Can fleets help fill in state revenue shortfalls?
Municipal fleet managers take heed: one major reason your services will be more valued now and in the future to state governments is that it’s getting harder and harder to estimate revenues, meaning that shortfalls are becoming a far more common occurrence. According to a report published in 2011 by the Pew Center on the States and The Nelson A. Rockefeller Institute of Government, state governments are making more serious errors in estimating their revenues during tough economic times.
The report, “States’ Revenue Estimating: Cracks in the Crystal Ball,” found that in fiscal year 2009 — the first of the ongoing budget crisis — half the states overestimated revenues by at least 10.2 percent, equating to an unexpected shortfall of nearly $50 billion in personal income, corporate income and sales tax revenues.
Pew’s study found that the primary culprit driving more serious and frequent errors is not the states’ processes, methods and techniques, but rather the increasing volatility of the revenue streams. That appears to result from states’ growing reliance on income taxes and the ways in which highly fluctuating capital gains affect income tax revenue, noted Susan Urahn, managing director of the Pew Center on the States. “The stakes are high for policy makers as they continue to wrestle with significant budget gaps,” she says. “Errors in revenue estimating have been growing in size and frequency with each recession. This makes the challenging process of balancing state budgets even more difficult.”
The report’s research covered 1987 to 2009, a 23-year span that takes in three recessions and three stretches of economic growth for all 50 states. Over that more than two-decade period, half of all states’ revenue estimates were off by more than 3.5 percent, or $25 billion in 2009 dollars, with those larger errors occurring more frequently in the past 10 years.
Estimates grew progressively worse during the last three economic downturns, the two organizations noted. For example, during the 1990–1992 revenue crises, 25 percent of all state forecasts fell short by 5 percent or more, but by the 2001–2003 downturn, 45 percent of all state forecasts were off by 5 percent or more. In 2009, however, a whopping 70 percent of all forecasts overestimated revenues by 5 percent or more.
“States have faced increased responsibilities and expenses at the same time revenues have become less predictable,” says Thomas Gais, director of the Rockefeller Institute of Government. “If elected officials don’t get good revenue forecasts, they’re not only forced to change their budgets and tax policies after they learn about errors, they’re also contributing to citizens’ skepticism about the budget process. Such skepticism, in turn, may make it even harder to build the coalitions needed to reduce large budget gaps.”
- Read the main story, “Fleet managers hold keys to reducing government costs,” to how strategic savings on vehicles can help meet budget and operational goals.
Sean Kilcarr is senior editor at Fleet Owner, an American City & County sister publication.