Controller’s report shows big gains

by Brian Leubitz

A while back, I mentioned the (mostly) good news on the revenue front. Today, the controller’s office released the full numbers, and again they are (mostly) good.

Personal income taxes in the month of January came in $4.8 billion above (54.7 percent) monthly estimates contained in the Governor’s latest budget proposal. Corporate taxes came in $11.4 million above (45.5 percent) those monthly estimates, and sales tax receipts came in $582.7 million below (27%) projections.

The State ended the last fiscal year with a cash deficit of $9.6 billion. As of January 31, that cash deficit totaled $15.7 billion and was covered with $5.7 billion of internal borrowing (temporary loans from special funds), and $10 billion of external borrowing.

Of course, the big caveat here is that the sales tax numbers were below projections pretty substantially. Also, because of the fiscal cliff, many companies changed pay schedules, resulting in some of these bigger numbers. Of the numbers, Controller Chiang had this to say:

“Last month’s revenues were by far the highest that California has seen in any January for the past decade. Along with increased auto sales, rising home values, and more construction, it signals that California may be entering an era where we can govern outside of crisis. However, given our state’s troubled history with boom-or-bust revenue cycles, this good news must be tempered with increased fiscal discipline in how we interpret and budget January’s collections.”

This seems to be the path that the Legislature and the Governor are content to pursue. A steady budget with no big increases planned.

Controller John Chiang sounds the alarm bells

by Brian Leubitz

While tax season is gearing up, the state government is now running low on cash reserves. Controller John Chiang announced today that without payment delays and other tactics, the state will run out of cash in March:

California will run out of cash by early March if the state does not take swift action to find $3.3 billion through payment delays and borrowing, according to a letter state Controller John Chiang sent to state lawmakers today.

The announcement is surprising since lawmakers previously believed the state had enough cash to last through the fiscal year that ends in June.

But Chiang said additional cash management solutions are needed because state tax revenues are $2.6 billion less than what Gov. Jerry Brown and state lawmakers assumed in their optimistic budget last year. Meanwhile, Chiang said, the state is spending $2.6 billion more than state leaders planned on. (SacBee)

To some extent this happens every year. Last year we had to borrow $10B to tide us over until tax revenues came in.  And heck, Chiang thinks this year will only be $5.4billion. The world is getting better, hooray.

Unfortunately, with the continuing high demands on state services, this is really to be expected. And, Chiang, as he has always done, will have to find a way to balance the state’s checkbook.  Fun job, isn’t it?

Lower than expected revenues and higher expenditures create additional budget pressure

by Brian Leubitz

These are not exactly the figures that the Governor wanted to see right now: Disbursements exceeded projections by $2.65 Billion and revenue was $165 million below the Governor’s latest estimate from his budget proposal last week. That is $1.4 bil below the most recently passed budget. All in all, some nasty numbers.

“While we saw positive numbers in November, December’s totals failed to meet even the latest revenue projections,” said Chiang. “Coupled with higher spending tied to unrealized cost savings, these latest revenue figures create growing concern that legislative action may be needed in the near future to ensure that the State can meet its payment obligations.

With the most recent lower than expected projection for the Governor’s revenue measure, it is looking increasingly likely that there will be even more significant mid-budget cuts to services.  Cuts that will continue to fall in the lap of those who can least afford them.

In an interview with the Sacramento Bee on Wednesday, California Controller John Chiang said lawmakers who fear the prospect of automatic mid-year budget cuts should find alternatives soon:  “I say if you don’t like the fact that we may have triggers, then you better offer an alternative, and you should offer that alternative pretty quickly.” Here at the Health and Human Services Network of California, we’ve been fighting the deep cuts to our social safety net and rolling out revenue solutions to the California budget crisis for quite a while now, so we were happy to hear Controller Chiang throw down the gauntlet. California legislators, here is our list of revenue alternatives to Trigger Cuts:

•Treat oil companies the same as every other government in the world and tax their extraction of oil in California: California is the only oil producing state in the world that does not tax oil production. Furthermore, an oil severance fee is imposed on the process of extracting oil from the ground, and is not passed on to producers or consumers. An oil severance fee could bring an extra $1.2 billion dollars to our state.

•Eliminate secret corporate tax loopholes:  End the corporate loopholes that let corporations avoid property tax reassessment when properties are sold, bringing $1.7 billion dollars to California. Currently, corporations and companies make liberal use of numerous loopholes that allow them to avoid property tax reassessment when properties are sold (i.e. bank mergers, private equity buy-outs). By splitting the property tax rolls, we can make commercial-industrial property owners pay their fair share to the state – California homeowners have grown to pay a far larger share of property tax in the state since Proposition 13, and we need to correct that imbalance.

