Budget Education: Forecasting Kansas Revenue
Adequately funding state government operations and providing programs and services for Kansas residents require careful budget planning and continuous monitoring throughout the year. State law requires that the budget approved by the Legislature be balanced, meaning that expenditures cannot exceed revenues.
Because the next fiscal year's budget is created with the most current forecasts in mind, predicting the revenues that will meet the priorities and spending plans outlined in the budget is a challenging but critically important part of the budget cycle.
In the coming weeks, the November revenue estimates will be developed and released, providing guidance for the FY 2024 budget. The estimates will help the state prepare and plan for unexpected events that could force the state to tap into emergency savings.
There are several ways to forecast revenues, and there is no single method that is completely accurate all the time … because it is not a crystal ball. However, Kansas, along with 27 other states, uses the best-practice recommended method, which engages the executive and legislative branches along with independent experts to reduce political and policy biases and create a forecast that is reached by consensus. This consensus-based process has been used in Kansas since 1975, spanning 10 governors and thousands of legislators across the political spectrum.
Composition and Process
Kansas’ Consensus Revenue Estimating (CRE) group is comprised of the Director of the Budget and staff from the Division of the Budget, the Director of Legislative Research and staff from the nonpartisan Kansas Legislative Research Department, and one consulting economist each from the University of Kansas, Kansas State University, and Wichita State University.
The group meets in April and November to analyze state and federal legislative tax changes, national and state economic trends, and historical information that could affect State General Fund (SGF) revenue in the coming year. The November estimate revises the current fiscal year’s estimate and forecasts the next one or two fiscal years, providing the starting point for the Governor’s Recommended Budget, which is presented to the Legislature in January and from which they then develop the next year’s budget. The April estimate revises the current fiscal year. A third, smaller CRE is held in June after the legislative session ends to adjust the for legislative changes that could impact SGF revenues in the short term.
The accuracy of the CRE forecasting method has a huge impact on state government operations and the services it provides. Overestimating revenues — where more revenue is expected and budgeted than is collected — can lead to a budget deficit where there is not enough money to pay for everything planned for the year. This usually results in devastating cuts to programs, services, and sometimes staffing as costs must be reduced to maintain a balanced budget as required by law.
Underestimating revenues - where more revenue is collected than was expected or planned for - often leads to a budget surplus, which can allow for one-time investments like rainy day savings, tax relief, or other investment opportunities that may arise during the year. While surpluses are overall better than deficits, the tax policy that underpins the budget must be equitable and sustainable, avoiding large fluctuations in either direction.
An estimating process like Kansas uses is generally quite accurate because it is consensus-based, combining the analysis and advice of experts in the field. Most overestimates/deficits are the result of very difficult-to-predict economic downturns for which the best the state can do is be prepared enough to endure.
Improving the Consensus Revenue Estimate Process
While Kansas does, in essence, use the recommended revenue estimating method, there are key changes that would make the process more transparent, inclusive, and reliable to lawmakers and the public. Currently, the CRE group’s meetings are not open to the public nor are they recorded and/or broadcast. Only the results of the meeting are presented in the form of a press conference and written memos.
Making the process more transparent and accessible to the public and a broader group of legislators can help foster debate about how the state generates revenue and plans expenditures, create better stewards of taxpayer resources by increasing fiscal knowledge and discipline, and build public trust. In contrast to Kansas, 30 other states keep revenue estimating meetings open to the public or minutes of the meetings are published.
The budget affects the lives of all Kansans, and the process to develop and execute it should be engaging, accessible, and transparent to lawmakers making important decisions and to the Kansas voters they represent.< Back to the news list