June revenues disappoint, but surge is still expected
(Calif.) The 2016-17 fiscal year closed with weak tax collections in June, snuffing out hopes of a last minute boost from high income earners and Wall Street investors.
According to the state controller’s office, revenues missed projections made in May by $296 million, or a mere 0.2 percent. The non-partisan Legislative Analyst said the shortfall was even smaller, at $183 million.
When compared to what lawmakers expected the state would receive when the budget was signed last summer, the gap is far larger, close to $2.7 billion, raising the question where those tax dollars are considering the robust California economy.
Analysts at the LAO, which had anticipated that June would deliver as much as $1 billion more than the governor’s predictions made as part of his revised May budget, still expect a surge in revenues sometime in the coming months.
“We had expected that collections would have been fairly strong in June given that the stock market is up significantly from where it was a year ago, and that the economy overall is doing well,” said Ken Kapphahn, senior fiscal and policy analyst at the LAO.
“Our theory now is that the weakness we saw in June reflects high income tax payers delaying some of their gains and income into next year, perhaps in anticipation of a tax cut at the federal level,” he explained. “So even though June collections fell short, we believe that collections in 2017-18 could be even better than we were anticipating.”
The chore of forecasting how much tax money the state will receive during the fiscal year has always been a challenge, but typically not when the money will be paid. Traditionally, the big revenue months are September, December, January, April and June– but projections this year missed almost every month.
The volatility was probably one factor that prompted Gov. Jerry Brown to force legislative leaders to accept a fairly conservative spending plan for 2017-18 despite the healthy state economy and the ever rising stock market.
State fiscal managers will continue to focus on Wall Street because of the dominate role taxes paid on capital gains play on overall revenues.
During booming stock market cycles, the state collects billions in capital gains—the bull market of 1999-2000, for instance, generated close to $130 billion in net capital gains. On the flip side, when the market slides, California coffers suffer—such as 2009-10 when only about $20 billion in capital gains was taxed.
With the S&P 500 up about 375 points since the November presidential election, there is every reason to believe that billions in profits will eventually be taken by investors and the state will get its share.
For June, personal income receipts fell $161 million short of May estimates, according to the state controller, while collections from the sales tax were off by $57 million. Corporate taxes last month were the biggest disappointment, missing the May forecast by almost $900 million.
For the fiscal year, revenues were almost $2.7 billion lower than expected when the 2016-17 budget was signed last summer, State Controller Betty T. Yee reported last week.