Custom Revenue Forecasts

In more than two decades of experience working on similar engagements with government agencies, we have found that these projects are most successful when they are collaborative. Our goal is to provide policymakers and key stakeholders with the most accurate and transparent outlook possible, and we believe that combining our expertise with your institutional knowledge of revenues and data will achieve this goal.

 ECONOMIC FORECASTS

The revenue forecasting and model-building process starts with Moody’s Analytics’ high-quality U.S. and regional economic forecasts. Each month our staff of more than 100 economists leverage our large-scale econometric model to generate a baseline forecast and nine off-the-shelf alternative economic scenarios for the U.S. and all its states, territories, and metro areas at a quarterly frequency.

The results of the U.S. forecast are fed into the regional models for each state and metro area, the output of which ultimately drives a majority of our individual revenue projections. Our regional models are driven as much as possible by structural, demographic, and industrial data and characteristics specific to each state and metro area.

Economists specializing in their respective states examine each forecast series to ensure that results are consistent with both the U.S. macroeconomic forecast and regional conditions. During the process, they also adjust to account for dynamics such as factory openings/closings or weather events that cannot be picked up in an econometric model.

REVENUE MODELS

In constructing revenue forecasting models we rely on these economic forecasts to produce, stress, and backtest the initial round of revenue projections. This process involves several key stages:

1. Data - The first step in the model development process is to work closely with you to source and examine all necessary historical collections data for the revenue streams to be forecast. After receiving the necessary data in an electronic format, we examine the historical trends and recent patterns in revenue collections and identify characteristics important to the forecasting process including the primary components of each revenue source.                                                                                                                                                                                                                            Given the broad range of revenue types to be projected, a number of non-economic factors may also play a material role in affecting the outlook and will need to be catalogued as well. These types of factors, ranging from accounting changes to severe weather, can cause unusual seasonal patterns or structural breaks to occur in the data. Similarly, statutory changes to tax or distribution rates can cause data anomalies that must be controlled for when developing revenue projections.

2. Model development - Once the data are collected and thoroughly examined, we begin the process of fitting individual econometric equations to each revenue source, evaluating which underlying economic drivers have the most predictive power in developing forecasts. To do this, our economists leverage their extensive experience forecasting a wide variety of revenues and other economic data.                                                                                                                                         
3. Model review - Once the initial round of model development and forecasting is complete, we work with you to fine-tune model assumptions and specifications. This process should be undertaken throughout the budget cycle to ensure that models and projections remain relevant to the underlying economic landscape. These types of evaluations can range from introducing new model drivers to stress-testing forecasts using alternative economic scenarios.                                                
4. Revenue forecast delivery - Once the initial round of projections are complete, we deliver the forecasts in an Excel file. The forecasts are accompanied by a report detailing the economic assumptions and the outlook for the primary drivers underlying the projections. Depending on your needs, the equations may be delivered in our Scenario Studio macro model interface.  This enables you to adjust macroeconomic assumptions and model inputs and visualize the impact on your revenues. We provide presentations on the forecasts as well as continued support.