A new Rockefeller/Pew report finds that states are having a harder time getting their revenue projections right:
The last three recessions have boggled state revenue predictions, as have the last three economic recoveries. In FY2011, 2012, and 2013, the state projections were short by more than 2%.
South Dakota’s performance this year has been a little better than that national average: this week’s new revenue projections for the current fiscal year are only 1.22% below the amounts adopted by the Legislature one year ago. Add one-time money, and the state ends up with 1.28% ($17.8 million) more than it originally budgeted.
South Dakota’s budget volatility may be less than that in other states due to the absence of a corporate income tax in our fair state:
Nowhere is volatility greater than with corporate income tax revenue. The data showed that the median forecasting error rate over the 27 years was 2.8 percent for the corporate income tax compared with 1.8 percent for the personal income tax and 0.3 percent for the sales tax. Of the three, corporate taxes make up the smallest share of state revenue; personal income taxes make up the largest [“Managing Volatile Tax Collections in State Revenue Forecasts,” Rockefeller Institute for Government and Pew Charitable Trusts, March 2015].
That doesn’t mean a corporate income tax is bad; it just means your state government has to maintain sensible budget reserves keyed to economic data.