1 / 49

Welcome

Budgeting Practices: Financial and Analytical Tools for Revenue Forecasting and Econometric Analysis. Welcome. ECONOMETRIC IMPACT (COMMUNITY). …More Tools for the Financial Toolbox…. Major Revenue Forecasting. Major Revenue forecasting.

tocho
Download Presentation

Welcome

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Sarasota County Budgeting Practices: Financial and Analytical Tools for Revenue Forecasting and Econometric Analysis Welcome

  2. Sarasota County ECONOMETRIC IMPACT (COMMUNITY) …More Tools for the Financial Toolbox…

  3. Sarasota County Major Revenue Forecasting

  4. Major Revenue forecasting Does the “Budget Department” do a good job at forecasting major revenues, especially those that the General Fund depends on? Is the revenue forecasting methodology sound – is it statistically defensible or is it subjective and open to criticism? Does the forecasting methodology provide a way to track performance on a monthly basis? Is there an ability to perform mid-year course corrections? Sarasota County

  5. Econometric & Fiscal Impact Modeling In today’s economy, the emphasis is on: JOBS JOBS JOBS Can we estimate the number of jobs resulting from existing or new businesses in our community? Can we estimate the impact to the local government’s revenues and expenditures from certain financial impact events? Sarasota County

  6. Econometric impact modeling What is the result from an existing or new financial impact to the local community? 1. Should we incentivize a new business thinking about relocating to our community? 2. Should we incentivize an existing business in our community that is thinking about expanding? 3. Should we incentivize an existing business to prevent them from leaving our community? Sarasota County

  7. Fiscal impact modeling What is the result in revenues and expenditures to the local government from a fiscal impact event? 1. Can help with quantifying the impact from a new or expanding business 2. Can help with Fiscal Neutrality reviews 3. Can help with other development impacts Sarasota County

  8. Econometric & Fiscal Impact Modeling Fiscal Neutrality Community Projects C.I.P Program Other Developments Economic Development Sarasota County

  9. ECONOMETRIC IMPACT (COMMUNITY) …More Tools for the Financial Toolbox… Sarasota County

  10. BUDGETING PRACTICES: FORMALIZED REVENUE FORECASTING ?? …is there a need for FORMALIZED REVENUE FORECASTING?? Sarasota County

  11. BUDGETING PRACTICES: FORMALIZED REVENUE FORECASTING ?? • - use last year’s numbers • - last year times a % increase (multiplicative) • - last year and add an amount (additive) • - use the DOR projection (if available) - use what my boss tells me to use - ask someone else What are some common revenue budgeting practices? Sarasota County

  12. BUDGETING PRACTICES: FORMALIZED REVENUE FORECASTING ?? • - without a formalized system, the forecast might • be considered subjective and leave it open to • criticism (as well as the forecaster!) • - without a formalized system, forecasts could • vary from person to person (no standard) • - without a formalized system, it could be difficult • to capture trends and seasonality needed for a • unique month-by-month forecast for tracking • revenues on an ongoing basis Why is there a need for any kind of formalized revenue forecasting process? Sarasota County

  13. BUDGETING PRACTICES: FORMALIZED REVENUE FORECASTING ?? • - provides a statistical approach to forecasting • - is quick and easy to use • - has easy import of historical revenue data • - offers several statistical solutions for comparison - provides some user flexibility - contains a method for validating results What are some of the features that might be desirable in a forecasting solution? Sarasota County

  14. BUDGETING PRACTICES: FORMALIZED REVENUE FORECASTING ?? • - provides times series and dynamic regression • - contains an Expert Selection feature • - reads historical data from an Excel spreadsheet • - provides several forecasting solutions - can set different forecast horizons - provides a holdback feature to validate results • - speaker is not a paid spokesperson Sarasota County selected Forecast Pro Sarasota County

  15. BUDGETING PRACTICES: FORMALIZED REVENUE FORECASTING ?? • TIME SERIES: uses historical data to forecast • forward •  provides nine levels of exponential smoothing •  robust for irregular or noisy datasets •  will switch to Box Jenkins for highly • correlated datasets  Will pick up trends and seasonality  Can test validity of forecast with holdback feature •  Can export results to an Excel file Sarasota County

