Fiscal Impact Analysis (20)

Description:

During or after passage, bills generally undergo some form of fiscal impact analysis to estimate the costs and revenues associated with implementing a given piece of legislation. Thus, this building block requires using data from the Economic Forecasts and Revenue Modeling building block tools to effectively determine the potential costs and revenues for the bill(s) as currently written or passed.

In any fiscal impact analysis, there may be multiple implementation paths, depending on the specificity of a given bill’s language. For the initial fiscal impact analysis, analyze a small number of logical implementation paths and revisit as final implementation decisions are made.

Details:

To complete this task, financial modelers should update and rerun modeling tools based on the language of the bill as currently formed or passed, which will come from the Analyze Bill Language and Testimony building block. The initial run may need to be done to meet legislative requirements for a bill’s fiscal note before the bill is passed. The bill most likely will not specify everything needed for the analysis. Therefore, modelers need to make logical choices based on any preceding RUC studies in the state. As implementation decisions are made, the fiscal impact analysis may be rerun to determine impacts of the latest decisions.

Primary Use:

Determine financial impacts of each bill so the state budget and other impacted items can be correctly updated.

Best Practices/Lessons Learned:

  • Record all modeling assumptions in detail. Any analysis will require a range of assumptions beyond what is included in the bill(s), and the qualitative (how the model is structured) and the quantitative (how model parameters are set) assumptions should be recorded.
  • Use the most recent forecasts available. The more current the numbers, the more accurate the analysis will be.
  • Keep updating the fiscal impacts analysis as program decisions are made. The closer the assumptions are to the system that is actually implemented, the more accurate the analysis will be.
  • Ensure the financial model is user-friendly and well-documented because others will need to review it and it might change hands at some point.
  • If interstate commercial vehicles are included in the RUC system and a refund of fuel taxes is planned, be sure to include only refunds from fuel tax purchases in your state. International Fuel Tax Agreement member jurisdictions cannot refund fuel taxes paid to other states. Interconnectivity between states would change this dynamic.

State Government Context and Assumptions:

Financial modelers, under the direction of the lead RUC agency, do this task. It may need to be done as a formal part of the legislative process; if not, it may be done soon after the bill is signed into law.