ERFC explains forecasting method and tradeoffs of the statutory 4.5% assumption

Dave Wright, executive director at the Economic and Revenue Forecast Council, described the ERC’s forecasting process—national and state economic models feeding revenue regressions and frequent updates vetted by a bipartisan council. He explained that statute allows the council to use either its forecast or a 4.5% per‑year outer‑biennium assumption when preparing an initial outlook.

Wright presented a seven‑biennium historical comparison showing that sometimes the 4.5% assumption produced closer two‑year outcomes (notably during rapid revenue growth), whereas the ERC forecast performed better in slower or declining revenue periods — for example, during the pandemic and in the most recent outlook cycle. "Which one is better depends on whether revenues are growing faster or slower," Wright said.

He suggested hybrid options: conditionally apply a 4.5% adder when the economic forecast is strong, add a fixed adder to the ERC forecast, or produce optimistic/pessimistic scenarios to inform planning. Committee members discussed whether the accuracy test should be absolute closeness or whether the preferred standard is supportive of sustainable budgeting. Wright noted recent statutory language showing legislative preference for using the ERC forecast going forward but recommended clearer triggers for alternative assumptions.

The ERC will continue its regularly scheduled forecast updates (November, February, June) and staff flagged the committee timeline for considering Pew’s recommendations ahead of the November meeting.