Breaking With Tradition: Revenue Estimates Made Defective by Tax Plan

October 6, 2016

Kansas has had significant trouble meeting monthly estimated revenue targets, and the only cause of this is the tax policy misadventure that began in January 2013. Our research has found that Kansas’ monthly revenue estimates were much more accurate before the tax cuts than after.

We’ve written before about how the massive shock to our revenue stream caused by Governor Sam Brownback’s 2012 tax plan has led to revenue estimating problems. In fact, our overall revenue estimates prior to the tax cuts – going all the way back to their beginning in 1975 – were quite accurate, and actual revenue averaged about 0.2% above estimates. Our biggest estimate miss, however, came after the tax plan went into full effect when the estimate was off by 5.6%. Even during the shock of the Great Recession, the most Kansas missed estimates was by 2.1%.

With this research in hand, the news of revenues falling sharply off estimates in September is hardly a surprise.

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In fact, before the tax plan began to take effect, we missed just one out of every three months. But since then, accuracy plummeted as revenues dropped sharply and failed to recover. Indeed, we have now missed estimates over 70% of the months since the tax plan went into effect.

Kansas’ revenue estimating system has, by many accounts, worked well over the years. The Alvarez and Marsal (A&M) study on Kansas’ government efficiency states that, “Kansas’ historic forecasts have generally been reasonably accurate, but the most recent two years have shown deviations from the historic level of accuracy.”

Other fiscal policy experts have indicated that our revenue estimating process is one to be modeled after. The Center on Budget and Policy Priorities identified ‘best practices’ for revenue estimation, and Kansas was one of the top states in their ranking.

Despite evidence indicating that our revenue estimations are sound, new recommendations from the revenue estimates task force are to eliminate the monthly estimate comparisons altogether. However, this further reduces budget transparency, as we are unable to have regular updates on whether we’re meeting our revenue targets. Transparency has already suffered lately after the Governor decided to ditch regular reports of the economy, even though timely analysis of economic data is one of the recommendations from the revenue task force to improve estimate accuracy.

So the question remains: why do we keep missing revenues? The 2012 tax plan caused a significant shock to our formerly stable revenue stream, making it more difficult to predict where revenues are going to show up.

Regardless, what we do know is this: Kansas’ revenue estimates have traditionally been accurate, up until the tax plan took effect. Outside experts have looked at our estimating process and given it high marks, yet have noticed how the tax plan has caused a sharp decrease in the accuracy of the process.

It looks like, on yet another dimension, the tax plan has completely and utterly failed.

ClayBreaking With Tradition: Revenue Estimates Made Defective by Tax Plan