Revenue numbers continue to vex experts, rebound possible
(Calif.) In a year that has defied decades of state economic trends, the collection of personal income taxes in April closed $704 million below the governor’s cautious January projections, baffling fiscal experts.
When combined with a $250 million dip in corporate taxes paid last month, the poor April showing largely wipes out a $1.1 billion surplus the two sources provided state coffers after the end of March.
Although there remains a rational argument that the unexpected dive will be reversed by the end of the fiscal year, the administration’s upcoming May budget plan will no doubt reflect a continuation of the restrained spending plan that Gov. Jerry Brown released at the beginning of the year.
For K-12 schools, the disappointing April numbers are still likely to result in the governor proposing in the May revise an overall uptick in funding. Brown’s January budget plan called for an increase in the Proposition 98 guarantee from $71.4 billion this year to $73.5 billion next year.
Mysteriously missing from the equation, however, are the billions of dollars in capital gains taxes that many analysts had expected to be paid this spring given the steady march of the stock market since the presidential election in November.
“It’s still a little too early for us to say, but the end of April certainly was disappointing,” said Kenneth Kapphahn, senior fiscal and policy analyst at the non-partisan Legislative Analyst’s office.
Based on strong unemployment numbers, the booming housing markets in many parts of the state, and Wall Street pushing into record valuations—the LAO told lawmakers several times since January that they believed the governor’s revenue projections were too low.
But what has made forecasting frustrating this year, however, are expectations that a Republican-controlled Congress will come to an agreement with the White House on tax reform—fulfilling promises President Trump made during the campaign. As a result, decades of revenue trends have proven irrelevant.
Collections failed to meet expectations in August, September and October. November not only made up those deficits but put the state almost $500 million ahead.
December fell; January rebounded; February was down; but March numbers recovered.
It should be noted that June has emerged in recent years as the state’s second largest tax collection month next to April. Thus, hope for an overall rebound in state revenue before the end of the fiscal year may not be far-fetched.
“The key cash collection months that really set the pace for the rest of the year are April, June, September, December and January–those are really the key months where taxpayers are making the largest payments on the income tax,” said Kapphahn.
“We’ll be studying the numbers and waiting for some final data to come in to help us think about what this means for 2017-18,” he said.