works has the authority to grant  exceptions if federal, state, local, or international concerns exist. The  Planning Guidance states that projects may deviate from the alternative  plan with the maximum net benefits if requested by the nonfederal  sponsor and approved by the Assistant Secretary of the Army for Civil  Works. Such plan alternatives are referred to by the Corps as the locally  preferred plan, with the nonfederal sponsor responsible for any project  costs in excess of the costs of the plan with the highest net benefits.

The Corps conducted economic analyses in each of the eight studies we  reviewed, resulting in a wide range of monetary benefits and costs for the  recommended project plan alternatives. Table 5 shows the monetized  benefit and cost information that helped the Corps select recommended  plans in the eight studies. The annualized project benefits ranged from  approximately $500,000 to $210.6 million, and annualized project costs  ranged from about $1 million to $65 million, resulting in annual net benefit  estimates ranging from approximately -$500,000 to $146 million.

For five of the eight studies we reviewed, the Corps primarily used the  results of the economic analysis of benefits and costs to recommend a  plan with the greatest net benefits from among the alternatives, in  accordance with the Planning Guidance. These five studies were with the  New York, Honolulu, Sacramento, Nashville, and Kansas City Corps  districts. Three of the eight studies we reviewed relied on other analyses  as allowed under the Planning Guidance to address different project  objectives or the preferences of the local nonfederal sponsors. Corps  officials said they relied on other analyses when needed to determine the  best project design, help make decisions, or respond to local nonfederal  sponsors’ preferences. Specifically:

Chicago District. The Chicago District recommended a project based  on two separate analyses. Specifically, the project team  recommended an alternative plan based on an economic analysis for  the flood risk management objective and separate analyses for an  ecosystem restoration objective. A Corps document stated that by  doing so, the proposed project would help both manage flood risks  and restore ecosystems in the watershed. In addition, the study said  the recommended plan attempts to maximize the net benefits and find  balance between both objectives.

Wilmington District. The Wilmington District study indicated that the  Corps recommended the locally preferred alternative plan, after  receiving approval to do so, instead of the alternative plan with the  greatest net benefits at the request of the nonfederal sponsor. The  locally preferred alternative plan was recommended so it could  incorporate consideration of potential other social effects, such as life  and safety risk, and regional economic development, such as  employment created during and after construction. By doing so, the  study indicated Corps officials responded to local priorities and the  recommendations provided by the President’s Council on the Future  of Princeville, North Carolina. According to the study, the Corps  considered impacts to community cohesion, cultural and historical  values, local per capita and household incomes in comparison to  national averages, and other factors not captured in an economic  analysis.

San Francisco District. The San Francisco District study indicated  that the Corps based its alternative plan recommendation on a  combination of multiple objectives and local preference. The  recommended alternative plan’s objectives included reducing the risk  of tidal floods as well as restoring the ecosystem to tidal marsh  habitat. The Corps selected the recommended alternative plan  because the nonfederal sponsor wanted to provide additional  transitional habitat and greater flood risk management for Federal  Emergency Management Agency accreditation over the 50-year study  period. Specifically, the local preference was to build the levee  about 3 feet higher than the plan with the greatest net benefits— thereby potentially reducing public health and safety risks associated  with flooding more than the alternative plan with the greatest net  benefit.

Selected Corps Economic Analyses Were Generally Consistent with Best Practices, Although Some Practices Were Not Fully Used

The economic analyses for the eight studies we reviewed generally met  three of the five key methodological elements and partly met two key  elements—analysis of effects and transparency. Our Assessment  Methodology for Economic Analysis (Assessment Methodology) identifies  five key methodological elements to the baseline structure of an  economic analysis. For the analysis of effects element, the Corps has  either taken steps to address certain best practices or indicated the  agency is limited in adopting other practices due to statutory  requirements. For the transparency element, Corps officials  acknowledged that transparency could be improved through its review  process.

The Economic Analyses in All Eight Studies Generally Met Three Key Methodological Elements

According to our Assessment Methodology, an economic analysis should  state the action examined and the justification for the action. In addition,  the objective of the analysis should be stated; the scope of the analysis  should be designed to address the objective; and the analysis period  should be long enough to encompass the important economic effects of  the proposed action.

We found that all eight analyses generally met this key element. For  example, all eight economic analyses indicated that the actions examined  included the evaluation of flood risk management improvements for  resolving flooding problems. In addition, the analyses provided specific  planning objectives, such as to reduce flood risks in the relevant  watershed over the 50-year analysis period and to improve the quality of  life for local neighborhoods. Furthermore, all eight analyses used a 50- year analysis period to analyze benefits and costs—a period that should  be long enough to encompass important economic effects, though  several studies assumed that economic conditions would remain the  same over that time period. For example, the analysis for the Honolulu  District’s flood risk management study assumed that the inventory of  homes and businesses in the flood plain would not change over the 50- year analysis period. According to the analysis, the project area includes  sites that are underutilized or not fully developed, but uncertainty about  how development might proceed made it difficult to project what changes  might occur. The study acknowledged that changes in the business and  residential makeup of the watershed over the 50-year period would occur  but that the exact nature of these changes could not be projected with  any degree of certainty.

