The California Department of Finance

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Deep in the bowels of the California Department of Finance, a small group of economists toils at producing the economic forecast on which the governor's budget is based. It's not glamorous work, and too often it seems thankless; but it certainly is interesting.

The Department of Finance is in the executive branch of California state government and, as such, is part of the governor's administration. Its principal functions are to prepare, enact, and administer the state's annual budget; establish appropriate fiscal policies to carry out the state's programs; and analyze legislation with a fiscal impact on the state.

Forecasting

The economics unit contributes to all three functions, but its primary responsibility is producing the economic forecasts on which budgets are based. As part of the annual budget process, the unit develops three forecasts each fiscal year. Each of these consists of a near-term national economic forecast, a near-term California economic forecast, a Consumer Price Index forecast, and a set of long-range economic assumptions. In addition, the unit forecasts the values of the many cost of living adjustment (COLA) factors that are used in state programs.

The Planning Estimate forecast, developed in September, begins a new budget cycle and is the department's first take on the economic outlook for upcoming fiscal year--the budget year. This forecast provides input for the economics unit's Planning Estimate COLA factor forecasts and for the revenue forecasts made by the financial research unit, a separate unit. The revenue forecasts are …