California is in a bit of a pickle after tax revenues for October vastly underperformed estimates, Bloomberg reports.
As of Oct. 25, just $18 billion had been collected for the month – significantly lower than the $42 billion that had been projected, according to an update by the state’s Department of Finance late Friday. The shortfall is being attributed to the recent stock market slump and slowing wage growth, as the state’s collections are highly dependent on capital gains and personal income tax revenue.
Nearly half of California’s tax collections come from residents in the top 1% of income earnings, Bloomberg further notes.
It’s unclear how the budget outlook will impact the state’s bond sales, according to H.D. Palmer, deputy director for external affairs for the California DOF. The state has “never missed a schedule bond payment to a note holder,” he said in an interview Monday.
The state expected to receive $28 billion from personal income taxes and $14 billion from corporate taxes in October, but, income taxes have thus far yielded only $11.8 billion while corporate taxes have produced $6.2 billion through Oct. 25. -Bloomberg
We would also point out that California had a net loss of 342,000 residents in 2022, many of whom have cited high taxes as one of their reasons for moving.
Further analysis paints a bleak picture for fiscal year 2022-2023, as the state had optimistically forecast a robust $198 billion from its top three tax revenue sources in May 2023. However, current trends suggest that the final number will be a far cry from this figure.
There may be somewhat of a silver lining, as the state’s Budgetary Stabilization Fund can act as a financial cushion, offering some degree of flexibility in times of such crises. As per bond documents, California boasts a healthy $37.8 billion in total budgetary reserves.
But this buffer might not be enough. The looming shadow of a forecasted budget deficit, which is expected to be at least $14 billion in the next cycle, could potentially grow even bigger. This could force the state’s hand into making some challenging decisions, including budget cuts and tapping into its rainy-day funds.
Meanwhile, a seven-month extension for income tax filing, granted to those affected by this year’s severe winter storms, has further muddied the waters – meaning that the full extent of the revenue collections will remain unknown until November due to these unexpected delays.
That said, according to Palmer “We still have several more days,” but “most folks, it’s fair to say, filed their taxes.”