  16. BUDGETING PRACTICES: FORMALIZED REVENUE FORECASTING ?? • DYNAMIC REGRESSION: can tie forecast to an • independent variable to forecast your revenue •  Need historical data for both the revenue to be forecasted and the independent variable •  You must have an established forecast for the variable itself •  Revenue will be forecast based on the historic relationship between the two datasets Sarasota County

  17. BUDGETING PRACTICES: FORMALIZED REVENUE FORECASTING ?? • Example: Tourist Development Tax Sarasota County

  18. BUDGETING PRACTICES: FORMALIZED REVENUE FORECASTING ?? • Example: Tourist Development Tax Sarasota County

  19. BUDGETING PRACTICES: FORMALIZED REVENUE FORECASTING ?? • Example: Tourist Development Tax Sarasota County

  20. BUDGETING PRACTICES: FORMALIZED REVENUE FORECASTING ?? • Sample TDT Forecast – Forecast Pro Sarasota County

  21. BUDGETING PRACTICES: FORMALIZED REVENUE FORECASTING ?? • Sample TDT Forecast – Forecast Pro Sarasota County

  22. Conclusion Benefits of formalized revenue forecasting Forecast is less subjective Forecasting method is standardized Forecasts are more consistent Statistical results can be validated Better monthly budget monitoring Sarasota County

  23. BUDGETING PRACTICES: FORMALIZED REVENUE FORECASTING ?? THANK YOU ! Sarasota County

  24. Sarasota County Econometric Modeling

  25. IMPLAN ECONOMETRIC IMPACT (COMMUNITY) DIRECT IMPACT INDIRECT IMPACT Sarasota County

  26. IMPLAN IMPLAN is an input-output model which captures the “ripple effect” of a specified impact to the local economy Sarasota County

  27. IMPLAN Dollars are spent and re-spent within and outside of the local economy Sarasota County

  28. IMPLAN • used to evaluate C.I.P. capital construction projects • used to evaluate impacts of businesses in different industries IMPACT OF CONSTRUCTION IMPACT OF BUSINESSES Capital Improvement Program Economic Development Program How IMPLAN is used at Sarasota County Sarasota County

  29. implan IMPLAN – a little history: • wasoriginally developed by the USDA Forest Services in the 1970’s in concert with the Federal Emergency Management Agency (FEMA) and the Bureau Of Land Management • was contracted out for further developed to the University of Minnesota in the 1980’s • in 1993, was privatized by the graduate students from the University of Minnesota, who formed the Minnesota Implan Group (M.I.G.) • has been in commercial production with M.I.G. since 1996 • is similar to the standard multiplier tables available from the Bureau of Economic Analysis, but the IMPLAN software provides greater flexibility in evaluating impacts Sarasota County

  30. implan IMPLAN is used in both the public and private sectors: • U.S. Corp of Engineers • U.S. Bureau of Economic Analysis • Environmental Protection Agency • National Park Service • Florida Department of Labor • Florida Department of Environmental Protection • Florida Governor’s Office • Florida Office of Tourism • University of Florida • Florida State University • Coopers & Lybrand, LLP • Deloite & Touche • Ernst and Young Sarasota County

  31. Conclusion Benefits of Econometric Modeling: Captures “Ripple Effect” of governmental programs and benefit to community Illustrates impact of county CIP projects Used to make informed decisions regarding Economic Development Projects Sarasota County

  32. implan Thank You ! Sarasota County

  33. Sarasota County Fiscal Impact Modeling

  34. The Economic Development Question? What impact does a new business have on the local economy? Should you incentivize business? Which businesses should you incentivize? How do you incentivize business? Does financial impact vary by business type? How do you quantify the incentives impact? Who has the time to do all of this? Sarasota County

  35. Sarasota County Econometric Impact vs. Fiscal Impact Econometrics: The quantitative analysis of actual economic phenomena based on the concurrent development of theory and observation, related by appropriate methods of inference. Fiscal Impact Analysis: Involves assessing the public service costs and revenues associated with new development. Such analysis projects net costs on the fiscal balance sheet of the community. Fiscal feasibility plays an important role in determining whether or not to proceed with a project What is the relationship between Econometrics and Fiscal Impact Analysis?

