Weekly wrap: Forecasting revenue is a lot like predicting the weather these days

The inability of states to accurately forecast how much tax revenue they will haul in month by month is a characteristic of this recession.

In normal times, missing a month’s revenue prediction is not a big deal. But during a time of record revenue losses for states, the monthly estimates are crucial to sizing up a budget gap, as Virginia found out Tuesday (Nov. 17) in announcing it may have to cut nearly $3 billion by 2012  and California discovered a day later when it estimated a $21 billion hole over the next 19 months. Shortfalls have opened up in more than half the states for the current budget year. State leaders have expressed frustration that they cannot better predict monthly revenue.

“Have we been this wrong before? No,” John Mikesell, an Indiana University professor who has helped with the state’s tax estimates for 30 years, said Tuesday (Nov. 17), according to the Indianapolis Star. Indiana’s monthly tax revenue estimates have been off for 13 months, not unlike most states.

Now, the eight folks like Mikesell who project Indiana’s revenue—“a glum group,” Mikesell said—are trying to make changes to the forecasting model to mend the system, such as by relying less on past recessions and recoveries to make predictions about the current one. If the group succeeds, other states could copy Indiana.

John Ketzenberger, president of the Indiana Fiscal Policy Institute, told the newspaper, “The truth, the reality, is that things have changed fundamentally in the economy, and as a result the method of forecasting revenue has to change.”

Gov. Haley Barbour (R) is certain to stir debate in Mississippi and other states after proposing Monday (Nov. 17) to reduce the number of state universities from eight to five as a cost-cutting move.

Barbour was not the only person in a merge mode this week. The head of a taxpayer group in Iowa said his state could save millions of dollars by merging Iowa’s three public universities into a single system. Michigan Gov. Jennifer Granholm (D) continued her six-year effort to consolidate state agencies by announcing Tuesday (Nov. 17) she planned to merge the departments of management and budget and information technology.  The idea of consolidating towns and school districts, which receive state aid, also was broached in New Jersey and Ohio.

In recommending a 12 percent budget cut for the fiscal year that starts July 1, Barbour said two historically black universities, Mississippi Valley State and Alcorn State, should be combined with Jackson State. He said Mississippi University for Women should be merged with Mississippi State.

 “Mergers are preferable to closures,” he explained, according to the Jackson Clarion Ledger. The three schools have about 8,640 students.

Some state lawmakers objected, and one Mississippi Valley alumn, Carver Randle, told the newspaper the mergers “would send one of the worst messages possible to the rest of the country” about education opportunities for African Americans.

Gov.-elect Chris Christie (R) of New Jersey backs consolidations of local governments in a state with 566 towns and 616 school districts. The issue first came up with Gov. Jon Corzine (D), who threatened to withhold state aid to New Jersey’s small towns if they did not merge but retreated after complaints from local officials. A piece in the Philadelphia Inquirer on Thursday (Nov. 19) discusses the difficulty for Christie in making this change.

In Ohio, the state’s professional accountants called on state officials to consider combining some of Ohio’s 942 cities and villages, 1,308 townships and more than 600 school districts to cut costs. J. Matthew Yuskewich, chairman of the Ohio Society of Certified Public Accountants, said, according to the Columbus Dispatch, “Is there an opportunity in Ohio to move off the model that was established in the 1800s? Are townships really still a significant factor or serve a significant purpose?”