CA’s volatile revenues have added confusion to the mix
(Calif.) Capitol insiders and fiscal managers across the state are beginning to watch with some trepidation the daily tax income reports from the state controller’s office—running about $600 million behind projections made last July.
So far, taxpayers have delivered only about 15 percent of the $13.5 billion expected to be paid to the state in personal income taxes this month.
But don’t worry, a similar amount was raised last year over the first ten days of the month.
Meanwhile, economic indicators continue to show strength. The state’s unemployment rate remains steady at about 5 percent and year-over-year job growth is still outpacing the national average. And the stock market is still charging forward—the Standard and Poor’s Index is up more than 260 points since the November election.
Still, questions linger as nothing about this year’s revenue watch has played out as anticipated.
Only weeks after legislative leaders and the Brown administration agreed on the 2016-17 budget, revenue projections went off track. Collections failed to meet estimates in August, September and October and left the state about $600 million behind.
In November, however, revenues rebounded, jumping almost $500 million ahead of expectations.
December brought another downturn of $756 million and prompted Gov. Jerry Brown to warn that the economy was showing signs of slowing. He revised downward the revenue projections for the year and released a status quo budget that included a $900 million deferral to schools.
Since then, collections have bounced around some: January was $747 million above the governor’s estimate; February was $256 million below; and preliminary numbers show that March is likely to be close to $850 million ahead.
It is not a big surprise that Brown’s January revenue projections are proving to be low, as the non-partisan Legislative Analyst’s Office has said as much almost from the day the budget plan was released.
What is something of a surprise is that current collections are running well behind the estimates made last summer when lawmakers and the administration were negotiating the budget.
After all, last July, no one was thinking the stock market would have taken off the way it did in the wake of the Trump election. Architects of the 2016-17 budget, who were also required to consider how much money might be available in 2017-18, were instead looking at job growth, the health of the real estate market and related economic factors.
Budget planners have long understood the out-sized role the stock market plays in the state’s tax system and capital gains the vanguard of that activity. But this year is different.
Some experts have speculated that December’s unexpected dig in revenue was the result of Wall Street investors delayed profit taking in anticipation of the Republican White House coming to a deal on tax reform in 2017 with the GOP controlled Congress. That scenario would seem plausible given the big jump in income the state got just after the first of the year.