The Budget Blog

A Critical Consensus Estimate

The consensus revenue estimating group will meet Tuesday, November 6, to complete one of the most important forecasts of State General Fund (SGF) revenue it has ever made.

The group will produce its first estimate of fiscal year 2014 revenue, taking into account the huge tax changes enacted during the last legislative session. The new estimate determines the size of the next budget.

The estimating group include staff from the Division of the Budget, Department of Revenue and Legislative Research Department, plus three university economists. Although 15 or 16 people may be in the room for the final estimate decisions, the “consensus” is really between the Division of the Budget and the Legislative Research Department.

In May, the budget director and secretary of revenue publicly disagreed with estimates made by the Legislative Research Department on the effect of the income tax cut bill. Those same parties are now charged with reaching a consensus estimate on November 6. And now there is perhaps even more potential for disagreement because large changes to sales and income taxes estimates would dramatically affect the next budget.

In the current fiscal year, the state expects to receive $2.575 billion from sales and use taxes, and $2.87 billion from individual income taxes. However, in FY 2014 both totals will drop markedly. Sales and use taxes are currently based on a 6.3 percent rate, but on July 1, 2013, that rate will decrease to 5.7 percent, with 0.4 percent dedicated to the state’s highway fund. For the SGF, that means a swing downward of more than $400 million from what would have been collected if the rates were not changing.

Individual income tax receipts already are forecasted to be down in FY 2013 as a result of last year’s tax cut law, but the full force of the tax cuts hits in FY 2014. The Kansas Legislative Research Department has estimated that the tax law will lower individual income tax receipts in FY 2014 by $847.8 million.

By late afternoon Tuesday we will know what consensus the group came to. State law says that if a consensus cannot be found, the governor will use the estimates of the budget director and the Legislature will use the estimates of the Legislative Research Department. For more than 30 years, though, consensus has always been reached. Failing to achieve consensus would be quite a notable circumstance.

The consensus revenue estimate predicts the future, and — because of that — will be imperfect. However, the estimators have incentive to work as accurately as they can and not artificially inflate or deflate the estimate. Ultimately their work will be graded by what actually happens. The Legislative Research Department and Division of Budget keep a running tally of how close past estimates have come to reality. This first forecast of FY 2014 revenue peers 20 months into the future, but by July of 2014 we’ll know the final number.