(This revenue information was updated in a May 1 posting on this website.)
April is a key month for the state’s personal income tax (PIT) and corporation tax (CT) collections. April collections of these taxes by the Franchise Tax Board (FTB) and the Employment Development Department (EDD) are nearing their conclusion. To date, results for April alone are on track to be over $2 billion below the administration’s most recent budget forecast for the month. Surprise late April collections remain a small possibility, but if the current trends hold, they suggest that the state's revenues could be a few billion dollars below the administration's January forecast in both 2011-12 and 2012-13.
Personal Income Tax
FTB Collections. FTB collects PIT money in April from final returns, extension payments, and estimated payments (largely by high-income taxpayers), and it also issues refunds. The administration’s January revenue estimates were premised on FTB collecting a net amount of $6.35 billion in April. As of today (April 25), FTB has collected $4.00 billion. Collections have been running on a somewhat similar pattern as April 2011. If this year’s final three collection days mirror the last three such days in April 2011, the state would end April with about $4.3 billion of FTB net collections—about $2 billion short of the administration’s projection for the month.
EDD Collections. In addition to FTB’s collections, EDD processes most of the state’s withholding payments. For the month to date, withholding collections total $2.83 billion, with two collection days remaining to be booked to hit the administration’s monthly target of $3.24 billion. The most likely outcome is that the state falls short of this withholding target by an amount less than $250 million.
Total PIT Collections. In total, the PIT seems on track to be somewhat over $2 billion short of the administration’s projection for the month. As of the beginning of the month, PIT for the fiscal year to date was already running $807 million below the administration’s projections. Thus, as of the end of April, PIT results are likely to be around $3 billion below the administration’s forecast for 2011-12. This could result in lower PIT revenue forecasts of a few billion dollars per year in both 2011-12 and 2012-13.
Weak Trends for This Tax. For the month to date, CT collections equal $1.25 billion. The administration's target for the month is $1.53 billion. If last year’s trend repeats itself for the final three FTB collection days, CT would end the month around $150 million below the administration’s forecast the month—a very large shortfall that could approach 10 percent of the projected monthly total. As of the beginning of the month, CT for the fiscal year to date was already running $304 million below the administration’s forecast. Thus, as of the end of April, CT results may be about $450 million below the administration’s forecast. This could result in lower CT revenue forecasts of hundreds of millions of dollars per year in both 2011-12 and 2012-13.
April Collections. We expect to update the Legislature and the public on April revenue trends via this website on or about May 1 and then about one week later when preliminary April sales and use tax figures are released by the State Board of Equalization. We may publish an interim update if unexpected trends warrant doing so.
May Revision. The administration will release its updated economic and revenue forecasts in the May Revision on or before May 14. We expect to release our updated forecasts a few days later, reflecting the Governor’s proposed tax and spending policies. The Legislature then will have about one month to complete the 2012-13 budget process.
Lowered 2012-13 Revenue Estimates Also Affect Proposition 98. These results suggest that the state's current budget problem may be a few billion dollars larger than estimated by the administration in January. It is not possible, however, to extrapolate from these figures to a simple updated estimate of the state’s budget problem. Changes in revenues also affect the state’s Proposition 98 minimum guarantee, for example. Moreover, the administration has said, its January estimates did not anticipate the likely revenue effects of an initial public offering of stock by Facebook, nor the Governor's revised tax measure. In addition, examination of more detailed FTB data from April will be necessary to make solid judgments about likely collection and tax refund trends in May and June 2012.
Controller’s Cash Not Used in Budgetary Forecasting. This note provides information in terms of agency cash, the most timely and authoritative tracking tool for budgetary revenues. “Controller’s cash” revenue tracking is not used in state budgetary forecasting. In any given month, results for these two measures can differ materially. The authoritative source of monthly information on the state's budgetary revenue trends is the Department of Finance's Finance Bulletin--published 10 times per year and available at http://www.dof.ca.gov/finance_bulletins/.