NJPP Testimony: Consensus Revenue Forecasting is Important First Step Towards Sound Budget Planning


consensus forecasting map-01My name is Sheila Reynertson and I am a senior policy analyst at New Jersey Policy Perspective, a nonpartisan research organization focused on state budget, tax and economic issues. Since NJPP’s inception in 1997, we have proposed – and the state has adopted ­– a number of ways to make the budget-making process better, including pushing the state to issue annual Tax Expenditure Reports, detailing how much money the state loses due to various tax breaks and deductions.

This August, we – along with our national partners at the Center on Budget and Policy Priorities – proposed that New Jersey adopt a consensus process for estimating revenues. We applaud the Chairman and his colleagues for proposing a bill to establish a joint legislative and executive branch Consensus Revenue Advisory Board. More than half the states – 28 – have adopted this proven budget forecasting framework, which ensures both greater financial discipline and more robust and open debate about a state’s true financial condition.

Given the record of New Jersey’s last three budgets and the consequences of flawed revenue projections, a change in the revenue forecasting process is long overdue.

Consensus forecasting is much more likely to take the politics and personalization out of budget-making. Take Connecticut as an example, one of the states to most recently adopt consensus forecasting after years of wasted time arguing over the best revenue estimates. Since new rules took effect in 2009, the legislature and governor have come to a consensus before the mandated deadline each year and have used updated estimates to make mid-year appropriations adjustments.

Good forecasting is also a key characteristic of states with high bond ratings. In fact, Moody’s includes consensus revenue forecasting as one of the five “Financial Best Practices” it uses to rate states. Adopting this best practice might improve New Jersey’s prospects among the major bond rating agencies – an overdue positive step following eight rating downgrades in five years.

Finally, while we are heartened to see this legislation moving forward, we encourage policymakers to make this a first step toward creating a comprehensive roadmap for sound long-term budget planning. Long-term planning that includes multi-year revenue and spending projections and more transparency might raise questions and issues that one-year budgeting intentionally avoids and, optimistically, break the cycle of accounting games and gimmicks that have dug our deep financial hole.