Not too shabby: Comparing our revenue forecasts and theirs

Earlier this month, we released a brief that provided our projections for state revenue collections for Fiscal Years 2011 through 2014.  Last week, the State Board of Equalization certified its official preliminary revenue estimates for FY ’12, along with updated projections for FY ’11, which we discussed in this blog post. The Board’s forecasts are very closely aligned with ours.  For FY ’11, our middle forecast is for General Revenue collections of $4.969 billion, compared to $4.949 billion projected by the Board, a difference of $20 million, or a mere 0.4 percent. For FY ’12, we are forecasting GR of $5.121 billion, which is $19 million, or 0.4 percent, above the official estimate certified by the Board of Equalization.

We point this out for two reasons. First, to unabashedly toot the horn of our forecasting guru, Paul Shinn, for developing a methodology that so closely anticipates the numbers developed for the Board of Equalization (you can read the technical memorandum explaining his  methodology by clicking here). This is the second year of our forecasting project; last year, Paul’s middle forecast for FY ’10 GR came in within 3.5 percent of actual full-year collections.

But in addition to patting ourselves on the back, it is also worth offering a reminder of the major finding of our forecasting brief: that revenue collections are likely to continue to recover only slowly and partially from their collapse during the downturn for the next several years. In fact, we project that, under current policies, revenues are unlikely to return to pre-downturn levels even by FY ’14 (see the Chart above).  There is no official Oklahoma estimate of what revenue collections may look like past FY ’12 (and there won’t be one until next December); however, our projections of an extended period of fiscal distress corresponds with what those who are looking at this from a national perspective are warning is likely to be the situation for most states, as in this article about outgoing NGA Director Ray Scheppach:

Though the recession may be over officially, history shows that for the states, the worst times come in years one, two and three after the recession ends. Scheppach said states would probably not return to revenue levels they enjoyed in 2008 until 2013 or 2014.

So after four decades in which revenues rose virtually interrupted at more than 6 percent annually, states are in the middle of what could be five years with no net revenue growth.

Of course, the further out we look, the greater the uncertainty of any forecasts, and we do not anticipate that our forecasts will hit the mark exactly. But as policymakers and advocates prepare for the 2011 legislative session and the short-terms challenges of funding core public services, we hope they will proceed on the assumption that our serious fiscal challenges won’t be over anytime soon. This makes even more essential that we create a revenue structure that better supports our funding obligations, make smarter expenditure decisions, and create a budget process that supports sound fiscal management and planning.