Forecasting economy sometimes like playing darts

Forecasting economy sometimes like playing darts

by
Idaho Freedom Foundation staff
January 13, 2010
Idaho Freedom Foundation staff
Author Image
January 13, 2010

A central part of the budget Gov. Butch Otter presented to lawmakers on Monday is the projection of zero growth to state tax revenue.  That projection is lower than the forecast from Idaho chief economist Mike Ferguson, who is projecting for 3.57 percent growth in Idaho from July 2010 to June 2011.

Lawmakers and the governor’s office use the projection as the basis for most of state general fund spending in the next budget. Legislators acknowledge that is a challenge to predict the economic future, but a projection is necessary to have some idea of available funds and how and where they can be spent

Otter's budget chief Wayne Hammon told lawmakers Tuesday that projections from the Department of Financial Management (DFM) have been higher than actual tax collections since at least July 2008.  The slide showing the overoptimistic forecasts (shown above) also has a picture of a dartboard.

Hammon said the dartboard is on the slide for a reason. "Because we're always wrong," he said.  "Whenever we put out forecasts, we know that it's not going to be right. "  Hammon said that, during the past 30 years, DFM forecasts have been too high just as often as they've been too low.

The recent string of high forecasts has led Otter to put holdbacks on state agencies, including the $40 million cut being proposed for the current budget.

The newest Idaho tax revenue forecasts, finished last month, are already overestimating actual revenue.  Preliminary numbers from DFM say tax collections in December are $12.6 million short.

"There's a chance we could make it up," Hammon said.

The decision to go with a no growth budget rather than a 3.57 percent growth budget takes $83 million out of the general fund.  Otter has said that it's easier to not include that money now rather than issue more cuts in the middle of the budget year.

Sen. Dean Cameron, R-Rupert, one of the heads of the Joint-Finance Appropriations Committee (JFAC) that writes the final state budget, said the more conservative zero growth budget makes sense.  "The governor is reluctant that we'll have that kind of a swing (to economic growth, as are) legislative leaders" Cameron said.  "It'd make my life easier to budget to that number, but the risks of doing that are tremendously high."  Cameron said those risks include being unable to make cuts to agencies like public schools that can't lay off staff in the middle of the year due to union contracts.

But if Ferguson's growth forecast holds, that extra $83 million flowing into state coffers can't be spent until next year when lawmakers begin the next legislative session, according to both Cameron and Hammon.

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