In addition, two of the eight studies involved multipurpose projects and  specified additional economic-related objectives for ecosystem  restoration. For example, the analysis for the San Francisco District’s  feasibility study indicated that it was designed to evaluate and compare  the economic justification and cost effectiveness of various measures to  reduce flood risk and provide ecosystem restoration in South San  Francisco Bay. Similarly, the Chicago District’s study indicated that in  developing an ecosystem restoration plan, undeveloped lands throughout  the watershed were evaluated to determine whether cost-effective aquatic  ecosystem restoration at that site was possible and what measures would  provide the lowest incremental cost per unit of habitat output.

Alternative Identification and Description

Our Assessment Methodology recommends that an analysis used to  examine economic effects should identify and compare alternatives. In  addition, the analysis should consider a range of relevant alternatives and  should justify that the economic conditions specified under each  alternative considered represent the best assessment of conditions under  that alternative.

We found that all eight economic analyses generally met this key  element. For example, all eight economic analyses examined the  economic effect of the proposed flood control actions by comparing a  range of alternatives, including various structures such as levees or  bridge modifications, as well as nonstructural measures such as  floodplain management activities or acquisition of land and removal of  people from the flood plain. Moreover, the economic analyses in the  studies generally described and justified the economic conditions that  would be expected under each alternative. For the two studies that also  evaluated ecosystem restoration alternatives, the studies considered  alternatives for restoring ecosystems.

Our Assessment Methodology recommends that the economic analysis  be clearly written, include a plain language summary, and provide clearly  labeled tables that describe the data used and the results. Also, the  analysis should document that it complies with a robust quality assurance  process.

We found that all eight economic analyses generally met this key  element. For example, all eight economic analyses were generally clearly  written and included tables that generally described data and results. In  addition, seven of the feasibility studies included a plain language  summary. Six of the studies indicated that the analyses complied with a  robust quality assurance process, in which the analyses were reviewed at  the Corps district and by technical and policy experts in headquarters.  Corps guidance indicates that the quality assurance process for feasibility  studies involves reviews for technical quality and policy compliance,  among other considerations, at the Corps district and in headquarters.  Further, three studies indicated that an independent external peer review  had been conducted. While one study completed in the Nashville District  did not indicate whether the study complied with a quality assurance  process, district officials told us a thorough review was conducted that  included multiple district quality control reviews, agency technical review  and headquarters policy reviews, and an independent external peer  review. In addition, a study completed in the Chicago District did not  indicate that it had undergone an independent external peer review.

The Economic Analyses in All Eight Studies Partly Met Two Key Methodological Elements for the Analysis of Effects and Transparency Analysis of Effects

Our Assessment Methodology recommends that an economic analysis  quantify the important costs and benefits and monetize these quantitative  effects using the concept of opportunity cost—the maximum worth of a  good or input among possible alternatives. The criterion of net present  value, or related outcome measures, should be applied to compare these  effects across alternatives. In addition, the analysis should control for  inflation and use economically justified discount rates. Where important  costs and benefits cannot be quantified, the analysis should show how  they affect the comparison of alternatives.

We identified areas in which the studies did not fully align with certain  best practices for various reasons, such as the Corps’ concerns about the  reliability of available methods and statutory requirements regarding the  use of discount rates. These best practices included:

Quantifying and monetizing important benefits and costs. The  economic analyses in all eight studies quantified and monetized  important benefits and costs associated with each alternative, such as  property damage reductions and construction costs. The Corps’  Planning Guidance indicates that studies should consider analyzing  loss of life in the Other Social Effects category, in either monetary,  quantitative, or qualitative terms. Project alternatives that reduce the  risk of flooding or that relocate people from the flood plain may lower  the risk that individuals living or working in a flood plain will drown or  become injured during flood events. However, the analyses in the  eight studies we reviewed generally did not quantify and monetize the  effect of project alternatives on loss of life. One of the studies we  reviewed quantified these effects, but only for the recommended plan.  Specifically, the Sacramento District’s flood risk management study  found that the recommended plan, which involved the improvement of  an existing levee system, could reduce fatalities during flood events  by about 67 percent. Of the other seven studies that we reviewed, six  analyses included a qualitative discussion of the effects of alternatives  on loss of life, and one analysis did not include an assessment of  these effects. A recent National Academy of Sciences study on  coastal storm flooding indicated that the practice of quantifying and  valuing reductions in loss of life is widespread in the federal  government, allowing these risk reductions to be included in the  economic analysis. In July 2017, after the eight studies that GAO  reviewed were completed, the Corps issued revised guidance  requiring flood risk management studies to include a quantitative  assessment of loss of life for each alternative when it is a significant  factor. Corps officials said they had not attempted to monetize loss  of life because of concerns about the reliability of available valuation  methods but are monitoring other agencies’ efforts to value these  effects and following economic research in the area.

Using net present value criterion. Analyses for seven studies we  reviewed compared the flood risk management alternatives and  identified the alternative expected to maximize net benefits on a  comparable, present-value basis (that is, on an “annualized” basis).  However, one economic analysis did not clearly indicate whether the  costs associated with the flood risk management alternatives were  annualized and therefore comparable to the annualized benefits.

