State Revenues Kick Off 2018 on Strong Footing
February 22, 2018
California’s total revenues of $16.53 billion in January beat the 2018-19 proposed budget assumptions by $2.58 billion, or 18.5 percent, according to the latest Department of Finance (DOF) cash flow report. DOF attributes the recent surge in revenue partly to the passage of federal tax reform late last year, which was not taken into account during the development of the Governor’s proposed budget.
For the first seven months of the 2017-18 fiscal year, total revenues are $2.9 billion, or 3.9 percent higher than expected in the January budget proposal. Additionally, compared to the same point last year, revenues are up $7.7 billion.
Personal income taxes (PIT) and corporation taxes, two of the “big three” sources of General Fund dollars, surpassed budget expectations for the month of January by $2.6 billion collectively. PIT’s share took up the majority of the increase, accounting for $2.4 billion. These impressive receipts brought PIT revenues 22.4 percent above 2018-19 proposed budget assumptions for the month of January and 4.6 percent fiscal year-to-date. In result, the amount transferred to the Mental Health Services Fund was $43 million above forecast. Corporation taxes also performed well in January, surpassing the budget forecast by $189 million and January 2017 totals by $128 million.
Sales tax revenues, however, experienced a slight downturn in January, missing budget expectations by $43 million, or 1.5 percent. Unfortunately, January’s poor performance pulled sales tax revenues below the fiscal year marker by $35 million, or 0.2 percent. On a more positive note, all other revenue sources such as insurance tax and tobacco tax are above fiscal year estimates following January’s receipts.
Importantly, other economic indicators such as labor market conditions, building activity, and real estate are faring well. The unemployment rate is at a historic low, falling to 4.3 percent in December. Local government contributed 9,200 new jobs in December, taking second place to leisure and hospitality which added 10,100. Additionally, building activity continues to grow along with statewide home sales.