Capitol Alert

Analyst predicts California revenue will exceed revised budget estimate by $3 billion

Gov. Jerry Brown released his revised budget proposal for the fiscal year that begins July 1. The LAO figures that the state will take in $3.1 billion more in revenue in 2015-16 than the Brown administration estimated.
Gov. Jerry Brown released his revised budget proposal for the fiscal year that begins July 1. The LAO figures that the state will take in $3.1 billion more in revenue in 2015-16 than the Brown administration estimated. rpench@sacbee.com

The Legislature’s nonpartisan fiscal analyst has issued a far more optimistic view of California’s tax revenue picture than Gov. Jerry Brown, predicting the state next year will take in $3.1 billion more than the $113.3 billion the Brown administration estimated in its revised budget proposal last week.

The Legislative Analyst’s Office estimated that the state will receive another $3.6 billion more in personal income tax revenue in 2015-16, mostly from capital gains. The analyst also expects that sales-tax revenue will be several hundred million dollars less than the numbers in the budget revision.

“Overall, we think the administration’s current estimates of 2014 taxable income are too low,” according to the LAO’s review. “This could contribute to some of the differences between the two sets of (income tax) estimates in 2015-16 and thereafter.”

Brown’s revised budget reflected $6.7 billion in additional revenue through June compared to his January proposal. But most of the new revenue will go to schools – and the same holds for the additional money projected by the LAO. Other money would go to the state’s new rainy-day reserve.

The analyst also has weighed in on other aspects of the governor’s proposal:

▪ Proposition 30: Voters in November 2012 approved a temporary increase in the sales tax and higher income tax brackets for wealthy filers. Those are scheduled to begin phasing out next year.

The analyst’s office noted in November that state revenue will continue to grow, albeit more slowly, as the Proposition 30 taxes go away. The governor’s revision notes that income tax, corporation tax, and sales tax revenue will collectively grow by an average of 4.8 percent annually through June 2019.

▪ Earned Income Tax Credit: Brown’s proposal for a state earned income tax credit that would cover people earning annual wages of $14,000 or less “could benefit many of the state’s lowest-income residents.”

“However, the state’s robust revenue position is subject to rapid reversal, and we advise caution as the Legislature considers this and other fiscal commitments,” the LAO adds.

▪ Bay Area billions: The Bay Area’s humming economy has had an outsized effect on the state’s healthy finances. State budgets would suffer if the region’s high-tech economy cooled, such as what happened after the dot-com bust in late 2000 and 2001.

“While other parts of the state also are contributing to economic growth, California’s current economic and tax revenue strength would be dealt a serious blow if the Bay Area’s technology economy were to stumble again,” the LAO said.

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