Forecasting revenue is the first step to crafting a new state budget. Nevada recently earned praise for its revenue forecasting practices in a new report by the Center for Budget and Policy Priorities (CBPP). This report argues that transparent and inclusive revenue forecasting processes can lead to a more democratic debate and greater fiscal discipline.
CBPP has identified five best practices for revenue forecasting: (1) implementing a consensus forecasting process; (2) including non-governmental experts in the forecasting process; (3) providing forecast and assumptions online; (4) developing forecasts with public oversight; and (5) revising forecasts mid-session. Nevada is one of 13 states that has implemented all five best practices (see Figure 1).
Source: Center for Budget and Policy Priorities. August 2014. Improving State Revenue Forecasting: Best Practices for a More Trusted and Reliable Revenue Estimate.
More detail on each of the best practices and how they are implemented in Nevada is provided below.
- The Governor and Legislature should jointly produce the revenue estimate. Nevada created the Economic Forum in 1993 to produce independent General Fund revenue estimates that must be used by the Governor and Legislature during the biennial budget process (Nevada Revised Statutes (NRS) 353.226). There are 5 members of the Economic Forum. All members are appointed by the Governor, with the Senate Majority Leader and Speaker of the Assembly each nominating one member.
- The forecasting body should include outside experts. None of the members of Nevada’s Economic Forum can be State employees or work in the Nevada System of Higher Education (NSHE). “Each member must be an expert with demonstrated ability in the field of economics, taxation or other discipline necessary to economic forecasting and be able to bring knowledge and professional judgment to the deliberations of the Economic Forum” (NRS 353.229). There is also a 7-member Technical Advisory Committee on Future State Revenues that includes key state and NSHE staff, as well as a demographer
- The forecast and its assumptions should be published and made easily accessible on the Internet. The Legislative Counsel Bureau (LCB) maintains a website for the Economic Forum that includes historic and current forecast reports. These reports contain information on the assumptions used to generate the forecasts. The LCB also maintains a website for each Interim period that includes agendas and detailed meeting packets for the Economic Forum, as well as General Fund revenue monthly status reports.
- Meetings of the forecasting body should be open to the public. All of the Economic Forum’s meetings are open to the public and individuals may speak during the public comment period. The meetings are also broadcast live on the Internet.
- Estimates should be revised during the budget session. The Economic Forum provides one revenue estimate on or before December 3 of even-numbered years to be used by the Governor for the proposed budget and a second estimate on or before May 1 of odd-numbered years to be used by the Legislature in the final budget. The Economic Forum also meets on or before June 10 of each even-numbered year, and December 10 of each odd-numbered year to receive an update on State General Fund revenue collections compared to the Economic Forum’s most recent forecast.
Nevada’s revenue forecasting process is well established, and is trusted and respected across different levels of state government. CBPP argues that implementing all 5 best practices leads to a healthier, more democratic debate, boosts the public trust, and may produce better results.
Other Budget Planning Tools Can Improve Economic Stability
In a related CBPP report released in February 2014, Nevada ranked sixth in the nation for its use of budget planning tools. The Silver State was commended for its use of the Economic Forum as well as the nonpartisan Legislative Fiscal Bureau, which provides fiscal analysis to both the Senate and Assembly. Nevada also implements several other best practices such as requiring fiscal notes to estimate the cost of each bill with a fiscal impact, requiring a rainy day fund to weather tough economic times, and placing limitations on issuance of debt.
While Nevada has many effective budgeting tools in place, the Guinn Center for Policy Priorities commented in the Las Vegas Sun that CBPP has identified several areas for improvement. Nevada’s budget does not currently include multiyear forecasts of revenue and spending. Nevada also lacks independent review of pension assumptions methods and investments. Implementing these tools will help Nevada take a long-term view of its future workforce, population, and infrastructure needs. It will also make the Silver State more attractive to businesses by providing more certainty about taxes they will owe and services they will receive.