  36. Sarasota County Econometric Impact vs Fiscal Impact Use Economic Impact to Derive Local Fiscal Impact (Direct & Indirect) Econometric Impact New Economic Output New Jobs Created Earnings of New Workers Fiscal Impact • Sales Tax Revenue • Property Tax Revenue • Utility Revenue • Tourist Development Tax • Building Permit Revenue • Impact Fee Revenue • Costs of Providing Services • Costs of Infrastructure • Costs of Incentives • Return on Investment

  37. Example: Fiscal Impact of Business Expansion 1. Business adds new Production Facility - Construction increases local employment and sales 2. New Employee Hired - Business Productivity Increase (increased sales) 3. Employee buys a home - Ad Valorem Revenue source, Increases tax rolls 4. Family spends money locally - Stimulates local sales, local hiring 5. New businesses open to service expanded facility and employees - Indirect effect of capital expansion Sarasota County

  38. Impact DataSource Provides Fiscal Impact to County and/or Municipality • Uses Econometric data to derive Fiscal Impact • Contains revenue and expense elements from the County and/or Municipalities budget • Uses actual millage and sales tax rates • Utilizes a marginal approach to increase expenditures • Provides data for municipalities and relevant taxing districts • Assumptions are customizable based on the each scenario • Percentage of new workers moving into area • Percentage of new workers that will build a new home in the area • Many more…. Sarasota County

  39. What if? – Incentive Analysis What incentive is the most appropriate? ► Qualified Targeted Industry - QTI ► Tax Abatement (Land, Buildings, FF&E) ► Pay for Performance ► Direct Cash Incentives ► Combinations of the above What is your Rate of Return, Time to Breakeven, and NPV Every $1 Dollar of Incentives Equals $X Dollars of Return Sarasota County

  40. Impact datasource Sample of IDS Model Output * The analysis identifies the net effect on local government revenues from additional taxable sales in the area. Sarasota County

  41. Impact datasource Impact DataSource • Incentive Analysis: Cost vs. Benefit Tool • Property Tax Abatement • Cash Incentives • Lump Sum • Pay for Performance • Qualified Target Industry QTI Tax Refunds Sarasota County

  42. Impact datasource Sample of IDS Model Output Sarasota County

  43. 10 Year Fiscal Impact of Company XYZ Economic Incentives • Incentives Provided • Lump Sum $450,000 • Ad Valorem Tax Exemption $331,248 • Net Benefit to County $1,454,183 • Present Value of Net Benefit to County $1,096,173 • Time to Break Even on Investment 3.9 Years • Rate of Return 32% Note: Analysis based on company’s original application including job creation forecasts and adjusts for seasonal employees. Totals include effect of 10 Year Ad Valorem Tax Exemption 5% Discount Rate where applicable

  44. Impact dATASOURCE Sarasota County

  45. Impact datasource A wide range of organizations use Impact DataSource, such as: • Charlotte County, FL • Pasco County, FL • San Bernardino County, CA • Temple EDC, TX • NC Home Builders Assoc, NC • Topeka Chamber of Commerce, KS • Builders Association of Metro Augusta, GA • New Mexico EDC, NM • Oil Region Alliance of Business, PA • City of Lawton, OK Sarasota County

  46. Sarasota County Economic Development $10.5 Million Awarded to 26 Local Businesses 1,202 Jobs Created to date Average Wage: $31,000 + Projected Jobs: 2,400 (3 to 5 years) Projected Average Wage: 43,000 + Incentives Used Tax Abatement QTI Refund Program Pay for Performance Sarasota County

  47. conclusion Benefits of Fiscal Impact Analysis Uses econometric data to derive fiscal impact Allows cost vs benefit approach to Economic Development Projects Allows for “what if” incentive analysis to make informed decisions Assists in fiscal neutrality reviews Sarasota County

  48. conclusion Sarasota County utilizes multiple financial tools to make informed decisions: Major Revenue Forecasts – Forecast Pro Econometric Models – IMPLAN Fiscal Impact Models – Impact DataSource Sarasota County

  49. Sarasota County Budgeting Practices: Financial and Analytical Tools for Revenue Forecasting and Econometric Analysis Thank You

More Related