Report: Fiscal Office tax predictions fairly reliable, but cautious
By Anthony Hennen | The Center Square
HARRISBURG, PA – According to a recent internal examination, Pennsylvania’s Independent Fiscal Office says its track record for economic modeling has been fairly reliable, if a bit cautious.
The IFO is responsible for estimating tax revenues and the fiscal impact of potential laws. Its Revenue Estimate Performance report reviewed its predictions since the office’s creation in 2011 to review and understand its forecast errors.
The report defined “a solid forecast” as “a total forecast error that is within one percentage point of actual revenue collections.”
For three of the 10 years, the IFO noted its forecasts were within one-half percentage point of actual revenues (in 2012-13, 2015-16, and 2017-18).
With the effects of the pandemic, unsurprisingly, its estimates were much less reliable.
In 2019-20, the estimate was 3.8% higher than actual collections ($1.3 billion), thanks to a dip in the economy.
Then, in 2020-21 and 2021-22, estimates were 11.2% ($4.5 billion) and 12.9% ($6.2 billion) lower than actual collections, respectively.
As The Center Square previously reported, the higher-than-expected tax collections came from big increases in personal income and corporate income revenues, as well as sales taxes.
Federal and state policy changes also gave the IFO trouble in predicting tax revenues, thanks to changes in tax bases, federal stimulus spending, and taxpayer behavior.
Of the 10 estimates, six under-predicted actual revenues and three over-predicted them (with one being “essentially the same as the actual amount”). The IFO was confident in its economic model, all in all.
“Excluding the past three years due to the highly unusual economic conditions generated by the pandemic, unprecedented federal stimulus and subsequent recovery,” the report noted, “the pattern of forecast errors from past budget cycles does not suggest an inherent bias in General Fund revenue estimates.”
Outside the pandemic-affected years, the largest inaccuracy in revenue estimates was in 2018-19, when tax collections were 2.8% ($959 million) higher than expected.
