Executive Summary

Issue Area 1: The Department of Tax and Revenue Provides Reasonably Accurate Forecasts of the General Revenue Fund.

The Research Division within the Department of Tax and Revenue has provided the official General Revenue estimates since 1990. The General Revenue forecast is performed seven months in advance of the upcoming fiscal year. The General Revenue fund consists primarily of major tax revenue of the State such as Consumer Sales Tax, Personal Income Tax, Corporate Net Income Tax, B & O Tax, Business Franchise Tax, Insurance Tax and Severance Tax. These taxes represent approximately 95% of the General Revenue Fund, while the other 5% is a combination of lesser taxes, fees, and transfer payments.

The Research Division's goal is to provide General Revenue estimates within roughly 1% of actual collections, in which the Division has been reasonably close to achieving since FY 1990. Another goal of the Research Division is to provide estimates that will be met or slightly exceeded by actual collections. As Table 1 illustrates, the Division has achieved this secondary goal in nine of the last eleven years.
 
Table 1

General Revenue Fund Forecast

Fiscal Year Original Estimates  Actual Collections Difference Percent Error
FY 2000 $2,664,159,000 $2,638,495,566 $(25,663,434) -1.0%
FY 1999 $2,587,400,000 $2,617,867,778 $30,467,778 1.2%
FY 1998 $2,450,000,000 $2,503,343,024 $53,343,024 2.2%
FY 1997 $2,354,730,000 $2,424,772,739 $70,042,739 3.0%
FY 1996 $2,283,300,000 $2,333,678,630 $50,378,630 2.2%
FY 1995 $2,215,100,000 $2,308,673,931 $93,573,931 4.2%
FY 1994 $2,106,500,000 $2,118,335,379 $11,835,379 0.6%
FY 1993 $2,051,845,000 $2,042,688,492 ($9,156,508) -0.4%
FY 1992 $1,914,900,000 $1,926,510,843 $11,610,843 0.6%
FY 1991 $1,836,100,000 $1,877,340,250 $41,240,250 2.2%
FY 1990 $1,723,400,000 $1,746,111,319 $22,711,319 1.3%
11 Year Total $24,187,434,000 $24,537,817,951 $420,023,835 1.7%
Source: Department of Tax & Revenue, Research Division. The total difference is the sum of the absolute values.

West Virginia also compares favorably with other states in achieving reasonably accurate forecasts. In a survey of 15 states conducted by Arkansas' Bureau of Legislative Research, West Virginia was ranked sixth (one being best) in forecasting error of general revenues. The survey was also conducted in FY 1997 and FY1996, in which West Virginia ranked fifth and eighth respectively.

Although General Revenue funds are forecasted with reasonable accuracy, certain components of the General Revenue fund are difficult to forecast. These components consist mainly of business taxes, such as the Corporate Net Income Tax, Severance Tax, and the B & O Tax. These components can significantly influence the forecasting error, mainly due to their high volatility and the little economic trend pattern that they follow. As the table below illustrates, the Corporate Net Income Tax has been significantly over-forecasted in eight of the last eleven years. The Division needs to improve its understanding of business taxes through greater collection of current tax information in order to reduce the risk of significantly over-forecasting general revenues.
 
Table 3

Corporate Net Income Tax Forecast


Fiscal Year

Original Estimates 

Actual Collections

Difference

Percent Error

FY 2000 $153,000,000 $117,005,073 (35,994,927) -23.5%
FY 1999 $170,000,000 $167,694,828 ($2,305,172) -1.4%
FY 1998 $153,100,000 $140,105,619 ($12,994,381) -8.5%
FY 1997 $148,500,000 $160,649,491 $12,149,491 8.2%
FY 1996 $130,950,000 $156,258,039 $25,308,039 19.3%
FY 1995 $127,000,000 $145,362,694 $18,362,694 14.5%
FY 1994 $119,700,000 $114,265,235 ($5,434,765) -4.5%
FY 1993 $132,000,000 $107,087,426 ($24,912,574) -18.9%
FY 1992 $130,000,000 $107,590,065 ($22,409,935) -17.2%
FY 1991 $143,000,000 $115,397,503 ($27,602,497) -19.3%
FY 1990 $152,000,000 $148,129,304 ($3,870,696) -2.5%
11 Year Total $1,559,250,000 $1,479,545,277 $191,345,171 12.3% 
Source: Department of Tax & Revenue, Research Division. The total difference is the sum of the absolute values.