Revenue Forecasting in an Age of Uncertainty
Andrea Wilko, PhD, and Maddy Oritt, PhD, discuss the revenue estimation process in Utah, collaborating with various entities to forecast revenues for different funds and sources. The presentation covers forecasted revenues, revenue proportions, indicator variables, and other considerations such as federal and state policy changes and economic fluctuations.
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Presentation Transcript
REVENUE FORECASTING IN AN AGE OF UNCERTAINTY Andrea Wilko, PhD Chief Economist, Utah Office of the Legislative Fiscal Analyst Maddy Oritt, PhD Economist, Utah Office of the Legislative Fiscal Analyst
REVENUE ESTIMATION PROCESS - Statutory requirement UCA 36-12-13 - Collaboration between LFA, GOPB, Tax Commission - Revenue Assumptions Working Group - consensus inputs - Multiple models per office compare, identify gaps, come to consensus - At least twice annually
FORECASTED REVENUES General Fund Education Fund Individual income tax Corporate income tax Mineral production withholding Escheats and other Sales and use tax Cable/satellite excise tax Liquor profits Insurance premiums Beer, cigarette, and tobacco tax Oil and gas severance tax Metal severance tax Investment income Property and energy credit - - - - - - - - - Transportation Fund Motor fuel tax Special fuel tax Registration fees - - - - - - - Mineral Lease Royalties Bonuses - -
REVENUE PROPORTIONS Corporate Income Tax 6% All Other Sources 8% Unrestricted Sales Tax 30% Individual Income Tax 56%
INDICATOR VARIABLES Production and Spending GDP and GSP Utah exports Utah oil/gas/mineral production Demographics and Sentiment Population Migration Consumer sentiment Employment and Wages Employment Average annual pay Total wages - - - - - - - - - Sales and Construction Vehicle sales Housing starts Home price index Residential/non-residential permit values Taxable retail sales Total taxable sales Profits and Resource Prices Corporate profits Oil/gas/mineral prices Income and Unemployment Personal income Unemployment - - - - - - - Inflation and Interest Rates Consumer price index S&P 500 Federal funds rate 3-month Treasury discount rate 10-year Treasury yield 30-year mortgage rate - - - - - - - - -
OTHER CONSIDERATIONS - Federal and state policy changes - End of Bush-era tax cuts in 2012 - Trump tax reform in 2018 - Income tax filing delay in 2020 - Fiscal note impacts - Recent unpredicted variables - Infusion of large amounts of federal funds - Rapid drop and recovery in indicators - abnormal recessionary trajectory
IDENTIFICATION OF GAPS - Volatility analysis - Long-term budget - Budget stress testing
25% 20% 15% 10% VOLATILITY ANALYSIS 5% 0% 1997 2002 2007 2012 2017 -5% -10% -15% General Fund Revenue Sources Education Fund Revenue Sources Utah Economy
BUDGET STRESS TESTING Five-Year Value at Risk Five-Year Budget Reserves $5.0 $5.0 $4.5 $4.5 $4.0 $4.0 $3.5 $3.5 $3.0 $3.0 Billions Billions $2.5 $2.5 $2.0 $2.0 $1.5 $1.5 $1.0 $1.0 $0.5 $0.5 $0.0 $0.0 Revenues Expenditures Easy Moderate Somewhat Difficult Difficult to Access
- Performance metric 2.0% LONG-TERM AVERAGE PERCENTAGE VARIANCE FOUR MONTHS - 15-year average variance GF 1.02% - 15-year average variance EF 2.35% - 15-year average variance overall 1.77%
Consensus vs. Actual General Fund (Four Months) GENERAL FUND $3,000 $2,500 CONSENSUS ESTIMATES VS. ACTUALS FOUR MONTHS $2,000 Millions $1,500 $1,000 $500 $0 Final Consensus (GF) Actual (GF)
Consensus vs. Actual Education Fund (Four Months) EDUCATION FUND $5,000 $4,500 Trump tax reform $4,000 Expiration of Bush tax cuts CONSENSUS ESTIMATES VS. ACTUALS FOUR MONTHS Income tax filing delay $3,500 $3,000 Millions $2,500 $2,000 $1,500 $1,000 $500 $0 Final Consensus (EF) Actual (EF)
Consensus % Variance (Four Months) PERCENTAGE VARIANCE 50% 40% 30% CONSENSUS ESTIMATES VS. ACTUALS FOUR MONTHS 20% 10% 0% -10% -20% -30% -40% -50% Consensus GF % Variance Consensus EF % Variance Target % Variance
LONG-TERM AVERAGE PERCENTAGE VARIANCE 18 MONTHS - Performance metric 8.0% - 15-year average variance GF 1.30% - 15-year average variance EF 3.63% - 15-year average variance overall 1.67%
Consensus vs. Actual General Fund (18 months) GENERAL FUND $3,000 $2,500 CONSENSUS ESTIMATES VS. ACTUALS 18 MONTHS $2,000 Millions $1,500 $1,000 $500 $0 Final Consensus (GF) Actual (GF)
Consensus vs. Actual Education Fund (18 months) EDUCATION FUND Trump tax reform $5,000 $4,000 CONSENSUS ESTIMATES VS. ACTUALS 18 MONTHS Income tax filing delay Expiration of Bush tax cuts Millions $3,000 $2,000 $1,000 $0 Final Consensus (EF) Actual (EF)
Consensus % Variance (18 Months) PERCENTAGE VARIANCE 50% 40% 30% CONSENSUS ESTIMATES VS. ACTUALS 18 MONTHS 20% 10% 0% -10% -20% -30% -40% -50% Consensus GF % Variance Consensus EF % Variance Target % Variance
STATUTORY CONSIDERATIONS - JR3-2-402 requires EAC to consider treating above-trend revenue growth as one-time revenue - HJR 11 (2021 GS) requires EAC to decide whether to set aside special allocations for legislation that will reduce taxes
ABOVE-TREND REVENUE Federal Stimulus Corona Virus Relief - State Corona Virus Relief - Local Federal Grants to State Agencies Federal Grants to Local Agencies Paycheck Protection Program Individual Stimulus Aid Misc. Aid to Health Care and Businesses Total Federal Stimulus Percent of Utah's GDP CY 2020 688,000,000 562,000,000 585,000,000 322,000,000 5,205,000,000 2,494,000,000 1,493,000,000 $11,349,000,000 6.02%
QUESTIONS? Andrea Wilko awilko@le.utah.gov Maddy Oritt moritt@le.utah.gov
