State Budget Strategies: Understanding the Assumptions Behind Budget Numbers

Source: Pew Charitable Trusts, Issue Brief, June 21, 2016

From the overview:
Not all state budget estimates are created equal. Although most estimates represent good-faith efforts to translate uncertainty into reasonable expectations, some merit closer scrutiny. As state policymakers begin reviewing line items as part of legislative budget negotiations, they should keep in mind that many of the numbers presented are based on assumptions. For legislators to fully understand these numbers, they need to ask the right questions and seek greater clarity about what was assumed.

Specifically, legislators should remember that some budget estimates are more sensitive to assumptions than others. For example, estimated costs for a fixed appropriation generally have a much higher degree of certainty than the estimated costs for an eligibility-driven social insurance program or a business tax credit. Both of these rely on difficult-to-forecast assumptions such as individual or company behavior and broader fiscal and economic conditions. Assumptions about federal law, the speed of policy implementation, and even political viability can sometimes yield significantly misleading estimates.

The following examples highlight instances in three major budget areas where questionable or unrealistic fiscal assumptions could cause significant problems for states.