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Wednesday, February 16, 2011

Mind the Gap! The Gap Between the LAO Forecast for Revenue in Budget Outyears and the Governor's

The Legislative Analyst has posted a forecast for the three major taxes that feed the state budget that is more pessimistic than the governor's forecast. However, the gap mainly occurs in the outyears, i.e., years beyond the current budget proposal for 2011-12. The forecasts include the governor's proposed tax extensions which would have to be approved by voters. However, the difference between the two forecasts (LAO vs. governor) is based on underlying assumptions about state economic performance. So presumably, a similar gap would exist regardless of what future tax rates are assumed.

The chart below summarizes the gap:


LAO includes a cautionary note that forecasting is particularly difficult in the current period.

The LAO's analysis is at http://www.lao.ca.gov/laoapp/budgetlist/PublicSearch.aspx?Yr=2011&KeyCol=381

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