The latest numbers from the state OMB showed some interesting information regarding taxes, again. Rather than focus on sales tax this time I thought we could branch out into income taxes. Why? Sales tax revenues get the bulk of attention in the media and from me generally and I think branching out is important. Another reason is as the impacts and effects of the oil decline transmit into other sectors more fully, and the state budget cutting starts to fully take effect, we will see other revenues exhibit declines. My interest in the overall forecasting process, if we can call it that, also means we need to branch out into other revenue areas to understand the complete picture of the revenue process. The individual income tax revenue was also almost $20 million short of the forecast in May. With that in mind here is the picture for actual versus forecast individual income tax revenues in North Dakota:
I think it hardly needs mentioning again, but I guess I will: the legislative process in North Dakota probably makes it even more important that we have some confidence in our revenue forecasts. Our legislators are meeting for three months to determine budgets for the next two years. There is always the possibility of a special session if need arises, but you want that to be the truly exceptional case. Now I am not suggesting that anyone will ever get the numbers spot on, 100% accurate, but we can get closer.
The state released an updated forecast from Moody’s today along with some slides that make little sense (found here). I would go into the details of the forecast but why bother? We have absolutely no insight into the forecast process followed, the assumptions underlying any model relationships, or even a list of variables employed and the time period considered. Seriously, if this were my forecasting class, they would fail.
I continue to think about the tax situation in North Dakota right now, particularly trying to understand what the data are trying to tell us. Obviously I want to avoid a situation of torturing the data until they confess, but that should not stop us from slicing and dicing the data to find something meaningful.
We are getting a new forecast this week for tax revenues in North Dakota. Or so we are told. I’ve written about the problems with these forecasts in the past, but there is a further issue here needing discussion. The simple fact of the matter is a lack of good practice in the overall approach, particularly with how forecast results are disseminated.