Savings Bonds: Actions Needed to Increase the Reliability of Cost-effectiveness Measures
GAO-03-513
Published: Jun 16, 2003. Publicly Released: Jul 16, 2003.
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Highlights
While the Treasury generally pays lower interest rates on U.S. Savings Bonds than it does on other forms of borrowing from the public, it also incurs substantially higher administrative costs to issue and redeem the paper savings bond certificates. To determine whether these higher administrative costs exceed its interest rate savings, Treasury's Bureau of the Public Debt uses a spreadsheet model to compare the costs of issuing Series EE and Series I savings bonds with those of issuing marketable Treasury securities. GAO was asked to review this model to judge its reliability in measuring the relative costs of Treasury's borrowing alternatives.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of the Treasury | Because of the importance of measuring the cost-effectiveness of financing mechanisms used to fund the operations of the federal government, the Secretary of the Treasury should direct that the Commissioner of the Public Debt in conjunction with Treasury's Office of Domestic Finance revise the savings bond cost-effectiveness model to estimate the relative (or net) present value of the life cycle costs of issuing savings bonds versus marketable Treasury securities. As part of that revision, the Commissioner should update the Series EE probabilities of redemption to capture any changes in redemption patterns caused by the proliferation of financial products or interest rate changes in the last 10 years. At a minimum, Treasury and BPD should collect data for a sample of the more recent time period to test the validity of the 1957-93 data. |
Treasury generally agreed with our recommendation for updating the Series EE probabilities of redemption to incorporate actual experience with redemption over the past decade. However, at the time of our report, Treasury announced it was moving to an all-electronic environment for the retail securities program and stated they were shelving the existing paper-based model, which is based on paper bonds. As a result, Treasury stated that "if it becomes necessary for [Treasury] to reexamine the cost-effectiveness of paper savings bonds, [they'll] incorporate [GAO's] recommendations into [their] current [paper-based] model." (Agency Comment Letter, 6/4/2003)
|
| Department of the Treasury | Because of the importance of measuring the cost-effectiveness of financing mechanisms used to fund the operations of the federal government, the Secretary of the Treasury should direct that the Commissioner of the Public Debt in conjunction with Treasury's Office of Domestic Finance revise the savings bond cost-effectiveness model to estimate the relative (or net) present value of the life cycle costs of issuing savings bonds versus marketable Treasury securities. As part of that revision, the Commissioner should base Series I bond redemption patterns on actual experience with those bonds. |
Treasury generally agreed with our recommendation to update the Series I bond redemption patterns to incorporate actual experience with redemption to date. However, at the time of our report, Treasury announced it was moving to an all-electronic environment for the retail securities program and stated they were shelving the existing paper-based model, which is based on paper bonds. As a result, Treasury stated that "if it becomes necessary for [Treasury] to reexamine the cost-effectiveness of paper savings bonds, [they'll] incorporate [GAO's] recommendations into [their] current [paper-based] model." (Agency Comment Letter, 6/4/2003)
|
| Department of the Treasury | Because of the importance of measuring the cost-effectiveness of financing mechanisms used to fund the operations of the federal government, the Secretary of the Treasury should direct that the Commissioner of the Public Debt in conjunction with Treasury's Office of Domestic Finance revise the savings bond cost-effectiveness model to estimate the relative (or net) present value of the life cycle costs of issuing savings bonds versus marketable Treasury securities. As part of that revision, the Commissioner should validate the cost estimate of education bond program participation based on the historical, 12-year data to date. |
Treasury generally agreed with our recommendation to validate the cost estimate of the education bond program participation based on actual experience to date. However, at the time of our report, Treasury announced it was moving to an all-electronic environment for the retail securities program and stated they were shelving the existing paper-based model, which is based on paper bonds. As a result, Treasury stated that "if it becomes necessary for [Treasury] to reexamine the cost-effectiveness of paper savings bonds, [they'll] incorporate [GAO's] recommendations into [their] current [paper-based] model." (Agency Comment Letter, 6/4/2003)
|
| Department of the Treasury | Because of the importance of measuring the cost-effectiveness of financing mechanisms used to fund the operations of the federal government, the Secretary of the Treasury should direct that the Commissioner of the Public Debt in conjunction with Treasury's Office of Domestic Finance revise the savings bond cost-effectiveness model to estimate the relative (or net) present value of the life cycle costs of issuing savings bonds versus marketable Treasury securities. As part of that revision, the Commissioner should replace the 30-year equivalent marketable rate. |
Treasury generally agreed with our recommendation to replace the discontinued 30-year equivalent marketable rate Treasury continued to use to price the marketable alternative. However, at the time of our report, Treasury announced it was moving to an all-electronic environment for the retail securities program and stated they were shelving the existing paper-based model, which is based on paper bonds. As a result, Treasury stated that "if it becomes necessary for [Treasury] to reexamine the cost-effectiveness of paper savings bonds, [they'll] incorporate [GAO's] recommendations into [their] current [paper-based] model." (Agency Comment Letter, 6/4/2003)
|
| Department of the Treasury | Because of the importance of measuring the cost-effectiveness of financing mechanisms used to fund the operations of the federal government, the Secretary of the Treasury should direct that the Commissioner of the Public Debt in conjunction with Treasury's Office of Domestic Finance revise the savings bond cost-effectiveness model to estimate the relative (or net) present value of the life cycle costs of issuing savings bonds versus marketable Treasury securities. As part of that revision, the Commissioner should update the software used for the model to enhance BPD's ability to maintain the model and protect against unauthorized modification. |
Treasury generally agreed with our recommendation to update the software used for the model to a more current software but noted confidence in Treasury's ability to maintain and control the model in its current software. However, at the time of our report, Treasury announced it was moving to an all-electronic environment for the retail securities program and stated they were shelving the existing paper-based model, which is based on paper bonds. As a result, Treasury stated that "if it becomes necessary for [Treasury] to reexamine the cost-effectiveness of paper savings bonds, [they'll] incorporate [GAO's] recommendations into [their] current [paper-based] model." (Agency Comment Letter, 6/4/2003)
|
| Department of the Treasury | Because of the importance of measuring the cost-effectiveness of financing mechanisms used to fund the operations of the federal government, the Secretary of the Treasury should direct that the Commissioner of the Public Debt in conjunction with Treasury's Office of Domestic Finance revise the savings bond cost-effectiveness model to estimate the relative (or net) present value of the life cycle costs of issuing savings bonds versus marketable Treasury securities. As part of that revision, the Commissioner should put in place a process for ongoing verification, sensitivity analysis, and independent external review of the model. |
Treasury generally agreed with our recommendation to put in place a process for ongoing verification, sensitivity analysis, and independent external review of the model and that Treasury's analysis would benefit from such a process. Treasury stated that it would "look into ways to incorporate these elements in [Treasury's] process." However, at the time of our report, Treasury announced it was moving to an all-electronic environment for the retail securities program and stated they were shelving the existing paper-based model, which is based on paper bonds. As a result, Treasury stated that "if it becomes necessary for [Treasury] to reexamine the cost-effectiveness of paper savings bonds, [they'll] incorporate [GAO's] recommendations into [their] current [paper-based] model." (Agency Comment Letter, 6/4/2003)
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Interest ratesPublic debtUS savings bondsCost effectiveness analysisCost controlTreasury securitiesSecuritiesUnit costAdministrative costsLife cycle costs