Controlling for inflation and use of economically justified  discount rates. Although all the economic analyses in all eight Corps  studies we reviewed controlled for inflation by expressing benefits and  costs in “real” terms, the discount rates that the studies used to  convert future benefits and costs to present values were in nominal  terms. In general, real and nominal values are not combined in the  same analysis. Specifically, discounting real benefits and costs with a  nominal discount rate understates present values when holding all  else the same. Corps officials said that they are aware of this  inconsistency, but they have no latitude to use a real discount rate  because the Water Resources Development Act of 1974 requires the  Corps to use nominal discount rates.

Corps officials acknowledged areas in which the eight Corps studies we  reviewed partly met the Analysis of Effects key methodological element.  However, as noted, the Corps has taken some steps to address one best practice. Specifically, the Corps’ recently revised guidance, which  requires quantification of loss of life effects when significant, should allow  the Corps to provide decision makers and stakeholders with more precise  information about the relative magnitude of these effects in future  economic analyses. In terms of the best practice regarding economically  justified discount rates, the Corps has not taken steps because it is  required to use the statutorily specified nominal discount rates.

Our Assessment Methodology recommends that analyses be transparent  with respect to their analytical choices, assumptions, and data used. The  methodology further recommends (1) evaluating how plausible  adjustments to each choice and assumption may impact the estimates of  the cost-and-benefit effects and results of the comparison of alternatives  and (2) clearly explaining the implications of the key limitations in the data  and models used. Where feasible, to ensure transparency, the analysis is  to adequately quantify how the statistical variability of the key data  elements underlying the estimates of the economic analysis impacts  these estimates and the results of the comparison of alternatives.

We found that the studies we reviewed did not fully use some best  practices related to transparency. Specifically:

Being transparent with respect to analytical choices,  assumptions, and data used. The economic analyses in the eight  studies described and justified several, but not all of the analytical  choices, assumptions, and data. For example, to approximate the  amount of damages to structures at different flood depths, the  Wilmington District’s feasibility study relied on standardized “depth- damage curves” developed by the Corps’ New Orleans District. Corps  guidance indicates that standardized curves can be used in the  absence of regionally developed data. According to the study, data for  structures in the study area were unavailable, and flooding  characteristics were similar in the two areas, with both study areas  covering urbanized and rural areas representing a mix of residential,  commercial, and industrial development with similar types of  construction. However, other data and assumptions used by the  studies in our review were not fully described or justified. For  example, in presenting its results for an initial screening of several  flood risk management alternatives, the Sacramento District’s  economic analysis relied on cost estimates from several different  sources, including prior studies and private consultants. The analysis,  however, did not explain how the estimates were developed or justify  why the estimates were sufficiently reliable for evaluating  alternatives.

Clearly explaining the implications of key limitations in the data  and models used. With one exception, the economic analyses we  reviewed generally did not discuss the implications of key limitations  in the models used in the studies. Specifically, the economic analysis  for the Sacramento District’s study indicated that the Corps’  Hydrologic Engineering Center-Flood Damage Analysis computer  program can overstate damage reduction benefits because of an  inability to account for the reduced floodplain occupancy and reduced  value of damageable property following a flood event. According to  the analysis, by not taking into account the potential for reduced  floodplain occupancy, the estimated damage reduction benefits may  be overstated, particularly in areas that experience more frequent or  severe flooding. To account for this limitation, the Sacramento  District’s study reduced the overall value of properties in the  floodplain, lowering the average annual benefits for the recommended  alternative by about 29 percent. All the other studies used the same  program to estimate damage reduction benefits but did not indicate  whether this limitation would affect the estimated benefits of the  alternatives evaluated in those studies. In accordance with best  practices, the Corps’ Planning Guidance indicates that studies should  provide adequate supporting documentation to allow reviewers to  understand the models and assumptions used to estimate benefits  and costs. Corps officials stated that a project team’s analysis may  not document every step it took because these are understood among  team members, although they may not be apparent to others.

Quantifying the statistical variability underlying the results of the  comparison of alternatives. Although the economic analyses for the  eight studies analyzed the effects of uncertainty associated with  several key inputs in the economic analysis, the studies generally did  not report the key estimates (for example, benefits, costs, and net  benefits) on a probabilistic basis. For example, the Chicago District’s  flood risk management study presented damage reduction benefits for  each alternative in terms of its expected values as well as the  probability that the benefit estimate would exceed a particular value.  However, estimates for costs and net benefits were presented as  point estimates, which may imply a greater sense of precision than is  warranted. In accordance with best practices, the Corps’ Planning  Guidance requires economic analyses to report net benefits and  benefit-to-cost ratios both as expected (mean) values and on a  probabilistic basis for each alternative; also, for each alternative, the  analyses are to present the probability that net benefits are positive  and that the benefit-to-cost ratio is at or above one. Corps officials  said the analyses generally did not follow this guidance because it  may not have been useful in helping to select a project alternative.  Nonetheless, Corps guidance states that information about the  probability distributions can help decision making by local sponsors,  stakeholders, and federal officials by helping to increase their  understanding of the uncertainty inherent in each alternative.

