Chair Lee questions OMB on conservative out-year tax revenue growth assumptions
Lee questions OMB's 2% annual tax revenue growth assumption in out years, below inflation, which would mean less real revenue in FY30 than FY27. Solomon and staff explain they forecast conservatively for out years due to greater uncertainty and asymmetric downside risk.
And then moving to the tax revenue growth in out years.
So the financial plan shows large out-year gaps.
7 billion, as you mentioned in your testimony, to nearly 10 billion in FY 2030.
However, this partly appears to be a function of the assumption of very slow tax revenue, your assumption of very slow tax revenue growth in those years.
And OMB expects tax revenues to grow at an average of just 2% a year, which is slower than the forecast for inflation during the same period that you guys had mentioned.
After adjusting for inflation, OMB expects the city to generate less tax revenue in FY 2030 than it will in FY 2027.
So that's something that usually happens only during recessions.
And so just wanted to know how you came up with this forecast.
And is this a product of just being more conservative on the budgeting?
So first to start, I think we have to look at first what we have in the tax forecast for FY26 and FY27.
So you're looking at forecasted growth in 26, and collections are coming in on plan at 5.1% this year, and then around 4% next year.
We continually monitor, obviously, market conditions, economic conditions, headwinds, as I noted in my testimony.
When you start looking out into the out years, we have basically a forecast that is not
Too aggressive because we want to make sure that we're not forecasting revenues that don't materialize.
I don't know if you want to add anything.
And then I would ask what you think is a more realistic outlook then.
I think statistically as you go out into the out years, the degree of certainty is smaller, right?
You have a much larger room for error.
So in terms of how we do it, as the budget director said, we typically
try to get the best forecast for the next, the current and next forecast year.
And then we do have a wider band of variants.
So we are on the less aggressive side, right?
We're taking a lot of, there's a lot of risk out there.
We want to make sure that we are
accounting for it because as you know like the the risk is asymmetric on the revenues right if you if you forecast too aggressively and the money doesn't come in then we're forced to cut right
Hopefully there's room for improvement, right?
Or increases.
Absolutely.
Okay, perfect.