For Immediate Release
July 8, 1998
Director of Communications
New economic analysis shows bad budgeting costs state thousands of potential jobs and investments
A new economic analysis shows that poor state revenue forecasts can cost a state thousands of potential jobs and billions of dollars of investments in local economies. The Beacon Hill Institute at Suffolk University looked at the effects of underestimating revenues by state budget forecasters.
Unfortunately, the average taxpayer thinks running a surplus means lawmakers are doing a good job managing our finances. That is far from the truth. Taxpayers should be just as mad as if states were running huge deficits, said Dr. David G. Tuerck, Executive Director of the Beacon Hill Institute and Professor and Chairman of Economics at Suffolk University.
The analysis found the phenomenon of surplus revenues and bad budget predicting affects most states. This year, surplus revenues are currently running about $34.5 billion, about 8.5% of total spending for 50 states. In New England, one estimate showed that for the five New England states (excluding Vermont), surplus revenues in state coffers are running close to $1.5 billion just for this year.
The economic analysis by BHI examined one state in particular, Massachusetts. It found that, for the last six years, Massachusetts underestimated how much revenue it would take in by, on average, more than 4% every year. In 1997, the report concluded, 73,000 new jobs and more than $2.5 billion in payrolls would have been created along with almost $11 billion in capital equipment investments if the state had eliminated a $690 million surplus though tax reduction. This year, Massachusetts is running an almost $850 million surplus.
Our conclusion is states are doing a poor job predicting the economy and their budgets. In Massachusetts, predictions were off by more than 4%, on average for the past six years. This poor forecasting hurts state economies by discouraging lawmakers from cutting tax rates, concluded Dr. Tuerck.
The Beacon Hill Institute at Suffolk University is a nonprofit, nonpartisan think tank that applies state-of-the-art economic methods to the analysis of current public policy issues.
For a BHI FaxSheet with further information and methodology, call BHI at 617-573-8750.
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