Forecasting legislation would provide better early warning signals

Earlier this year, we put out an issue brief and blog post that identified the need for better budget forecasting as one of the lessons that should be learned from the state’s current budget woes to avoid crises of similar magnitude in the future. Rep. Ryan Kiesel has introduced legislation, HB 2796, that incorporates some of our suggestions. Rep. Kiesel put out a press release explaining his legislation:

OKLAHOMA CITY (February 11, 2010) The budget crisis now affecting virtually every area of Oklahoma state government would have been easier to deal with if a financial early-warning had been issued, and state Rep. Ryan Kiesel has authored a bill that would provide for such alerts.

The proposal, House Bill 2796, requires that a revised estimate of expected revenues be prepared and sent within 30 days to the governor and both houses of the legislature, whenever a revenue shortfall is declared by the director of the Office of State Finance, or when that office reduces agency funding due to a shortfall. The requirement would apply whenever such a revenue shortfall occurs prior to the last day of the tenth month of a fiscal year.

“It is far preferable, and a lot less painful for Oklahoma citizens, to make cuts in the budget of an office or agency when there are seven or eight months remaining in the fiscal year, as opposed to three or four months,” said Kiesel, D-Seminole. “It doesn’t make sense to wait until halfway through the fiscal year to begin thinking about budget adjustments if new information is available indicating revenue problems ahead. The longer we wait to make needed cuts, the more drastic and painful the effects of those cuts tend to be.”

Kiesel likened revenue forecasting to weather forecasting: knowing there is bad weather ahead doesn’t hold off the storm, but it helps us avoid its worst effects by letting us know whether and when we should plan a picnic or bring an umbrella.

This year, an earlier forecast of the revenue problem would have given the legislature and executive branch more options and greater latitude to reduce the hardships resulting from budget cuts.

There are also benefits to knowing when good times are ahead, but rather than a picnic, legislators may plan for a bridge project, more aid to local communities struggling with infrastructure problems, or rebuilding our now rapidly declining Rainy Day Fund.

Currently, there is no procedure to provide a revised estimate until the Board of Equalization meets in late-December to make its initial certification of the next year’s revenue.

There is an annual economic forecast prepared by the Office of State Finance, but as David Blatt of the Oklahoma Policy Institute noted in a recent article, “it is not sufficiently documented, widely circulated, or incorporated into budget planning by the governor, legislature or state agencies.”

Kiesel’s bill also creates an Oklahoma Revenue Forecasting Board, which would assist the Office of State Finance and the Oklahoma Tax Commission in the preparation of revenue estimates. Its membership would be composed of the director of the Office of State Finance, the directors of the fiscal staff for both the Oklahoma House of Representatives and the State Senate, a member of the Oklahoma Tax Commission, and one economist each from the faculty of the University of Oklahoma and Oklahoma State University.

“This proposal utilizes people who are already employed by the state, so we would not be creating new positions or adding to the cost of government,” Kiesel said.

We hope that the bill, which has been referred to the House Appropriations Committee, gets a hearing and makes its way through the legislative process.