How hard is it to estimate Texas revenues?

The answer:  It depends. CPAs know that there is only one thing for sure about any projection;  it will be wrong.  Predicting the future is a challenging endeavor and evidently predicting Texas revenues has been a challenge for the last 40 years.  The Texas Tribune reports on a study done by the State Comptroller's Chief Revenue Estimator John Heleman comparing the biennual comptroller's revenue estimate with the actual revenue collected.  It's all over the map.

As might be expected, volatile ecomnomic times makes for big misses in revenue estimates.  When the economy suddently goes south, revenues fall short and when there is a boom revenues exceed estimates.  When there is a bust followed closely by a boom, revenue estimates are basically worthless.  For CPAs this is not a startling revelation.  The study also attempts to correlate certain economic factors with the accuracy of the forecasts, perhaps in an attempt to improve future estimates.

Democrats and Republicans alike have missed the mark by wide margins.  It appears that economic factors more than political ones are the reasons for major misses.  With Comptroller Susan Combs taking the heat for substantially underestimating revenues for the 2012-2013 biennium, it's interesting to note that former Comptrollers Strayhorn, Bullock and Calvert all missed their estimates by similar or even larger amounts.  Strayhorn, a Republican, understimated revenues by a wider margin than Combs, as did long ago Democratic Comptroller Calvert.  Even the long-time and legendary Comptroller Bob Bullock, another Democrat, overestimated revenues for the 1986-87 biennium by about the same amount as Combs underestimated.  The most amazing thing revealed by the study is that in ten out of the last twenty biennia, the estimates had an error rate of less than five percent.

Why all this concern over revenue estimates?  Unlike forecasts that CPAs make for business entities, the Texas Legislature is bound to issue a balanced budget than cannot spend more than the Comptroller's revenue estimate.  So everyone knows it will be wrong, but have to pretend it will be accurate.

If you want to know more, check out the TT article: Comptroller Study Shows Difficulty of Predicting Future.

 

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