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It is no secret the world has been through its share of ups-and-downs in the last four years. The pandemic seismically changed the landscape of our economy. As the pieces settle back into place, states are facing a new set of fiscal realities. Federal rescue plans enacted during the heart of the pandemic buoyed states’ revenue streams through the past several years. However, these funds have now been spent or are at risk of being returned. Moreover, some of this one-time funding was used to support on-going operations or to provide tax relief.

State revenue forecasters predict weak revenues for the current fiscal year and fiscal year 2024. With these federal funds no longer available and signs of revenue growth stalling, assessing the likelihood of funding shortfalls is imperative as predictability is vital to smooth operation of government. Finally, major budget drivers continue to grow and absorb more resources.

Possessing the ability to forecast various spending and revenue scenarios empowers all levels of authority to act proactively to avoid a structurally imbalanced budget. BIDS offers several tools to help decision makers to plan for and create appropriate, measured responses to economic volatility. Our scenario modeling capabilities facilitate assessment of the fiscal impacts of multiple scenarios on long-term expenditures and revenues. This allows decision makers to identify the tools available to address increased service demand and simultaneous revenue loss.

Becoming more common for challenging forecasting is stress testing. Budget teams can create multiple what-if scenarios to show spending and revenues for economic conditions such as a recession, a quicker than expected recovery from a downturn, or impacts of a new revenue generator such as a tourist attraction or casino. Alternatively, various workload and inflationary increases to major spending items, such as Medicaid and K-12 education, can be assessed.

By creating these scenarios, teams can easily identify at-risk expenditures or revenues which may be tied to disposable income or the Governor’s own initiatives. Our goal is to provide tools to focus on macro levels by presenting expenditures by agencies as a whole or, to the micro level, where individual agencies can report and forecast on specific programs or subprograms.

Flexibility is imperative for meaningful data outputs used for decision-making. Performa’s BIDS forecasting methodology can be tailored to the modeling scenario. For example, projections can be based on a three or five year rolling historical average, year-to-date spending patterns, or official forecasts to account for variables such as seasonal spending swings or revenue collections.

Should stress testing identify a potential issue, new scenarios can be run to alter spending/revenue assumptions such as adding new revenue sources. However, there are situations when the only solution is to cut budgets. BIDS offers modules to strategically identify reduction scenarios. Budget Offices can select agencies and programs to exempt from any spending cuts and view the resulting percentage cut in discretionary spending needed to cover the anticipated shortfall. BIDS accommodates multiple exemption scenarios.

The agility afforded by these types of tools allows the budget office to be proactive in their efforts to redirect funds to ensure the continuity of operation. As we have all learned, unpredictability is our daily routine.