•Reinstate top income tax brackets to 11%:  25% of the income generated in California is distributed among the top 1% of the state’s wealthiest earners. At a time when unemployment levels are skyrocketing and the state is facing yet another multi-billion dollar budget deficit, reinstating the top income tax brackets to 11% would give the state’s economic recovery a powerful kick-start of about $4 billion dollars.

•Smart savings from Corrections: California could save an additional $1 billion by implementing sustainable and common-sense reductions to the state’s corrections budget — without posing a threat to public safety. Options include releasing 1,500 of the sickest, non-violent offenders, halting additional prison construction, as well as others.

•Apply jobs test to unsuccessful & costly corporate tax breaks: Enterprise zones and other corporate subsidies have demonstrated absolutely NO impact on job creation/retention in California. By eliminating widely discredited enterprise zones, favorable treatment for like-kind exchanges, water’s edge tax havens and other unjustified tax expenditures, California could generate an additional $1 billion in revenues.  

•Mandatory Single Sales Factor: Modifying existing law that allows corporations in California to choose how their profits are taxed. Require corporations to use a “mandatory single sales factor” – based on the percentage of sales made within California.  This would bring in an additional $428 million to help fix our budget crisis.

These are just a few of the many revenue solutions we have in California to protect our social safety net, help families weather this recession, and return the state to prosperity. Deep cuts to essential health and human service programs will no longer work. We have tried it for years and it’s a losing proposition for California’s families, schools, health, jobs, and economy. These trigger cuts will lead to more lay-offs, foreclosures, and reduced economic activity in California. Republican legislative leaders blocking reasonable tax alternatives are only furthering the economic downturn. It’s time to reinvest in California, revitalize our economy, and find those revenue solutions.

The Health and Human Services Network of California is a broad coalition of organizations fighting on behalf of California’s families, seniors, people with disabilities and others for a California Family Recovery Budget – one that creates and maintains jobs, provides a strong safety net for where there are not jobs and brings in state and Federal funds for the relief of our struggling families.

$4B of anticipated revenue now looks unlikely to materialize

by Brian Leubitz

The budget was always something of a hope and prayer exercise.  Well, with today’s cash figures from Controller Chiang’s office, you better start praying harder:

“While July’s revenues performed remarkably similar to last year’s, they still did not meet the budget’s projections,” said Chiang. “While we hope for better news in the months ahead, every drop in revenues puts us closer to the drastic trigger cuts that could be imposed next year.”

Income taxes were above projections by $89 million (2.9 percent) in July. But sales taxes were down $139.4 million (-12.5 percent), and corporate taxes were down $69.5 million (-19.3 percent) in the same month.

Unfotunately, we need to exceed projections by quite a few bucks every month to get to the hopeful goal of $4b of “additional revenue.”  With this latest setback, we are down $538.8 million from where we need to be to avoid the triggers.

And at this point, we can’t even get enough money from new sources soon enough if we thought we could pass a ballot measure.  The next election, in June, comes at the end of the fiscal year, too late to really help.

Of course, those triggered cuts would further devastate the California economy, our schools and our services.  Unless we get that revenue soon, this fiscal year could be a lot bleaker than we thought.

(Bumped for correction – promoted by Brian Leubitz)

UPDATE: It seems I misinterpreted the press release.  We are ahead of where we expected to be in last year’s budget, but behind where we expected to be in this year’s budget.  About $350 million behind.  If this pace continues, the majority of the triggered cuts will happen.  We’ll have to wait on numbers for a few more months to see where we are going.

With the 2011-2012 budget now in place, and being held together with a few wishes and unicorn dust, Sacramento watchers will be keeping a close eye on the monthly revenue figures from the the Controller’s office.  The June numbers were pretty good, all things considered.

The State ended the fiscal year with $95.5 billion in receipts and $93.8 billion in disbursements, and that fact by itself seems to be a positive sign that the unicorns are looking favorably upon our state.  June revenues alone came in $440.5 million (3.7 percent) above estimates found in the May Revision of the Governor’s proposed 2011-12 budget.

Sales taxes were above projections by $21.8 million (0.8 percent) in June, personal income taxes were up $410.5 million (6.8 percent), and corporate taxes were up $156 million (7.2 percent). In total, the State Budget did expect $1.2 billion in additional May and June revenues (above those projected in the May Revise estimates) to be carried-over into the new fiscal year.  By June 30, $849 million in additional revenue had materialized, with some cash flow numbers still outstanding

John Chiang and his staff in the Controller’s office has done an amazing job shifting dollars around and generally managing where our resources are hanging out.  We’ll need to keep up some pretty solid numbers for the rest of the year.  California’s economy has been tentatively growing, but with the ridiculousness that is the debt ceiling debate, and the shaky job growth, there is a lot of guesswork here.  Time will tell if any of that expected $4Billion will materialize.