Determinants of local government revenue forecasting practice: empirical evidence from florida

Abstract

Two decades of research on municipal forecasting practice suggest that it is less advanced than other sectors. Moreover, local forecasters have a greater error tolerance than peers. Survey results of Florida’s finance directors provide evidence of why this is the case. Unlike other levels of government, local finance officials receive limited political or bureaucratic scrutiny that might induce more accurate forecasts. The judgmental approaches deployed facilitate the downside bias typically found in municipal forecast practice which fosters surplus building, per Wildavsky’s (1986) description of municipal budgeting. Absent greater senior management participation, it is unlikely municipal forecast practice will change. Findings also confirm that survey-based forecast research should account for respondents’ stated levels of accuracy and their “risk adjusted” perceptions that account for a preferred downside bias of one to seven percent.