WV Center on Budget and Policy > Blog > Tax and Budget > Revenue Projections Are Often Political

Revenue Projections Are Often Political

AP has an article this morning showing that the state is running a $24 million surplus in the first month of FY 2011. Mark Muchow, Deputy Secretary of Revenue (and the guy who calculated the revenue projections for FY 2011), said it was “mostly due to…early lottery fund transfer and one-time liquor license renewal payments.” The WV State Budget Office has not posted the July FY 2011 revenue report, so it’s hard to know exactly know how this all shapes out. If Muchow is correct, then this isn’t much of a story because sales and income tax collection are the best measures of economic performance; not one time transfers.

The real story in this article is here:

“The state missed last year’s estimate by more than $29 million, as the
Great Recession weakened the economy more than projected. But $119
million in midyear spending cuts plus an estimated $12 million left over
in state agency accounts more than offset the revenue shortfall, Muchow
and state Budget Director Mike McKown said.

They pegged the surplus Monday at $102 million above what the state
actually committed in its budget for the prior year. Half that amount
will boost the state’s emergency reserves, already among the nation’s
strongest when measured as a percentage of state spending. The rest
should help West Virginia balance its budget for the year that begins
July 1, 2011.

“If we hold everybody at current levels and all current programs
continue, we’re still looking at a $200 million deficit,” McKown said.
“Having these surpluses is surely something of a luxury. It’s nice to
have these.
And it didn’t come by accident. We’ve been planning for
this.”

I wonder how many legislators – not to mention the public – understand that the FY 2010 mid-year cuts were not about a projected $119 million revenue shortfall – as the Governor said in this letter – but about funding the FY 2012 projected revenue shortfall. This isn’t a terrible strategy, but the mid-years cuts sure were not sold with that intent.

I also wonder if AP understands that revenue projections are political.  They can be used to fit the political agenda of the Governor. This is because the legislature has to live within the projection unless they want to raise revenue from an additional tax or fee to fund their legislation. By underestimating revenue projections, the Executive branch can, in essence, control the Legislative branch to some extent.

When revenue projections are underestimated, half of the surplus flows into the Rainy Day Fund and the other half funds the  Governor’s supplemental appropriation bills  (he makes recommendations in the Executive Budget that are usually followed).

Let’s hope Legislators and the press take note.


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