J. OF PUBLIC BUDGETING, ACCOUNTING & FINANCIAL MANAGEMENT, 28 (4), 488-526 WINTER 2016 LOCAL GOVERNMENT REVENUE FORECASTING METHODS: COMPETITION AND COMPARISON Daniel W. Williams and Shayne C. Kavanagh* ABSTRACT. This study examines forecast accuracy associated with the forecast of 55 revenue data series of 18 local governments. The last 18 months (6 quarters; or 2 years) of the data are held-out for accuracy evaluation. Results show that forecast software, damped trend methods, and simple exponential smoothing methods perform best with monthly and quarterly data; and use of monthly or quarterly data is marginally better than annualized data. For monthly data, there is no advantage to converting dollar values to real dollars before forecasting and reconverting using a forecasted index. With annual data, naïve methods can outperform exponential smoothing methods for some types of data; and real dollar conversion generally outperforms nominal dollars. The study suggests benchmark forecast errors and recommends a process for selecting a forecast method. INTRODUCTION To prepare budgets, governments forecast both revenue and expenditures. Within the United States, budgeting practices were introduced in the late 1800s and early 1900s to add a planning process before appropriating (Cleveland, 1913; Clow, 1896, 1901; Rubin, 1993; Williams, 2003). Part of the planning process is the identification of resource availability and resource constraint. This is the purpose for which governments make revenue forecasts in budgeting. Governments also forecast to track their progress compared with appropriations as the fiscal year progresses. Typically, these types of forecast are viewed as occurring in a unified process; ----------------------------------- * Daniel W. Williams, Ph.D., is a Professor, School of Public Affairs, Baruch College. His primary areas of research include forecasting, budgeting, performance measurement and history of public administration. Shayne C. Kavanagh, is a Senior Manager of Research for the Government Finance Officers Association. His research interests are focused on long-term financial planning and progressive budgeting practices for local governments. Copyright © 2016 by Pracademics Press