Revenue forecasting under the best situations is an uphill struggle for those establishing and handling community and state budget plans, however the COVID-19 pandemic has made the job much more challenging. Which reality has meant brand-new and unanticipated obstacles for policymakers looking for to strategically allocate funds and utilize reserves.
Without understanding how the pandemic may impact consumer behavior, how state and regional revenue streams may be affected by that habits, or what actions federal legislators may take in action, state and regional leaders face considerable budgetary choices with little information.
At a late August webinar hosted by The Pew Charitable Trusts, a leader of the District of Columbia's recent efforts went over how D.C. has leveraged its stress screening procedure and adapted income evaluation tools in this time of uncertainty.
Speakers at the session for state and regional officials, firm directors, and budget analysts consisted of Norton Francis, director of earnings estimation for the Office of Revenue Analysis in the D.C. Office of the Chief Financial Officer, and Don Boyd, co-director of the State and Local Government Finance Project at Rockefeller College at the State University of New York, Albany and principal of Boyd Research.
Francis summed up D.C.'s process for income estimation prior to the start of COVID-19, highlighting current growth, particularly in the food and hospitality industry. Last year, Francis' group cautioned that an economic downturn was significantly likely because of changes in worldwide trade policy, a downturn in in-migration, and housing cost concerns.
To get a sense of numerous possible economic situations, the Office of the Chief Financial Officer completed a stress test of the city's finances. That proved to be a valuable exercise as D.C. responded to the fiscal impacts of the pandemic, Francis stated.
After the pandemic hit earlier this year, authorities faced an essential obstacle in forecasting since they needed to quickly collect income data to get a more precise assessment of what was happening at a time of quick modification. In response to this difficulty, the workplace began collecting alternative information that estimated real-time revenue, including restaurant reservation counts, aggregate charge card usage, and smartphone usage.
“We knew we were in a various environment and the conventional techniques would not work,” Francis stated.
D.C. authorities developed revised revenue forecasts, based upon month-to-month alternative data, and matched the results with Mayor Muriel Bowser's phases for reopening. Francis' team then forecasted how different industries may rebound from the economic crisis. As a result of the updated forecasts, Bowser and the D.C. Council made policy modifications to make sure that D.C. would preserve a balanced budget plan. Those included deferring capital project funding and passing emergency expenditure decrease measures.
Francis outlined crucial takeaways from D.C.'s quote work. Since regional leaders should run sometimes as a city, county, or state, their income forecast procedure can act as an example throughout different levels of government. He highlighted the importance of robust recession planning, including the stress testing that analyzed numerous economic scenarios to assist D.C. develop a variety of economic crisis plans. Since it completed this preparation ahead of time during a time of economic stability, it had a blueprint ready for tackling the abrupt economic decrease in the spring of 2020.
Francis emphasized the significance of well-resourced reserves for states, counties, and areas. “The District's reserves gave policymakers some breathing room as the situation was unfolding, allowing leaders to concentrate on the general public health emergency at hand,” he said.
Having those resources offered also implied that policymakers would not need to make extreme midyear cuts to programs and services.
Lastly, Francis said, forecasters need to be flexible when completing evaluations, especially during unexpected occasions such as the pandemic. When scenarios alter, they may need to pivot to new methods, as the D.C. group did when turning to charge card and cellphone data.
Boyd then used remarks and presented concerns to Francis from individuals on concerns such as D.C.'s special budgeting requirements, its population loss during the pandemic, information on alternative data sources, and possible changes to the forecasted timelines utilized in the income projections.
The slides from this webinar are offered to download below. More details on Pew's work on economic crises and the pandemic's effect on state budgets can be discovered here.
Jeff Chapman is a director and Airlie Loiaconi and Dana Westgren are senior connect with The Pew Charitable Trusts' state financial health project.Source: pewtrusts.org