State Revenues Below Expectations, Economic Indicators Mixed
August 18, 2016
The latest monthly revenue report from the Department of Finance shows lackluster revenue performance for the month of July. For current fiscal year-to-date, total General Fund revenues are down about $330 million (5 percent). July 2016 had fewer tax collection days when compared to July 2015, which may explain some of the weak year-over-year growth. July revenues were up 0.6 percent when compared to July 2015, but overall below the month’s budget estimate.
There is some good news included in the July numbers: sales taxes came in $22 million (1.5 percent) above projections, and other general fund revenues (including insurance, estate, alcoholic beverages, tobacco taxes, pooled money interest, and vehicle license fees) came in on target.
The largest gap came from personal income taxes, which came in $278 million (6 percent) below projections. The vast majority of this discrepancy ($247 million) comes from income tax withholdings; July is not a major month for estimated or final income tax payments. The decrease in income tax revenues reverberates through many different policy areas. Among other impacts, the transfer to the Mental Health Services Fund (MHSF) for the month of July was reduced by $5 million, since Prop 63 requires 1.76 percent of total monthly personal income tax collections go to the fund.
Other major state revenues were also below projections: corporation taxes came in $57 million (20.7 percent) below forecast, and the “other revenues” category was $16 million (28.3 percent) below forecast.
Other economic indicators are mixed. The unemployment rate increased slightly to 5.4 percent, representing the first time this indicator has increased in nearly six years. The monthly average for jobs gained is slightly slower than the first half of 2015. Housing permits decreased, and the average permits for the first half of 2016 shows no improvements over the first half of 2015. Nonresidential construction valuation decreased from June to July, but showed improvement over the same time period in 2015. Sales of existing single-family homes increased and represents the highest month-over-month growth in over five years, though the median price decreased very slightly.
At just one month into the state’s fiscal year, it is premature to be overly concerned about these numbers. However, CSAC closely monitors the state’s budget position due to the many interactions with local finances, and will continue to report out on trends and how they may affect California counties.