State revenue forecasters face multifaceted challenges in projecting revenues, especially amid rapid and significant economic, demographic, and technological changes.

This report provides an in-depth examination of the challenges and complexities involved in state revenue forecasting across different economic phases. It spans from the post–Great Recession expansion through the COVID-19 pandemic and subsequent recovery.

The report highlights the variability in forecasting accuracy across different states and tax categories, with notable discrepancies arising from economic volatility, changes in federal and state policies, and unforeseen global events. In particular, the COVID-19 pandemic presented unprecedented challenges for state forecasters, leading to substantial underestimations of revenues in fiscal years 2021 and 2022. This period of unpredictability was further compounded by the extraordinary federal fiscal stimulus, heightened inflation, and a robust stock market performance, among other factors. These elements collectively contributed to an unexpected surge in state tax revenues, illustrating the difficulty of forecasting in an environment of rapid and significant changes. To address these challenges and improve the accuracy and reliability of state revenue forecasts, several policy recommendations emerge from this report's findings.