Master FIR (1988)

NOTE: As provided in LFC policy, this report is intended for use by the standing finance committees of the legislature. The Legislative Finance Committee does not assume responsibility for the accuracy of the information in this report when used in any other situation.

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F I S C A L I M P A C T R E P O R T

SPONSOR:	Mohorovic		DATE TYPED:	03-09-99		HB	655/aHAFC
SHORT TITLE:		Truth in Forecasting				SB
					ANALYST:		Taylor

REVENUE

Estimated Revenue		Subsequent Years Impact	Recurring or Non-Rec	Fund Affected
FY99	FY2000	Subsequent Years Impact	Recurring or Non-Rec	Fund Affected
n.a.	n.a.	n.a.	n.a.	n.a.

(Parenthesis ( ) Indicate Revenue Decreases)

Duplicates/Conflicts with/Companion to/Relates to

SOURCES OF INFORMATION

Taxation and Revenue Department

Department of Finance and Administration

SUMMARY

Synopsis of HAFC Amendment

The HAFC amendment to HB-655 changes the proposed legislation to encourage (rather than require) executive and legislative tax analysts to base their fiscal impacts estimates upon behavioral assumptions. The amendment does not affect the fiscal impact of the legislation.

Synopsis of Bill

House Bill 655 would require staff from the Legislative Finance Committee, the Taxation and Revenue Department and Department of Finance and Administration to base their fiscal impact estimates for tax legislation on "assumptions that estimate the probable behavioral responses of taxpayers, businesses and other citizens to the proposed changes and shall include a statement identifying those assumptions".

FISCAL IMPLICATIONS

There are no direct fiscal implications for the bill as it does not provide an appropriation. However, to actually accomplish the type of analysis that is requested would require the acquisition of a computer model of the state's economy beyond what is currently available plus skills training for analysts.

OTHER SUBSTANTIVE ISSUES

•The Taxation and Revenue Department FIR notes that a 1995 ex post analysis of the fiscal impact estimates done on gross receipts tax bills indicate that the estimates have been fairly accurate. Actual revenues two to four years after the enactment of the law were within 5 percent of the estimate. They say that personal income tax estimates were within 5 percent of the estimate in the first year.

•The proposal of requiring assumption be listed is a good idea. Listing the assumptions should allow any legislator to recreate the calculation and adds to transparency. Usually, LFC analysts try to present the assumptions going into the estimate. For the most part, this is true for executive agency analysts as well.

•A problem with sophisticated computer models is their complexity. Such complexity can have the effect of sacrificing a great deal of transparency (as to assumptions for example) for potential, small gains in computational accuracy.

BT/njw