In addition, for only one Corps study, the economic analyses included  a sensitivity analysis on the discount rate, which is used to convert  benefits and costs of the alternatives to present values. Generally,  when benefits or costs are separated in time from each other, the  difference in timing should be accounted for by discounting benefits  and costs. In addition, the specific discount rate may affect the  comparison of alternatives. Corps officials told us that they are  required to use the statutorily designated discount rate, and their  guidance does not require a sensitivity analysis using an alternative  discount rate. The officials added that the Office of Management  and Budget requires the Corps to compute the benefit-to-cost ratios  for recommended plans using a 7 percent discount rate, for budgeting  purposes. The results, though, are not reported in the studies, and the  7 percent rate is not applied in the assessment of the net benefits of  the alternatives, according to these officials.

Corps officials stated that in general there is a high level of transparency  within the project team and with the nonfederal sponsor, but they  acknowledged that transparency may not always exist for those outside  the team. For example, a project team’s analysis may not document  every step it took or assumption it made because these are understood  among team members, although they may not be apparent to others. As  a result, Corps officials acknowledged that some inconsistency exists in  the transparency of the analyses across feasibility studies. Corps officials  told us that teams rely on the Corps’ internal process for reviewing all  planning products to help ensure the quality of its feasibility studies and  analyses. The officials stated that to improve transparency, the Corps  could strengthen its internal review process, for example, by adding steps  so that all of the important decisions and assumptions made in the  analyses are consistently and clearly described. By conducting future  economic analyses for potential flood risk management projects so they  are more consistent with best practices for transparency, the Corps can  better ensure that decision makers and stakeholders are clearly and fully  informed about potential economic effects associated with such projects.

The economic analyses included in Corps feasibility studies provide  important information about the potential economic effects of flood risk  management projects. While the economic analyses the Corps conducted  for the eight studies we reviewed were generally consistent with several  best practices, the Corps did not fully employ best practices pertaining to  transparency. Because the information in the economic analyses can be  complex and technical, following best practices for transparency helps  ensure that the methods used to develop estimates and conclusions are  clearly and fully presented. By conducting future economic analyses for  potential flood risk management projects so they are more consistent with  transparency best practices, the Corps can better ensure that decision  makers and stakeholders are clearly and fully informed about the  potential economic effects associated with flood risk management  projects.

We are making the following recommendation to the Department of  Defense:  The Assistant Secretary of the Army for Civil Works should direct the  Chief of Engineers and the Commanding General of the U.S. Army Corps  of Engineers to strengthen the Corps’ internal review process for  feasibility studies by including steps to ensure consistency with best  practices for transparency, such as verifying that all of the important  assumptions and limitations in models and their implications for the  economic analysis are consistently, clearly, and fully described.  (Recommendation 1)

We provided a draft of this report to the Department of Defense for its  review and comment. In its written comments, reproduced in appendix I,  the Department concurred with our recommendation. The Department  further stated that guidance related to ensuring transparency in feasibility  studies and reviews already exists, but acknowledged that it can be  strengthened and enforced more consistently by specifically identifying  transparency as a review criterion. For example, they stated that the  Corps plans to establish systematic guidance for meeting the  transparency objective in preparing reports, assure transparency through  the agency’s quality assurance process, and assess the degree of  transparency as part of agency technical review and quality control  assessment.

We are sending copies of this report to the appropriate congressional  committees, the Secretary of Defense, the Assistant Secretary of the  Army for Civil Works, the Chief of Engineers and Commanding General of  the U.S. Army Corps of Engineers, and other interested parties. In  addition, the report is available at no charge on the GAO website at  http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-3841 or fennella@gao.gov. Contact points for our Offices  of Congressional Relations and of Public Affairs may be found on the last  page of this report. GAO staff who made major contributions to this report  are listed in appendix II.

Appendix I: Comments from the U.S. Army Corps of Engineers

Appendix II: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Vondalee R. Hunt (Assistant  Director), Brad C. Dobbins (Analyst in Charge), Tim Carr, David Dornisch,  Juan Garay, Tim Guinane, Gwen Kirby, Keesha Luebke, Jeanette  Soares, Sara Sullivan, and Kiki Theodoropoulos made key contributions  to this report.

The U.S. Army Corps of Engineers studies the potential costs and benefits of flood risk management projects—such as levees, floodwalls, or building relocation—to inform decision makers about their potential economic effects.

We reviewed 8 Corps studies and found they followed many best practices. But the analyses were not always transparent. For example, only one study considered the limitations of the computer model used in a flood damage analysis. Without that information, reviewers can’t make the best decisions on which projects would be most beneficial.

We recommended the Corps strengthen its internal review process to ensure decision makers have all the information they need.


