Capitol Alert

State revenue surges in April, could exceed estimates by billions through June

Gov. Jerry Brown unveils the 2015-2016 state budget at the Capitol on Jan. 9, 2015.
Gov. Jerry Brown unveils the 2015-2016 state budget at the Capitol on Jan. 9, 2015. The Sacramento Bee file

California income tax collections in April have already exceeded the Brown administration’s January estimates, underscoring the surge of higher-than-expected money flowing into the state treasury and possibly offering health and welfare programs – not just schools – a piece of the windfall.

For months, it has been assumed that K-12 classrooms and community colleges had a virtual lock on nearly all of the extra tax revenue, thanks to the state’s school funding law. In fact, under some recent budget scenarios, the state faced the prospect of cutting non-school spending in the fiscal year that begins July 1 to provide schools with the money owed under the law.

But income tax revenue for the current fiscal year has continued to grow well beyond expectations. By June 30, state revenue could exceed January estimates by more than $4 billion, the Legislature’s nonpartisan fiscal analyst reported this week. If it exceeds $4.4 billion, health and welfare programs could benefit from the surge, following months of calls that California needs to do more to reduce poverty and income inequality in the state.

“The April revenues by and large have been so strong that they might cause the state to have an even stronger revenue year than the optimistic scenario we’ve already had,” Jason Sisney of the Legislative Analyst’s Office said Friday. The LAO’s report said the surge could make “additional resources available for budgetary priorities like larger reserves, larger debt payments, or changes in state spending programs.”

Sisney stressed that the state’s budget outlook will become clearer after Gov. Jerry Brown releases his revised budget plan next month. In particular, Sisney said, the revision will show the administration’s latest approach to carrying out the rainy-day reserve and debt-repayment plan approved by voters last November.

There are two main reasons why schools and community colleges have had such a strong claim on the additional state revenue. Schools are in line for 40 percent of general fund revenue under this year’s interpretation of the school-funding formula. Also, the state has to pay up on recession-era budget obligations to schools.

“It’s not like we’re rolling in dough,” said Dennis Meyers of the California School Boards Association, adding that school funding remains below pre-recession levels.

Kevin Gordon, a lobbyist for school districts around the state, said school interests sense that non-school groups also have designs on the money.

“We’re the first to get run over by a truck when budgets are bad,” he said. “And when there might be extra money, people are figuring out how to prevent schools from getting all that they should be getting.”

Among the various proposals to increase funding for health and welfare programs is a package of bills by members of the Legislative Women’s Caucus. It includes measures to raise the number of child care slots, expand family leave and increase welfare payments.

“I think since January something pretty extraordinary has happened,” said Noreen Farrell, the executive director of Equal Rights Advocates, which supports the package. “If you are serious about helping women and families, this is an agenda you need to look at seriously. It gets away from this either-or mentality.”

The state’s rosy revenue outlook almost entirely reflects more money from income taxes, which generate about two-thirds of state revenue.

The state ended March with income tax revenue running $1.3 billion ahead of January estimates. The money really began pouring in this month. Last Friday, the state took in $2.2 billion, one of the largest-ever daily totals. The analyst’s office estimated this week that April income tax revenue will exceed the administration’s estimates by $1.3 billion to $1.7 billion.

The last time the state experienced such a surge in revenue was in spring 2006. Revenue exceeded budget estimates by almost $5 billion, thanks in part to executives at Google, which had recently gone public, exercising stock options. Schools received a smaller share of the money then, in part because the state hadn’t built up an obligation to schools to pay off as is the current case.

This year’s income tax revenue growth lacks a comparable link to a single company’s success. Instead, the LAO said, the higher revenue likely reflects broader growth in capital gains, option and bonus income – some of which may be just one-time.

Call Jim Miller, Bee Capitol Bureau, (916) 326-5521. Follow him on Twitter @jimmiller2.

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