New York, NY – The Volcker Alliance, a nonprofit organization dedicated to advancing an empowered public sector workforce, today released a new report – A Cloudy Crystal Ball: Pandemic Forecasting Challenges Highlight Need for Budget Relief Valves – exploring budget management lessons learned from the COVID-19 pandemic and outlining best practices states should follow to prepare for a new fiscal year under difficult economic conditions – like a recession – in the future. The paper, written by Phil Dean, former Executive Director of the Utah Governor’s Office of Management and Budget and Chief Economist and Public Finance Senior Research Fellow at the University of Utah’s Kem C. Gardner Policy Institute, is based on data from all 50 states and interviews with budget officials across the country.
The paper identifies Utah as one of six states that successfully implemented various best practices to better brace for a potential recession, which include:
- Using budget tools like revenue system design, informal and formal budget reserves, cash flow management, and spending control to inform forecast risk.
- Implementing scenario planning to stress test budgets by evaluating risks and reserves. Doing so can help states determine areas to shore up and help them prepare for inevitable downturns.
- Leveraging consensus long-term revenue and spending estimates to focus attention on long-term budget management.
- Including future costs in forecasts to correctly estimate the fiscal impacts of new legislative bills and appropriately allocate resources.
- Publicly articulating economic assumptions underlying budget forecasts.
In closely examining Utah’s data from the state and interviewing its budget officials, the new report found that Utah used restricted account reserves as a budget buffer for new, one-time capital expenditures. The state also distinguished between one-time and ongoing revenues and appropriations and stress checked its budget. These actions are in line with the Alliance’s recommendations for sustainable budget balancing.
“As the nation contends with waves of volatility, state budget officials are on the front line of a battle to sustain fiscal stability. Forecasting and sound budgeting practices are keys to the long-term health of state economies. Through extensive research of data and interviews with officials in all 50 states, we’ve identified budgeting best practices that we hope will serve as a resource for all economic actors in Utah to weather any fiscal storm that comes,” said William Glasgall, Senior Director, Public Finance, at the Volcker Alliance.
State budget forecasts have fluctuated dramatically over the past few years as they’ve adapted to widespread shutdowns, and later, reopenings and economic stimulus. The seismic shifts from economic collapse to rapid growth have underscored the importance of – and need for – budget forecasts – particularly ones that are iterative and responsive to changing conditions. While forecasts are inherently imperfect, the paper notes, they are critical to ensuring budget balance.
The report is the latest in a series of issue papers evaluating the impact of the pandemic on states and localities.