Health Centers: Trends in Revenue and Grants Supported by the Community Health Center Fund

In 2017, nearly 1,400 health centers provided care to more than 27 million people, regardless of their ability to pay. Health centers were established to increase the availability of primary and preventive health services for low-income people living in medically underserved areas. Health centers rely on revenue from a variety of public and private sources, including revenue from CHCF grants. HRSA began awarding grants funded by the CHCF in fiscal year 2011.

GAO was asked to review the sources and amounts of health center revenue. This report describes (1) trends in health centers' revenue and (2) the purposes for which CHCF grants have been awarded.

GAO analyzed HRSA data collected from health centers and compiled in its Uniform Data System to identify the sources and amounts of revenue health centers received from 2010 through 2017, the most recent data at the time of GAO's analysis. GAO also reviewed HRSA grant documentation for grants funded by the CHCF for fiscal years 2011-2017—the most recent data at the time of GAO's analysis—including information on the award amount and purpose of the grant, and reviewed published studies that described the purposes for which CHCF grants have been made. Additionally, GAO interviewed HRSA officials, authors of the published studies, and an association representing health centers.

GAO provided a draft of this report to HHS. HHS provided technical comments, which GAO incorporated as appropriate.

Health centers' revenue more than doubled from calendar years 2010 through 2017, from $12.7 billion to $26.3 billion. Health centers' revenue comes from a variety of sources, including reimbursements from Medicaid, Medicare, private insurance, and federal and state grants. While total health center revenue increased from 2010 through 2017, the share of revenue from each source changed in different ways. In particular, revenue from federal and state grants decreased from 38.0 percent of total revenue in 2010 to about 30.2 percent of total revenue in 2017 while reimbursements from Medicaid, Medicare, and private insurance increased. Over the same time period, the number of health centers increased from 1,124 centers in 2010 to 1,373 centers in 2017. In addition, the number of patients served over the same time period increased by 7.7 million patients, from 19.5 million to 27.2 million.

GAO's analysis of Health Resources and Services Administration (HRSA) data shows that from fiscal years 2011 through 2017, health centers received approximately $15.8 billion in federal grants funded by the Community Health Center Fund (CHCF), which was established by the Patient Protection and Affordable Care Act in 2010. Of this total amount, 79.7 percent—or $12.6 billion—was awarded for the purpose of maintaining operations at existing health centers (see figure). According to HRSA officials, these CHCF grants are used to fill the gap between what it costs to operate a health center and the amount of revenue a health center receives. As such, officials explained, the awards are a primary means through which health centers provide health care services that may be uncompensated, including services for uninsured patients or services not typically reimbursed by other payers, such as adult dental care. The remaining $3.2 billion in CHCF grants were made to increase the amount of services provided at existing health centers; increase the number of health centers and sites; and other special initiatives, such as implementing health information technology.

Health centers were established to increase the availability of primary and  preventive health care services for low-income people living in medically  underserved areas. These outpatient facilities receive federal funding and  serve as an important safety net provider as the majority of their patients  are uninsured or enrolled in Medicaid. The majority of health centers  serve the general population within a designated area, while other types  of health centers provide care to more specific populations, including the  homeless, residents of public housing, and migrant and seasonal  farmworkers. Regardless of type, health centers are required to provide  health care to individuals who are members of the health center’s target  population or to all individuals located in the health center’s service area,  regardless of their ability to pay. In some communities, these centers may  be the only primary care providers available to certain vulnerable  populations. In 2017, nearly 1,400 health centers operated more than  11,000 sites that provided care to more than 27 million people in the  United States, including 1 in 9 children; 1 in 5 rural residents; 1 in 3 living  in poverty; and more than 355,000 veterans.

Health centers rely on revenue from a variety of public and private  sources, including federal, state, and local governments; and payments  for services from Medicaid, Medicare, private insurance, and patients.  This revenue includes grants awarded by the Health Resources and  Services Administration (HRSA) through its Health Center Program. In  2010, the Patient Protection and Affordable Care Act (PPACA)  established an additional source of funding for the Health Center  Program’s grants: the Community Health Center Fund (CHCF). The  CHCF supports a variety of grants to health centers for health care  services for low-income populations.

You asked us to review health centers’ revenue, including its sources and  uses. In this report we describe  1.  trends in health centers’ revenue from 2010 through 2017; and  2.  the purposes for which CHCF grants have been awarded.

To describe trends in health centers’ revenue, we analyzed data from  HRSA’s Uniform Data System for calendar years 2010 through 2017, the  most recent data at the time of our analysis. These data include data  reported annually by health centers on their patient-related revenue, such  as payments from Medicaid and Medicare, as well as other revenue  provided from HRSA grants, other federal grants, and non-federal grants  or contracts. All revenue data are reported as nominal dollars. We also  interviewed HRSA officials about the sources of revenue provided to  health centers since 2010, including how those sources may or may not  have changed over time.

