The Governor’s Revenue Forecasts Aren’t the Only Game in Town

Are the budget experts who work for Governor Brown the only analysts in California who can credibly project the amount of revenues the state is likely to receive in the near future? In our view, the answer is clearly no (we’ll explain why in a moment). But anyone who listened to the Governor’s press conference a couple of days ago could be forgiven for (incorrectly) assuming just the opposite: that the Governor’s experts at the Department of Finance (DOF) are the only ones who get it right — and who should be listened to — when it comes to the difficult task of forecasting state revenues.

Before reviewing the Governor’s comments, here’s the context:

The DOF and the Legislative Analyst’s Office (LAO) — the nonpartisan budget experts who advise the Legislature — reached different conclusions about how much General Fund revenue the state would likely receive in 2015-16, the fiscal year that begins this coming July 1. The LAO’s forecast was about $3 billion higher than the DOF’s. Lawmakers based their initial version of the 2015-16 budget on the LAO’s higher revenue projection, but then — as part of the budget deal reached with the Governor two days ago — agreed instead to use the DOF’s lower estimate, at the Governor’s insistence. As a result, many of the critical public investments that lawmakers proposed for 2015-16 were dropped because the budget deal assumed that the revenues needed to support these investments wouldn’t materialize.

At the press conference this week, the Governor made the following comments when asked why he was so adamant that the 2015-16 budget be based on the DOF’s lower revenue estimates:

The Department of Finance has professional, serious forecasters. And they have a methodology, and they certainly update that from time to time, but they apply it and come out with the best judgment they can. And so if we start fiddling with that, then it would get subjective, political, and I’m not prepared to do that.

In other words, accepting any revenue estimates aside from those produced by the Governor’s budget staff would amount to “fiddling” with a well-oiled machine and would inject “subjective, political” factors into the revenue-estimating process.

Contrary to this point of view, we think the LAO provides a critically important check on the forecasts and analyses produced by the Governor’s budget staff. We wholeheartedly agree with the Governor’s view that DOF staffers are “professional, serious forecasters.” But this is also true of the hard-working, nonpartisan budget experts at the LAO.

Year-in, year-out, the LAO produces forecasts and analyses that meet the highest standards for research. Their work offers a credible counterweight to the considerable authority and influence of the Governor and his fiscal experts during each year’s budget debate, helping to facilitate a robust exchange of ideas among the Legislature, the Administration, and the public. What’s more, the LAO’s revenue forecasts in recent years have been more accurate than the Governor’s, as we’ve explained. Add it all up, and the conclusion is clear: The LAO’s revenue forecasts provide a firm foundation on which to build a state spending plan and should continue to inform the budget debate each year, alongside the forecasts produced by the DOF.

It’s understandable that the Governor would want to portray his revenue forecasts as the only game in town, particularly when lower estimates support his fiscal restraint approach to the budget. But they’re not. We realize that arguing about revenue forecasts may not stir hearts and minds. However, these seemingly arcane debates really do matter to the people of California, particularly those who are struggling to make ends meet — and who have the most to gain from a state budget that makes every reasonable effort to promote economic opportunity for all Californians.

— Scott Graves