Friday, July 9, 2010

State of California tax revenue data for 2009-10 is not good news

State Controller John Chiang today released his report for June 2010.

According to Chiang's analysis "The second half of the 2009-10 fiscal year saw mostly positive results in the State’s fiscal position...." He then compares the June 2010 results to estimates done in way back in May 2010!

He does also compare the results to the 2008-09 fiscal year (ended in June 2009) without reflecting any of the tax rate increases or withholding changes:

Compared to June 2009, General Fund revenue in June 2010 was down $1.2 billion (-9.7%). The total for the three largest taxes was below 2009 levels by $1.2 billion (-10.6%). This was driven by corporate taxes that were $2.5 billion lower (-56.7%) than last year. However, personal income taxes were up by $1.3 billion (28.8%), and sales taxes came in slightly above last June by $29 million (1.2%).

The report also explains that the budget isn't his problem, just cash flow.

While apparently the annual budget for the State of California isn't the Controller's problem, nor apparently is it the Legislature's problem as they recessed without adopting one for the fiscal year that began July 1, it is of some interest, if not concern, to me.

Compared to the 2009-10 budget numbers as adopted by the Legislature and approved by the Governor, the following facts can be reported:
  • Personal Income Tax revenue came in $4.24 billion (8.67%) less than budgeted.
  • Sales Tax revenue came in $950 million (3.44%) less than budgeted.
  • Corporation Tax revenue came in $647 million (7.35%) more than budgeted.
  • Total "Big 3" Tax revenues came in $4.54 billion (5.33%) less than budgeted.
Using the figures Chiang reported to examine California's economy, we can learn that compared to the 12 months ended in June 2007 (the last fiscal year before The Great California Slump), taxable sales in 2009-10 were down 19.26%, taxable personal income was down 19.23%, and taxable corporate income was down 12.27%.

We know that taxable sales were distorted by the "Cash for Clunkers" program and that personal and corporate income were distorted by the home purchase tax credit, two programs that expired, both of which increased revenue results. It is reasonable to assume that all three of these sources of State income will drop further in 2010-11 unless the economy makes some totally unexpected recovery or Congress unexpectedly approves some similar stimulus program.

Adding to this information, the State Board of Equalization's Annual Report indicates that statewide the total assessed value used for property tax purposes in 2009-10 fell $106.3 billion or 2.35% , "the first year-to-year decline in the statewide total since the BOE began keeping records in 1933." In terms of revenue, under California's Prop 13 property tax rate of 1% of value, it meant that property tax revenue dropped $1 billion statewide. The State uses half of the property tax collections to fund schools with the balance of school funding made up from General Fund revenues. The other half supports cities, counties and special districts.

Initial reports from County Assessors indicate that assessed valuations have declined again and likely will result in further loss of revenue to the State for school funding.

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