Incentives for forecasting reform among local finance officers

Findings from a nationwide survey of 290 local finance officers show a disturbing continuity over two decades of research in the forecasting area: local finance officials have a very limited forecasting methodological repertoire and rely on judgmental as opposed to quantitative methods. Moreover, these officials exhibit a greater than expected tolerance for forecast error. With the exception of federal transfer, there is a statistically significant inverse relationship between size of community and error tolerance. General fund balance, bond rating and form of government are not related to this tolerance. Local government proclivity toward general fund balance building and the absence of within-year forecast revision lead to an operation environment which places limited pressure on finance officials to forecast more accurately. Conceivably, reductions in intergovernmental revenue may reduce budgetary slack and reduce error tolerance. However, local officials’ limited forecast knowledge may affect their ability to explain their forecasting needs to consultants. This may lead to a forecasting deficit ‘loop’ from which local officials cannot escape and limit prospects for innovation.