Revenue and Expenditure Projections

Forecasting revenues and expenditures is an integral pan of public sector planning and budgeting. Revenue forecasting projects the level of resources available to accomplish governmental objectives. Expenditure forecasting estimates the level of future spending needed to accomplish such objectives. Since expenditures must equal revenues, an important function of forecasting is to see whether the existing revenue structure will provide funds sufficient for future needs. Where such is not the case, the critical policy options involve enhancing revenues by altering the revenue structure, cutting expenditures by reducing the scope of governmental objectives, or both.

Three characteristics of California's recent experience are pertinent to projecting future revenues and expenditures. First, between 1980 and 1989, total K–12 funding rose 91 percent. But school enrollment (measured as average daily attendance, or ADA) increased almost 19 percent, and inflation tempered real revenue growth in the early decade. In short, during the 1980s, as total K–12 funding increased form $12.3 to $23.4 billion, and as ADA climbed from 4.2 to 5 million, real spending per pupil increased $423, a jump of 11 percent.

Second, revenue for K–12 education is derived from federal (7.38 percent), state (69.23 percent), and local (23.39 percent) sources. California relies considerably more on state revenues than the rest of the nation. (The state component of K–12 funding is 38 percent higher in California than in the nation on average.) Also, lottery revenues, projected to be 2.6 percent in 1989, compose a minor part of the total.

Third, California's "effort" in raising K-12 revenues, measured as a percentage of state personal income, in 1986 was about 86 percent of the U.S. average. This lower than average effort was not due to a greater effort being made for other programs, however, since total state and local tax collections in California as a percentage of state personal income were about 97 percent of the U.S. average. In fact, the revenue effort in California for both schools and other public functions is below that for the nation as a whole.

The Projections

K-12 revenues were projected by:

1. Estimating the responsiveness of revenues to state personal income growth (income elasticity of revenues)

2. Projecting state personal incomes through 1995

3. Projecting the number of public school students (ADA)

4. Projecting a price index through 199S*

5. Using the projections of state personal income together with the estimates of elasticity to project K-12 revenues

6. Using the projections of ADA and CPI to project constant 1988 dollar revenues per student.