Dynamic Impact Analysis: Methdlgy and Output PRESENTED TO SENATE FINANCE COMMITTEE LEGISLATIVE BUDGET BOARD STAFF March 2016
Dynamic Ecnmic Impact The Legislative Budget Bard has the capability t prduce analysis demnstrating the estimated ecnmic and budgetary effects f varius state revenue and apprpriatins prpsals. The analysis: Is intended t shw sme f the secndary-r dynamic-effects f prpsals; Generally cvers a 5-year perid, similar t the fiscal nte prcess; Is the result f LBB staff analysis using utput frm a Texas-specific mdel develped by Reginal Ecnmic Mdels, Inc (REMI). MARCH 28, 2016 LEGISLATIVE BUDGET BOARD ID: 3236 2
Reginal Ecnmic Mdels, Inc (REMI) Reginal Ecnmic Mdels Inc is the develper f the Texas-specific ecnmetric frecasting sftware used by the LBB and by the Cmptrller f Public Accunts. REMI is recgnized as ne f the leading firms prducing ecnmic frecast sftware and is cmmnly used by entities in bth the private and public sectr The REMI mdel is updated annually fr Texas ecnmic, revenue and budget cnditins LBB staff wrk t specifically calibrate the mdel t be reflective f bth state revenue structures under the latest revenue estimate frm the Cmptrller and areas f state spending under the current biennium s budget All dynamic analyses perfrmed by the LBB are cmpared t a baseline frecast. This is similar t the apprach taken by LBB staff when shwing the effect f changes t the schl finance system; all utput is cmpared t current law with set assumptins abut baseline frecasted grwth MARCH 28, 2016 LEGISLATIVE BUDGET BOARD ID: 3236 3
Underlying Assumptins Mdeling assumptins vary depending n the budget situatin at the time the analysis is perfrmed LBB staff are careful t stipulate thse assumptins in the utput prvided Reasnable analysis may differ n what apprpriate assumptins wuld be; it is therefre imprtant that they be clearly identified LBB staff seek t nly make assumptins that are specific t the plicy initiative being discussed and nt g beynd thse that are necessary t perfrm the analysis Fr example: A determinatin that needs t be made every time dynamic analysis is perfrmed n a revenue prpsal is hw t address an estimated gain r reductin in available revenue that is as a result f the prpsal. If a revenue prpsal wuld reduce state revenues belw the amunt asserted by the Cmptrller as needed t supprt the current level f state spending, the fllwing assumptins need t be made, which in turn affect the utput f the analysis: 1. Are available balances t be used t the extent pssible t maintain current state spending? 2. Alternatively, is a reductin in state spending assumed? If s: a. Is the reductin acrss the bard? b. Is the reductin targeted t r exclusive f certain budget areas? MARCH 28, 2016 LEGISLATIVE BUDGET BOARD ID: 3236 4
Example f Dynamic Output In additin t a textual descriptin f the prpsal, mdel, and utcmes, the LBB supplies a table the utline fr which is fund n the fllwing slide. This standard template has been anntated t define all f the categries f utput and the assciated terms. T illustrate all pssible prvided utput, the template shws multiple indices fr bth ecnmic and budget results. The ecnmic results shw the estimated effect f the prpsal acrss a range f ecnmic indicatrs. The budget results sectin shws a display f bth the static and dynamic revenue change assciated with the prpsal and als the assumed expenditure change: As nted n the previus slide, an assumptin must be made abut the relatinship f the revenue change t the state budget if the budget results are t be displayed. Fr example, if the effect f a revenue reductin prpsal exceeds the amunt f available revenue balances, an assumptin culd be made t use balances t the extent pssible t maintain the adpted spending level. If thse balances are insufficient t cmpletely ffset the revenue reductin, the effect f a prprtinal r targeted reductin acrss state spending wuld be shwn Output may vary by prpsal; fr example, analysis n a prpsal that des nt result in a revenue change may nt als shw budget results, and certain f the ecnmic indicatrs may nt be relevant fr all prpsals. MARCH 28, 2016 LEGISLATIVE BUDGET BOARD ID: 3236 5
MARCH 28, 2016 LEGISLATIVE BUDGET BOARD ID: 3236 6
Cntact the LBB Legislative Budget Bard www.lbb.state.tx.us 512.463.1200 MARCH 28, 2016 LEGISLATIVE BUDGET BOARD ID: ### 7