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Budgeting Forecasting - PowerPoint

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					        Revenue Forecasting

Budgeting and Fiscal Management Workshop
                   2006
Overview
   Forecasting and your
    budget process
   Issues in revenue forecasting
   Qualitative revenue forecasting methods
   Quantitative revenue forecasting methods
   Problems in forecasting
   Major Revenues in Washington
   Some examples
                                               2
Forecasting and your Budget
 Budget in context of the “big picture”
 Multiple year plan using various
  assumptions
 Based on financial policies and goals
    Should include operating impacts of

     capital improvements
 Updated but relevant to policy makers

                                           3
Issues in Revenue Forecasting
   Establish base year
   Focus on major revenues
   Assess revenue growth trends
   Specify underlying assumptions
   Select appropriate forecasting method
   Validate forecasts – is it reasonable?
   Monitor revenue forecasts
   Update forecasts as needed
                                             4
    Qualitative Revenue
    Forecasting Methods
   Judgmental
     using your professional judgments
     based on experience

   Consensus
     agreement on forecast by a knowledgeable group
     usually the result of “discussions”

   Expert
       referring to a stipulated expert
                                                       5
Quantitative Revenue
Forecasting Methods
 Trend  analysis
 Time series forecasting
   Stationary / Non-stationary

 Regression analysis
 Econometric forecasting



                                  6
Forecasting Tips and Tricks
 Know your data / community
 No substitute for good data
 Use the common sense test
 Document the basis for your forecast
 Ask others (business leaders, etc)
 Present in an interactive work session
    (encourage feedback from policy makers)

                                              7
Problems in Forecasting
   Promote realistic estimates (the new mall (or mill)
    will save us)
 Outliers – correct for known defects
 Compounding of growth factors / bow wave
 One-time revenues / expenditures
 Timing factors
 Weakness of CPI / IPD factors

                                                          8
Major Revenues in Washington
 Property Tax
 Sales and Use Tax
 Business Taxes
 Utility Taxes
 Permits
 User Charges
 Others

                               9
          Average City Revenues in Washington - 2004
                                    Intergovernmental
              Rents, etc
                                         Revenues       Property Taxes
                5%
                                           7%                13%
         Fines & Forfeits
               1%
                                                               Sales & Use Taxes
         Interest &
                                                                      11%
         Investment
          Earnings
             1%


                                                                Business & Utility
                                                                     Taxes
All Funds                                                             10%
Source: State Auditor                                        Other Local Taxes
                   Charges & Fees                                   4%
                    for Services
                                                         Licenses & Permits
                        46%
                                                                2%                   10
          Average City Revenues in Washington - 2004
        Interest &
                              Fines & Forfeits Rents, etc   Intergovernmental
        Investment
                                    2%           3%              Revenues
         Earnings
                                                                   7%
            1%

               Charges & Fees
                 for Services                                                   Property Taxes
                     5%                                                              26%
              Licenses &
                Permits
                  4%

           Other Local Taxes
                  4%



                        Business & Utility
                             Taxes
                              25%
General Fund
                                                                     Sales & Use Taxes
Source: State Auditor                                                       26%             11
    Average County Revenues in Washington - 2004
                  Intergovernmental
                       Revenues                           Property Taxes
                         24%                                   25%




            Rents, etc
              4%


             Fines & Forfeits
                   3%
                                                              Sales & Use Taxes
        Interest &                                                   15%
        Investment
         Earnings                                        Other Local Taxes
                           Charges & Fees
            2%                                                  5%
                            for Services    Licenses &
All Funds                       20%           Permits
Source: State Auditor                           2%
                                                                                  12
      Average County Revenues in Washington - 2004
                        Rents, etc
                                            Intergovernmental
                          3%
                                                   10%

                     Fines & Forfeits
                           7%
        Interest &
        Investment
         Earnings
            2%                                                          Property Taxes
                                                                             44%
                Charges & Fees
                 for Services
                     10%


                     Licenses &
                       Permits
                         2%     Other Local Taxes
                                       2%
General Fund
Source: State Auditor                               Sales & Use Taxes                    13
                                                           20%
Property Taxes
 Assessed Value
      times
 Levy Rate
      equals
 Property Tax
    Subject to 1% increase (on tax – or not?)

       Plus new construction


                                                 14
                    Property Tax Basics
       Not in
     your control                       Policy
                                       decision


Assessed Value                                       Levy Rate

  $ 3.4 billion
                                                  $2.4/$1,000

                          Taxes                     consequence
                         Collected
                        $8.4 million                              15
                     Property Tax Basics
        Not in
      your control
                                        Policy decision
                                         1 % growth

Assessed Value                                      Levy Rate


$ 3.4 billion
                                                $2.4/$1,000
no change
                                                 $2.6/$1,000
                           Taxes
                                                 Consequence
                          Collected
                                                higher levy rate
                         $8.5 million                              16
                    Property Tax Basics
        Not in
     your control
       up 10%                          Policy decision
                                            1%

Assessed Value
                                                   Levy Rate

Was $ 3.4 billion
                                                $2.4/$1,000
Now $ 3.7 billion                              $2.2/$1,000
                          Taxes
                                                Consequence
                         Collected
                                               lower levy rate
                        $8.5 million                             17
Property Taxes – Lynnwood’s share
           City-EMS     County
              4%         12%

                                 Hospital
    City-Gen.                      3%
       18%



                                 State-School
                                     27%



        School Dist.
           36%


                                                18
Sales and Use Taxes
   Gross Revenue of Retailers
    (and value of resources “used” by business)
 Tax Rates
 Sales tax base
    Cities get about 10% of total

 “Streamlining”



                                                  19
Sales Taxes – Lynnwood’s share
                       RTA   Criminal Justice
                       4%          1%
             Transit
              10%

    County
     2%


    City
    10%


                                                State
                                                73%




                                                        20
Business and Utility Taxes
   B & O tax
     .2% limit

     On gross receipts (without deduction for expenses)
       Model B&O Tax Ordinance
   Utility Tax
     6% on electric, telephone, gas (higher with voter
        approval)
       No limit on other utilities (water, sewer, garbage)
       If you have telephone / cable franchise – you need to know about
        pending legislation!

                                                                           21
Other Taxes
   Gambling tax
   Admissions Tax
   Cable TV Franchise
   Payments in lieu of Taxes (PILOT)
   Real Estate Excise Tax
   Hotel Motel Tax
   Leasehold Excise Tax
   Brokered Natural Gas
                                        22
Lynnwood Examples:

 “Macro Budget Workshop”
    Mid-year review / forecast

    Special work session

 Long range forecast
    Context for budget / policy decisions

 Revenue forecasts
    Based on long-range forecasts

                                             23
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