Pennsylvania’s Revenue-Estimating Process Doesn’t Add Up

Sharon Ward |

The Pennsylvania Budget and Policy Center’s analysis last month of the state’s 2014-15 budget cites “myriad dubious revenue sources, including an increase in collections well above what the Independent Fiscal Office projected.”

Now comes a timely, new report from the nonpartisan Center on Budget and Policy Priorities in Washington, D.C., grading the process by which states generate revenue estimates for annual budgets.

The Center evaluated states on a scale of one to five, based on the number of best practices they used to arrive at revenue estimates. The more best practices employed, the more reliable the estimate and the higher the state’s score.

Pennsylvania and five other states scored a two. Thirty-eight states and the District of Columbia scored higher; five states scored lower.

While that’s hardly a ranking to celebrate, Pennsylvania budget-builders do follow two of the report’s recommended best practices—publishing and making available online revenue forecasts and the assumptions underlying them as well as revisiting the forecasts for the upcoming year during the budget session.

That leaves three of the report’s recommended best practices yet to be adopted by Pennsylvania: using consensus forecasting; including non-government experts in the forecasting body; and developing the forecast in open meetings.

PBPC believes Pennsylvania should pursue the following reforms to its revenue-estimating process:

· The governor and legislature should jointly produce the revenue estimate. For example, the Department of Revenue, the Budget Office, and the Independent Fiscal Office could develop the estimate. Such a consensus process would increase trust in the numbers.

· The consensus estimate should guide development of the initial and final spending plans.

· Meetings of the joint revenue forecasting body should be open to the public.

In an Aug. 11 Capitolwire story on the report, Sen. Pat Browne, R-Lehigh, said his intent in drafting the legislation that created the IFO four years ago was to reduce the friction and delays in the budget process caused by competing revenue estimates from the governor’s office and the legislature. Arriving at a revenue estimate should be an objective process rather than the result of negotiation, he said.

But lawmakers didn’t want to cede ultimate authority in revenue forecasting to an unelected body, so they didn’t mandate that the IFO’s revenue estimate be the starting point of the budget process, Browne told Capitolwire.

As PBPC director Sharon Ward observed, “Pennsylvania took one step forward by creating the Independent Fiscal Office in 2010. We need to complete the reform by instituting a transparent consensus process where the governor and legislature agree on a revenue number that is publicly vetted at the beginning and at the end of the budget process.”