To describe the purposes for which CHCF grants have been awarded, we  reviewed HRSA policy and grant documentation, such as HRSA grant  funding announcements that outline the purpose of the grants funded by  the CHCF. We also reviewed a list provided by HRSA that includes all 52  awards funded through 28 CHCF grants from fiscal years 2011 through  2017. This list included the award purpose and funding amount. Each grant could represent multiple awards to health centers. To corroborate  the list of awards provided by HRSA, we reviewed descriptions of the  grants contained in the funding opportunity announcements and grant  award announcements for a random sample of 10 percent of the 52  awards made, including those for the largest grants. We also analyzed  information on health center sites reported by health centers to HRSA— known as Form 5 B Service Site data—to determine the number and  location of new health centers from fiscal years 2011 through 2017.  These data show the location of each health center site. We reviewed  some published studies identified through web searches that describe  how the CHCF has been used since fiscal year 2011, such as studies  published by the Congressional Research Service and George  Washington University’s Milken Institute, and we interviewed the studies’  authors. Lastly, we interviewed HRSA officials and the National  Association of Community Health Centers—an organization representing  health centers—about the use of CHCF grant funding.

We assessed the reliability of the Uniform Data System and Form 5 B  Service Site data used in this report by reviewing relevant documentation  and interviewing officials knowledgeable about the data. Based on these  steps, we found the data were sufficiently reliable for the purpose of our  reporting objectives.

We conducted this performance audit from November 2018 to May 2019  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

The federal Health Center Program was established in the mid-1960s in  an effort to help low-income individuals gain access to health care  services. The Health Center Program, authorized in Section 330 of the  Public Health Service Act, is administered by HRSA’s Bureau of Primary  Health Care and makes grants—known as Section 330 grants—to four  types of health centers that primarily serve low-income populations:  1.  Community health centers. These health centers serve the general  population with limited access to health care. They are required to  provide primary health services to all residents who reside in the  center’s service area. More than three-quarters of health centers are  community health centers.  2.  Health centers for the homeless. These health centers provide  primary care services to individuals who lack permanent housing or  live in temporary facilities or transitional housing. These centers are  required to provide substance abuse services and supportive services  targeted to the homeless population.  3.  Health centers for residents of public housing. These health centers  provide primary health care services to residents of public housing  and individuals living in areas immediately accessible to public  housing.  4.  Migrant health centers. These health centers provide primary care to  migratory agricultural workers (individuals whose principal  employment is in agriculture and who establish temporary residences  for work purposes) and seasonal agricultural workers (individuals  whose principal employment is in agriculture on a seasonal basis but  do not migrate for the work).

HRSA’s Section 330 grants are funded by a combination of discretionary  appropriations and, since 2011, mandatory appropriations provided from  the CHCF. From fiscal years 2010 through 2017, total funding  appropriated for Section 330 grants—which includes funding from  discretionary appropriations and the CHCF—increased from about $2.1  billion to $4.9 billion (see fig. 1).

According to HRSA data, approximately 70 percent of appropriations for  Section 330 awards in fiscal year 2017—or about $3.5 billion—were  funded by the CHCF. HRSA officials also told us that the total amount of  CHCF appropriations may differ from the total amount of awards funded  because, for example, appropriations may be (1) used for administrative  costs, (2) reduced because of sequestration, or (3) carried over between  fiscal years.

Health centers are required to provide comprehensive primary health  services, including preventive, diagnostic, treatment, and emergency  health services. (See table 1.) All services that health centers provide  must be available to patients at the center regardless of patient payment  source or ability to pay and must be available (either directly or under a  referral arrangement) to patients at all health center service sites.  Services are provided by clinical staff—including physicians, nurses,  dentists, and mental health and substance abuse professionals—or  through contracts or cooperative arrangements with other providers.

In addition to the services they provide, health centers are also required  to document the unmet health needs of the residents in their service area  and to periodically review their service areas to determine whether the  services provided are available and accessible to area residents promptly  and as appropriate. Health centers also must have a sliding fee scale  based on a patient’s ability to pay and to be governed by a community  board of which at least 51 percent of the members are patients of the  health center. HRSA determines whether health center grantees meet   these and other health center program requirements when making award  determinations.

While Health Centers’ Revenue Doubled from 2010 through 2017, the Share of Revenue from Grants Decreased

Our analysis shows that total revenue received by health centers  nationwide more than doubled from calendar years 2010 through 2017— from about $12.7 billion to $26.3 billion (see fig. 2). Over the same time  period, both the number of health centers and the number of patients  served also increased. The number of health centers increased from  1,124 centers in 2010—operating 6,949 sites—to 1,373 centers in 2017— operating 11,056 sites. In addition, the total number of patients served  at health centers over the same time period increased by 7.7 million  patients, from 19.5 million to 27.2 million. See appendix I for additional  information.

While the total revenue received by health centers more than doubled  from 2010 through 2017, the share of revenue received from grants— including Section 330 grants and other federal and non-federal grants— decreased, from 38.0 percent of total revenue in 2010 to about 30.2  percent in 2017. During the same time period, the share of revenue  health centers received from Medicaid, Medicare, and private health  insurance increased (see fig. 3). (See app. II for more information on  health centers’ revenue from 2010 through 2017.)

While the share of health centers’ total revenue coming from all grants  decreased from 2010 to 2017, the share of revenue from one type of  grant—Section 330 grants—increased. Specifically, the share of revenue  health centers received from Section 330 grants—a portion of which are  funded by the CHCF—increased from 15.7 percent of health centers’ total  revenue in 2010 to 18.0 percent in 2017 (see figure 4).

