A Case for an Ongoing and Onetime Revenue Distinction in Idahos General Fund Revenue Forecasts

1
A Case for an Ongoing and One-time Revenue
Distinction in Idahos General Fund Revenue
Forecasts

• Stephen Cooke, University of Idahoscooke_at_uidaho.e
  du
• http//info.ag.uidaho.edu/pdf/RES/RES0168.pdf
• Revised June 20, 2008
• Pacific Northwest Regional Economics
  ConferenceTacoma, Washington

2
Cuts in Parks Bring Home Tennessee Budget Woes
(NYT, Friday May 9, 2008)

• Forty-three states are reporting that revenues
  are not keeping pace with budget expectations,
  and 22 have begun cuts or hiring freezes,
  according to the National Conference of State
  Legislatures.
• Claim The Rule of Thumb ongoing one-time
  revenue forecasts may help solve the GFR cyclical
  instability problem for Idaho in the future

3
Idaho GFR Holdback Percentages (FY1981 - FY2003)
and Economic Index (CY00.1 to CY08.3)
4
Instability in Capital Gains and Housing Prices
5
Semi-log Scale Chart Comparing the Rates of
Growth of General Fund Revenue and Personal
Income in Idaho FY71 to FY06
6
RoT Functional Form of the Curve Estimated
Where R is the general fund revenueY is
personal income ?ry is the elasticity
parameter 2 is the future 0 is the past
7
Least Squares Regression Results for Estimating
the Elasticity of General Fund Revenue to
Personal Income (?gy) 1971 to 2006
(1,1) ARMA, Dependent Variable ln(R0/R1) General
Fund Revenue, Sample (adjusted) n36
8
RoT Growth in Idahos General Fund Revenue and
Personal Income, FY70 to FY06
9
RoT Ongoing GFR Forecast FY08
Idaho GFR FY08

• The trick
• Repeat the forecast 36 times (where 0 FY71 to
  FY07)
• Take the mean of the distribution as the ongoing
  forecast for R2

10
Actual and Forecast Nominal General Fund
RevenueIdaho FY98 to FY07
11
Four way comparison of GFR Forecasts ( mil.)
12
RoT Ongoing and One-time GFR ( mil.)Idaho FY00
to FY07
13
DFM-A Ongoing and One-time GFR ( mil.)Idaho
FY00 to FY07
14
Comparison of Ongoing and One-time GFR (
mil.)Idaho FY00 to FY07
15
Advantage of the Ongoing, One-time Distinction

• The RoT ongoing GFR forecast provided a larger,
  more stable revenue forecast w/ smaller error
  than DFMs betn FY00 and FY07
• A 2-yr lagged cumulative carryover, up to 10 of
  GFR, supports a more nearly self-financing rainy
  day fund through a pattern of off-setting highs
  and lows.
• The different between this cumulative carryover
  and rainy day fund equals one-time revenues
• The RoT ongoing one-time revenue approach can
  help solve the GFR cyclical instability problem
  for Idaho in the future