State of Rhode Island Revenue Estimating Process

The Rhode Island State Budget Office meets twice yearly at a publicly held Revenue Conference with the Senate Finance and House Finance Committee in November and May.  This is a statutory requirement (R.I.G.L. 35-16).  A principal from each (Budget Officer, Senate Fiscal Advisor, House Fiscal Advisor) must reach a consensus on what the State General Revenues are estimated to be for two years (the current fiscal year and the budget year).  A principal can convene a conference at any other time during the year when a principal feels that the revenues will differ significantly from the last adopted estimates. The Budget Office uses these official fiscal year projections to prepare the budget, as does the General Assembly.  Each may propose changes to the adopted estimates based upon changes to law.

Each office estimates each revenue source differently and brings their own estimates and reasoning to the conference for discussion and consensus-building.  The Budget Office employs several methods for determining revenue estimates in order to cover all bases from economic principles to historic trends.  For most taxes (including, but not limited to, Personal Income Tax, Sales and Use Tax, Business Corporations Tax) econometric modeling is performed with some degree of data mining.  The Budget Office uses EVIEWS statistical programming software.  At the Revenue Estimating Conference, the Principals come to a consensus on certain economic principles including CPI, Non-farm Employment Growth, Personal Income Growth, Wages and Salary Growth, Personal Income Growth, the Unemployment Rate, 10-Year and 3-Month Treasury Bill Rates.  Agreement is reached after presentations are given by two different economic forecasting consultants as well as the Department of Labor and Training on employment.  Therefore, models that utilize any of these variables will be based on the consensus rates as opposed to any other forecasts available. 

Also, five year average monthly spreads (with abnormalities smoothed out when appropriate) are translated into fiscal year estimates and exponential smoothing is applied to the monthly historical receipt data as well as the quarterly historical receipt data.  Furthermore, testimony is heard from various State Agencies including, but not limited to, the Division of Taxation from which any known changes to the magnitude or distribution of receipts is provided to the conferees.  This information is incorporated into the estimates.  For some taxes, particularly the Personal Income Taxes, the components are estimated separately (PIT withholding taxes, PIT estimated taxes, PIT refunds, and PIT final taxes).

Some revenue sources require different methods of estimation including the Lottery Transfer to the General Fund, Unclaimed Property, Departmental Revenues, and Other Miscellaneous Revenues.  In the case of the Lottery Transfer to the General Fund, a model utilizing receipts for lottery games and from video lottery terminals at the gaming facilities as well as efficiency data are combined with other known elements and statutory formulas to determine the State share from Lottery revenues.  Unclaimed Property estimates are derived from a model that combines known information from the Treasury with historical trends in the different components of unclaimed property receipts.  Departmental Receipts are estimated by individual analysts who analyze trends in each receipt account by agency as well as current information from each agency that may alter that estimate.  Finally, Other Miscellaneous Revenues are compiled based on current law and estimates.

All estimates incorporate estimated revenue gains or losses due to enacted law changes that affect revenues.  The resulting estimates, obtained by consensus, become the official estimates of anticipated revenue for the State until the following Revenue Estimating Conference or until the General Assembly enacts the appropriations bill which includes both anticipated expenditures as well as estimated revenues.  The chairperson of the Revenue Estimating Conference is responsible for providing the public and the conference participants with a report providing the Revenue Estimates, Consensus Economic Forecasts, and a comparison of actual revenues and the revenue projections on which the current budget was based.  This report is to be distributed within five working days of the finalization of the conference.