Our analysis also shows that the share of revenue health centers receive  from Section 330 grants varies by state. As figure 5 below shows, in  2017, health centers in 2 states received more than 40 percent of their  total revenue from Section 330 grants, while health centers in 18 states  received less than 20 percent of total revenue from these grants.

HRSA Awarded CHCF Grants Primarily to Support Ongoing Operations and Services at Health Centers

Our analysis of HRSA data shows that for the 7-year period from fiscal  years 2011 through 2017, HRSA provided health centers with about  $15.8 billion in Section 330 grants funded by the CHCF. Most of this  funding—$12.6 billion, or nearly 80 percent of all grants awarded through  the CHCF during this period—was awarded for the purpose of service  area funding, which supports ongoing operations and services across the  nearly 1,400 health centers nationwide (see fig. 6). The remaining $3.2  billion in CHCF grants were awarded to increase the amount of services  provided at existing health centers; to increase the number of health  centers and sites; and for other special initiatives, such as initiatives to  support health information technology.

Service area funding. From fiscal years 2011 through 2017, HRSA used  the CHCF to provide health centers with approximately $12.6 billion in  grants for service area funding, which supports ongoing operations and  service delivery. HRSA officials told us that these CHCF grants are  used to fill the gap between what it costs to operate a health center and  the amount of revenue a health center receives. As such, the awards are  a primary means through which health centers provide health care  services that may be uncompensated, including services for patients who  are uninsured or services not typically reimbursed by other payers, such  as adult dental care, or other services such as transportation and  nutritional education. These awards can cover uncompensated care costs  for patients with incomes low enough to qualify for sliding fee assistance,  which reduces or waives the cost of services for patients based on their  ability to pay. In addition, these awards can cover patients who have  private insurance but face substantial deductibles and cost-sharing.  Officials we interviewed from the Congressional Research Service,  George Washington University’s Milken Institute, and the National  Association of Community Health Centers similarly noted that CHCF  grants support services not typically covered by public health insurance,  such as adult dental care services not generally covered by Medicare or  Medicaid.

Increasing services at existing health centers. From fiscal years 2011  through 2017, HRSA used the CHCF to provide health centers with about  $1.2 billion in grants to help increase the amount of services offered at  existing health centers that chose to apply for an award. This amount  included funding to increase the availability of specific health care  services, such as dental care, as well as funding to support health  centers’ efforts to extend service hours or increase the number of  available providers. Specifically, these grants were awarded for the  following:

Behavioral and mental health, substance abuse. Three grants totaling  about $400.8 million were awarded to expand access to behavioral  health, mental health, and substance abuse services. These awards  focused primarily on integrating primary care and behavioral health  care services and expanding substance use services at existing  health centers, such as medication-assisted treatment for opioid-use  disorder.

Oral health. A grant for about $155.9 million was awarded to increase  access to oral health services and improve oral health outcomes by  funding new onsite providers and supporting the purchase and  installation of dental equipment.

Expanding Services. Two grants—one in fiscal year 2014 for $295.6  million and another in fiscal year 2015 for about $349.6 million—were  made to increase access to comprehensive primary health care in  various ways, at the discretion of individual health centers. At existing  sites, health centers may have chosen to expand service hours,  increase the number of health care providers, or expand services  such as oral health, behavioral health, pharmacy, and vision services.

Increasing the number of health centers and sites. From fiscal years 2011  through 2017, HRSA awarded about $1.1 billion—or about 7 percent of  total CHCF funds—to organizations to help establish new health centers  or new sites at existing health centers. Specifically, HRSA awarded  grants for the following purposes:

New Access Point (NAP) Awards. Most of the funding to increase  access to health centers—about $648.5 million of the $1.1 billion— was provided through what are called NAP awards. According to  HRSA officials, there are two primary ways these funds can be  used—either to allow a new organization to become a health center  (about 30 percent of grant applicants) or for an existing health center  to add one or more service sites (about 70 percent of grant  applicants). HRSA officials told us that they funded 1,059 NAP  awards to new and existing health centers from fiscal year 2011  through 2017 for a combined total of 1,609 proposed new health  centers or sites. These awards included 295 awards to new  organizations and 764 awards to existing health centers adding one or  more service sites. (See table 2 below for more information on the  increase in health centers resulting from NAP awards.) Among the  1,609 total proposed new health centers or sites, 686 were in rural  areas, including 191 new health centers and 495 additional sites at  existing centers.

Construction Grants. HRSA awarded construction grants totaling  about $411.3 million through the Health Infrastructure Investment  Program to help existing health centers alter, renovate, expand, or  construct a facility. According to HRSA officials, construction grants  may increase the number of health center sites or may result in the  consolidation of sites while still expanding access to care.

Health Center Planning Grants. HRSA awarded a Health Center  Planning grant in fiscal year 2011 for about $10.3 million to support  planning and development of comprehensive primary care health  centers.

