Man of Precision
Estimating revenue is a task that trips up many state finance officials. West Virginia's Mark Muchow gets the numbers right every time.
As budgeters in many places have come to learn, April is the cruelest month for other people besides taxpayers. A year ago this month, revenue departments in most states began opening up the envelopes with the returns inside and discovered they were facing a full-blown fiscal crisis, with far less revenue coming in than they'd anticipated. The one notable exception was West Virginia. There, tax collections from the first four months of the year actually ran slightly ahead of expectation.
This was not because the economy was any brighter there than in the rest of America. It was because West Virginia had a better handle on what to expect. And that was because of Mark Muchow. Muchow (pronounced Mew-ko), officially the chief administrator for revenue operations, oversees a variety of divisions, from criminal investigations to audits. But around Charleston, he's known mostly for one thing: the phenomenal accuracy of his revenue projections. "Last year, out of a $2.9 billion budget, he came within a million dollars," says Robin Capehart, the state's former secretary of revenue. "That's amazing."
It's particularly impressive when you consider that of the 40 taxes West Virginia collects, Muchow and his tiny staff are required to produce fiscal-year estimates for 35 of them, and they have to do so seven months before the fiscal year even begins. "Some part of it," says Harley Duncan, executive director of the national Federation of Tax Administrators, "is black magic. It takes someone who knows and understands the economy of the state and the revenue structure of the state very, very well."
In general, revenue forecasts are as much a subject for political maneuvering as they are a matter of cold analysis. Often, more than one forecast gets produced, and as Duncan puts it, "once you have an alternative, any number of elected officials will choose the one that suits their needs."
West Virginia doesn't work that way. Only the governor's forecast-- the one produced by Muchow and his staff--is used for budgeting purposes. "There are always people around who'd be happy to see other forecasts, but it's not a useful endeavor," says Michael Hicks, research director at Marshall University's Center for Business and Economics. "Forecasting revenues in West Virginia to improve Mark Muchow's effort is largely a waste of time."
Muchow, 43, has both an ability to work extremely hard and a nuanced appreciation for how events outside West Virginia will influence its tax income. This is not simply a matter of following broad economic trends. It means paying attention to everything from small changes in federal Medicaid policy--which affect the amount of money flowing from Washington to the state's doctors and hospitals--to trends in corporate accounting, which impact the amount of money businesses report to the state. As Muchow puts it, "what shows up as profit on the books for shareholders doesn't necessarily show up as the same profit for tax purposes."
When things go awry in West Virginia's finances--as has happened this year, with dour consumer sentiment putting a damper on sales tax collections--Muchow is usually the first to know. "It doesn't take a whole lot of error to cause a major reduction in spending or a crisis," he says. "We forecast that this current fiscal year, revenues will be about 1 percent short of our original forecast, but that mere 1 percent is enough to cause many state agencies to face 3.4 percent budget cuts."
Even so, at least the agencies are getting plenty of warning. In many states, the bad news often doesn't filter out until later in the spring. As Capehart says, "If you want to avoid an end-of-the-fiscal- year crisis, it's very comforting to have someone with Mark's talents working for you."