Intergovernmental Revenue Estimation

Abstract

This study develops a model of school budget decision making and examines the nature of state aid estimation. Revenue estimation can be divided into three distinct components: strategy-driven difference, uncertainty-triggered difference, and true error term. Underestimation of state aid revenues is the dominant budgetary behavior, but a significant number of districts end up with undesired overestimation. Overestimation is more prevalent among high aid dependent, rural, and urban districts. Institutional constraints, such as local budget vote, tend to reduce the size of state aid estimation difference. The uncertainty-triggered difference tends to increase as a response to compounded negative signals (low levels of Governor's proposal on state aid and late state budgets). Although there is evidence that state aid estimation differences ultimately end up in the fund balance, this study could not confirm that lower levels of prior year fund balances would trigger districts into a more aggressive underestimation of state aid.