revenue-forecast-scenario

Purpose

Create a defensible multi-year revenue outlook by source (property tax, sales/local option tax, franchise fees, permits, charges, intergovernmental, interest) with explicit drivers and scenarios, so the budget can distinguish recurring capacity from one-time money.

Required inputs

• Five to ten years of actuals by revenue source, budget vs. actual accuracy history, and the current-year YTD.
• Drivers: assessed value and levy limits (tax caps, rate rollbacks), taxable sales base, building permit pipeline, population/households, state shared revenue formulas, interest rates, fee schedules.
• Known changes: annexations, expiring TIF or abatements, new or expiring local taxes, state legislation, large taxpayers, and one-time receipts.

Workflow

1. Clean the history: remove one-time items (settlements, asset sales, FEMA, ARPA-type funds, catch-up payments) and adjust for rate/fee changes to find the underlying trend.
2. Identify the legal mechanics for each source: property tax levy limits and delay between valuation and collection; sales tax collection and remittance lag; state formulas and their annual revision; earmarked or restricted revenues that cannot support general operations.
3. Build base case with a driver-based formula (for example, assessed value growth times rate under the limit; taxable sales growth with inflation and population). Avoid mere linear extrapolation.
4. Build downside (recession or loss of a large taxpayer, with a historical analog such as the city's own worst year), and upside. Provide probability language without false precision.
5. Add concentration risk: top ten taxpayers' share, single-industry reliance, and online/remote sales shifts.
6. Link to expenditures: compare recurring revenue growth to recurring cost growth (wages, benefits, pension, healthcare, debt service, contracts). Present the structural gap by year.
7. Quantify budget response options: hiring pause, deferred capital, fee changes, reserve use (one-time only), levy increase subject to limits and voter approval, and service reductions. State what each yields and when.
8. Set monitoring triggers: indicators (monthly sales tax, permit counts, delinquency) with thresholds that trigger mid-year action.

Output structure

| Source | Last actual | Base | Downside | Upside | Key driver/assumption | Legal constraint | Recurring or one-time | Years: current plus three to five projected. Add a structural-balance table (recurring revenue minus recurring expenditure, by scenario) and a trigger list.

Red flags / escalate

• Budget revenue above the most recent actual without a documented driver.
• Reliance on one-time revenue for recurring expenditure ("funding cliff").
• Levy-limit or voter-approval constraints that cap growth below cost growth.
• Expiring grants or ARPA-type funds that fund permanent positions.
• Pending court cases or state legislation that could change a revenue stream (coordinate with the city attorney and the legislative-tracker skill).

Common mistakes

• Using a single growth rate for all sources.
• Forgetting the timing lag between assessment and collection.
• Treating interest income as stable.
• Presenting a downside no worse than last year.
• Confusing cash receipts with accrued revenue.

State-law variance

Tax limits, authorized local taxes, shared-revenue rules, and voter approval requirements differ widely by state.