This is our May 1 update on the state's personal income tax (PIT) and corporation tax (CT) collections for the month of April 2012. The trends we identified in our revenue update dated April 25 continued into the month's closing days of revenue collections.
As discussed below, combined collections of the two state income taxes (PIT and CT) appear to have been about $2.2 billion below the administration’s projections for the month of April. As of the end of March, General Fund revenues were already $898 million below the administration’s year-to-date projections (with shortfalls in PIT and CT offset by positive trends in some other revenue sources). Accordingly, when the April results are included, year-to-date General Fund revenues likely are now around $3 billion below the administration’s year-to-date target.
Personal Income Tax
For the month of April, preliminary reports indicate that the Franchise Tax Board (FTB) collected $7.09 billion of PIT cash and the Employment Development Department collected $3.07 billion. This was offset by $2.64 billion of PIT refunds. Thus, the net amount of PIT collections for April was $7.52 billion. This falls short of the administration’s projection of April PIT collections by $2.07 billion.
These figures (as well as the CT figures below) will change to some extent as FTB refines the data in the coming days. The General Fund PIT total for the month will be somewhat lower than the figures above (which include amounts that will be allocated to the Mental Health Services Fund). The amount of the monthly General Fund PIT shortfall, however, should remain fairly similar to the roughly $2 billion figure cited above.
The April PIT totals likely fell short of the administration’s target for April due to lower capital gains income than was assumed in the Governor’s January budget package. The April results were broadly consistent with our office’s recent forecast models, which projected much less income from capital gains than the administration’s did.
We would note, however, that the higher level of PIT refunds in April ($2.6 billion—over $500 million higher than the administration’s projections) likely reflects some acceleration of refund activity that the administration assumed would occur in May. In other words, it seems quite likely that the closing cycle of PIT refunds in May will be smaller than the administration assumed in January—perhaps by several hundred million dollars.
As of the end of March, year-to-date General Fund PIT revenues for 2011-12 were already $807 million below the administration’s estimates. Accordingly, when the April results are included, year-to-date PIT revenues likely are now around $3 billion below the administration’s year-to-date target.
LAO Bottom Line. Overall, the April results suggest that both 2011-12 and 2012-13 PIT revenues likely will be a few billion dollars lower than assumed in the administration’s January revenue forecast.
For the month of April, FTB collected $1.45 billion of CT cash, offset by about $63,000 of CT refunds. Thus, the net amount of CT collections for April was $1.38 billion. This falls short of the administration’s projection of net April CT collections by $143 million.
March and April CT results were significantly below amounts expected by both our office and the administration. As of the end of March, year-to-date General Fund CT revenues were already $304 million below the administration’s estimates. Accordingly, when the April results are included, year-to-date CT revenues likely are now around $450 million below the administration’s year-to-date target.
It will take months for FTB to compile data on 2011 CT returns to allow for a complete analysis of the shortfall. As we have discussed in recent publications, however, the variety of recent CT policy changes—as well as the recovery from the unprecedented recession—make forecasting this important revenue source much more difficult than usual.
LAO Bottom Line. The April totals suggest that both 2011-12 and 2012-13 CT revenues could be several hundred million dollars lower than assumed in the administration’s January revenue forecast.
May Revision and Other Information. As we noted previously, we expect to update the Legislature and the public on April revenue trends in about one week when preliminary April sales and use tax figures are released by the State Board of Equalization. On or before May 14, the administration will release its updated economic and revenue forecasts in the May Revision. 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/.