This week’s Q&A is with Arun Raha, the state’s chief economic forecaster. Every quarter, his office puts out a comprehensive forecast of how much money the state will collect and what the economy will do. Lawmakers use the report to write budgets. Since his first forecast in November 2008, Raha has had to deliver negative forecasts. But … maybe things will change in 2010?
Q: You mentioned earlier this week in a committee hearing that revenue collections for the two months since the last forecast are up about $50 million.
Raha: Yes, revenue is $51.8 million higher than we had forecasted in November for the two months of collections that we have data for.
Q: What would it take to have a positive revenue forecast in February?
Raha: Well, there are two aspects to the forecast. One, of course, is the collection, which is a small part. The other, of course, is the condition of the economy. Our forecast of revenue for Washington state depends on our forecast for Washington’s economy, which depends on our forecast for the national economy.
So, if economic conditions are better in February than November, that would have a bigger impact on positive revenue than the collection.
The collection, all it points to is the fact that all this while our model was overforecasting revenue. We’ve finally gotten to where the model is underforecasting. So it’s like revenue’s reached a turning point. That’s all I can conclude from it. It’s positive news, but that in itself is not enough to guarantee a positive revision to the revenue forecast.
Q: The next forecast is less than a month away. Walk me through what you’re doing between now and then to produce a forecast.
Raha: Right now, we are working on our national and state economic forecast — the economic forecast, not the revenue forecast. We are collecting revenue collection data, which is what’s coming in the door. And we are also looking at national and state economic indicators. We don’t have all the indicators we need yet to do our national and state economic forecast. We’re waiting on a few important indicators.
Most importantly, we’re waiting on what’s known as “rebenchmarked” employment numbers. When employment numbers first come out, they’re based on a sample and then they are rebenchmarked based on the entire unemployed population, so there are revisions. So we’ll get rebenchmarked data for the third quarter in Washington – we’re waiting for that. So our model can pick up whatever is there. So once we get that, we’ll have both Washington and national figures.
Typically, there’s a process of oversight. We have these workgroups of legislative and executive staffers who come and look through our forecast and give us feedback on what appears to be right and wrong, what needs to be considered and so forth. The second part of the process is, on the fifth we take it before Governor’s Council of economic advisers and get their input. We survey them before so we know where they stand.
You can’t do it in one week; we already have most of the numbers. We finalize it after we’ve got the feedback from the governor’s and the work council and our own council. We have a public meeting on the 5th (of February) in the afternoon.
So, then we finalize the revenue side for the revenue forecast. The other thing we do is meet with other agencies — the smaller revenue agencies like lottery, Department of Licensing – and we let them do their forecasts based on models we have given them in the past. Those numbers are very small, so it doesn’t make much of a difference.
We get their updates and factor that in, we talk to the Department of Revenue about whether there are any special assessments or refunds or special factors. We add that into the forecast.
So: We do the revenue forecast, there’s an economic part, then a fine tuning part based on exceptions, then we release it on the 12th and everybody cheers. (more…)
Tags: Arun Raha, economic forecast, Thursday Q&A