Better planning for a healthy economy
When it comes to making plans important to building a strong economy, Ohio has a short attention span.
Some states take a long-range view. When drawing up a state budget, for example, they include analysis of how their actions today will affect the state’s ability to meet obligations five years down the road.
Ohio takes a shorter-term view. We generally don’t look beyond the two-year period covered by the biennial budget under discussion. We look further into the future only for changes that are specifically phased in or eliminated over more than two years’ time.
Why is this important?
Projecting how much revenue the state can expect to collect beyond the next couple of years enables policymakers to anticipate and respond to predictable changes – like the expiration of temporary taxes or the impact of inflation. Otherwise, the state is flying blind and vulnerable to making costly mistakes. For example, a proposed tax cut might seem politically appealing, but if the state projected the impact further into the future it might become clear that the policy could deprive the state of resources needed for key services. For that reason, and many others, Ohio would do well to join the 11 states that forecast revenue at least four years into the future.
States should also agree on one revenue forecast to be used in budget planning instead of separate estimates from the governor and legislature. A revenue estimate produced in partnership – rather than competing revenue estimates – reduces the likelihood of a political fight derailing a more productive policy debate. Ohio ought to join the 28 states that use a consensus revenue estimating process.
Another useful reform is for states to know how much the services offered today will cost in the future. Knowing, for example, that the number of people who will need help paying for long-term care is likely to go up as the population ages will help to avoid fiscal emergencies. This information also helps states figure out if they are in danger of chronically taking in less revenue than needed to meet obligations.
Long-term planning and better forecasting of revenues and costs can help policymakers answer such questions as:
- If the state cuts taxes this year or enacts a phased-in tax cut that grows gradually in cost, will revenues be sufficient to cover the cost of services in three to five years?
- If the state starts a new initiative this year or expands an existing one, will revenues be sufficient to pay for it in future years?
- If there is a revenue shortfall this budget year, is it temporary – that is, are revenues expected to be sufficient a few years down the road – or is it a structural problem that will persist?
A new analysis by the Center on Budget and Policy Priorities explains how Ohio and other states can build healthier economies with better budget planning. As the Center notes, putting together state spending plans is never easy, but taking steps that include high-quality, multi-year revenue and spending forecasts means everyone starts with the best possible information. Ohio residents deserve as much.