Revenue Forecasting

1
Revenue Forecasting

• Budgeting and Fiscal Management Workshop
• 2004

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Overview

• Forecasting and your budget process
• Issues in revenue forecasting
• Qualitative revenue forecasting methods
• Quantitative revenue forecasting methods
• Problems in forecasting
• Major Revenues in Washington
• Some examples

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Forecasting and your Budget

• Budget in context of the big picture
• Multiple year plan using various assumptions
• Based on financial policies and goals
• Should include operating impacts of capital
  improvements
• Updated but relevant to policy makers

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Issues in Revenue Forecasting

• Establish base year
• Focus on major revenues
• Assess revenue growth trends
• Specify underlying assumptions
• Select appropriate forecasting method
• Validate forecasts
• Monitor revenue forecasts
• Update forecasts regularly

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Qualitative Revenue Forecasting Methods

• Judgmental
• using your professional judgments
• based on experience
• Consensus
• agreement on forecast by a knowledgeable group
• usually the result of discussions
• Expert
• referring to a stipulated expert

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Quantitative Revenue Forecasting Methods

• Trend analysis
• Time series forecasting
• Stationary / Non-stationary
• Regression analysis
• Econometric forecasting

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Forecasting Tips and Tricks

• Know your data / community
• No substitute for good data
• Use the common sense test
• Document the basis for your forecast
• Ask others (business leaders, etc)
• Present in an interactive work session(encourage
  feedback from policy makers)

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Problems in Forecasting

• Promote realistic estimates
• Outliers
• Compounding of growth factors / bow wave
• One-time revenues / expenditures
• Timing factors
• Weakness of CPI factors

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Major Revenues in Washington

• Property Tax
• Sales and Use Tax
• Business Taxes
• Utility Taxes
• Permits
• User Charges
• Others

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Average Revenues in Washington - 2002
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Property Taxes

• Assessed Value times
• Levy Rate equals
• Property Tax
• Subject to 1 increase (on tax)
• Plus new construction

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Sales and Use Taxes

• Gross Revenue of Retailers (and value of
  resources used by business)
• Tax Rates
• Sales tax base
• Cities get about 10 of total
• Streamlining

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Business and Utility Taxes

• B O tax
• .2 limit
• On gross receipts (without deduction for
  expenses)
• Utility Tax
• 6 on electric, telephone, gas (higher with voter
  approval)
• No limit on other utilities (water, sewer,
  garbage)

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Other Taxes

• Gambling tax
• Admissions Tax
• Cable TV Franchise
• Payments in lieu of Taxes (PILOT)
• Real Estate Excise Tax
• Hotel Motel Tax
• Leasehold Excise Tax
• Brokered Natural Gas

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Our Examples

• Macro Budget Workshop
• Mid-year review / forecast
• Special work session
• Long range forecast
• Context for budget / policy decisions
• Revenue forecasts
• Based on long-range forecasts

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