Collectively, a total of 5,536 new health center sites were added in the  United States from fiscal year 2011 through 2017. Of these new sites,  3,838 were in urban locations and 1,698 were in rural locations. While  many of these new health center sites were from NAP awards, as  previously described, other grants either funded by the CHCF or by  discretionary appropriations may have contributed to the establishment of  new health center sites. For example, HRSA officials told us that health  center sites may be added through a change of scope to their service  area competition award or through other types of grants funded by the  CHCF, such as grants to increase adult dental services. However,  according to HRSA officials, the data do not allow for directly associating  the number of new sites with those grants, as the grants may be used for  multiple purposes. Figure 7 below shows the locations of health center  sites added during this time period that are active as of February 2019.

Other special initiatives. From fiscal years 2011 through 2017, HRSA  awarded about $898.9 million of CHCF funds for grants to health centers  to support other special initiatives and to address identified priorities or  emerging health care needs. Specifically, HRSA awarded grants to those  health centers that chose to apply for the following purposes:

Health information technology. Three grants totaling about $243.4  million were awarded to advance the adoption and implementation of  health information technology. For example, the purpose of one  grant—the Health Center Controlled Networks—was to advance the  adoption, implementation, and optimization of health information  technology. Another grant provided supplemental funding to improve  the electronic reporting capabilities of health centers in Beacon  Communities.

HIV. Two grants totaling about $23.8 million were awarded with the  goal to increase access to HIV care and services. One specifically  targeted prevention and treatment services in those communities  most affected by HIV.

Outreach and enrollment. $222.0 million in grant funding was awarded  to support health centers in raising awareness of affordable insurance  options and providing eligibility and enrollment assistance to  uninsured patients of health centers and residents in their approved  service areas.

Patient-Centered Medical Home. About $84.6 million in grant funding  was awarded to support HRSA efforts to expand the number of  patient-centered medical homes with a particular focus of improving  quality of care, access to services, and reimbursement  opportunities.

Quality improvement. Approximately $305.1 million in grant funding  was awarded to support health centers that displayed high quality  performance so they can continue to strengthen quality improvement  efforts. Specifically, the funds were to support health centers to further  improve the quality, efficiency, and effectiveness of health care  delivered to the communities served.

Training and technical assistance. Two grants totaling about $14.3  million were awarded to support training and technical assistance for  health centers in order to support programmatic, clinical, and financial  operations. One grant focused on the delivery of training and technical  assistance by national organizations and the other grant was based  on statewide and regional needs.

Zika. A grant for about $5.7 million was awarded to health centers that  chose to apply to expand their existing activities to strengthen the  response to the Zika virus in Puerto Rico, the U.S. Virgin Islands, and  American Samoa. These activities included outreach, patient  education, screening, voluntary family planning services, and/or  treatment services.

See appendix III for a complete list of all grants awarded through CHCF  by category.

We provided a draft of this report to HHS. HHS provided technical  comments, which we incorporated as appropriate.

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If you or your staff have any questions about this report, please contact  me at (202) 512-7114 or at farbj@gao.gov. Contact points for our Office  of Congressional Relations and Office of Public Affairs can be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix IV.

Appendix I: Information on Health Centers and Patients Served

This appendix provides information on health centers and patients  served. Specifically,  figure 8 illustrates the number and location of health centers in 2017;  figure 9 illustrates the growth in health centers and sites since 2010;  figure 10 illustrates the growth in patients served at health centers  since 2010; and  table 3 provides information on how the payer mix for patients served  at health centers has changed since 2010.

Appendix II: Sources and Amounts of Revenue for Health Centers, Calendar Years 2010 through 2017

HRSA’s Uniform Data System defines other public insurance as state and/or local government  programs, such as Washington’s Basic Health Plan or Massachusetts’ Commonwealth plan, that  provide a broad set of benefits for eligible individuals.  Other federal grants in HRSA’s Uniform Data System include Medicare and Medicaid Electronic  Health Record Incentive grants.  HRSA’s Uniform Data System defines non-federal grants and contracts as revenue from contracts  that are not tied to the delivery of services and revenue received from state and local indigent care  programs.  HRSA’s Uniform Data System defines other revenue as non-patient related revenue not reported  elsewhere. Examples include revenue from fund-raising, rent from tenants, medical record fees, and  vending machines.

Appendix III: Community Health Center Fund Awards for Health Centers, Fiscal Years 2011 through 2017

Appendix IV: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Kristi Peterson, Assistant  Director; Amy Leone, Analyst-in-Charge; Margot Bolon, Krister Friday,  Jeff Tamburello, and Eric Wedum made key contributions to this report.  Also contributing were Vikki Porter, Rotimi Adebonojo, Giselle Hicks, and  Jennifer Whitworth.

Community health centers provide outpatient health care in places where there aren't enough doctors or hospitals. In 2017, these health centers served more than 27 million people, regardless of their ability to pay.

Health centers received $15.8 billion in grants from the federal Community Health Center Fund from FYs 2011-2017—mostly for ongoing operations. According to officials, these grants fill the gap between health center costs and revenue from private insurance, patients, and others. As such, they are the primary source of funding for uncompensated health care services, including services for uninsured patients.