State revenue is running slightly ahead of the projections upon which the recently enacted 2025-26 state budget was based, the Department of Finance reported this week in its monthly revenue report.
Preliminary general fund receipts were $60 million (0.5 percent) above the budget act forecast for July, the department stated.
“The July overage was largely the result of higher receipts from personal income tax (up $290 million), other revenues (up $120 million), and pooled money investment account interest (up $109 million) that were partially offset by lower-than-expected receipts from the corporation tax (down $428 million),” the report stated. “July is not a particularly important month for personal and corporate income taxes as there are no major payment due dates within the month.”
For the 2024-25 fiscal year that concluded at the end of June, general fund revenue was $2.7 billion above the forecast used in the new budget, the department added.
For the state’s “big three” revenue sources, the department reported:
- Personal income tax cash revenue was $290 million (3.5 percent) above the forecast in July and $1.2 billion above the forecast cumulatively since April. “The July overage was driven in large part by withholding receipts which were $402 million, or 5.2 percent, above forecast for the month, and were $841 million above forecast cumulatively since April,” the department wrote. “Year-over-year withholding growth in July was 14.4 percent, compared to the forecast of 8.8 percent growth. Higher withholding in July was partially offset by other payments, which were $119 million below forecast, and by refunds, which were $102 million higher than projected.”
- Corporation tax cash revenue was $428 million (32.1 percent) below the forecast in July and $8 million above the forecast cumulatively since April. “The July shortfall was due primarily to higher refunds, which exceeded [the] forecast by $242 million for the month, offsetting lower refunds of $216 million in fiscal year 2024-25,” the department stated. “Additionally, estimated payments in July were $212 million below forecast. Despite the July shortfall of $212 million, estimated payments remained $411 million above forecast cumulatively since April.”
- Preliminary sales and use tax revenue was $50 million (3.5 percent) below the forecast in July, bringing the cumulative shortfall since April, including minor revisions to prior months, to $142 million. July cash receipts included the final payment for second quarter taxable sales.
Other revenue was $120 million (125.4 percent), above the forecast in July “due to higher unclaimed property revenues,” the department reported. “Cumulatively since April, other revenues were $1.5 billion above forecast, primarily because of higher federal cost recovery collections related to disasters in prior years,” the department added.
In other budget news, the Assembly Budget Subcommittee on Accountability and Oversight held a hearing August 20 to discuss the recently enacted federal budget bill (HR 1). Democratic members of the subcommittee blasted the federal budget, with several characterizing it as a giveaway to billionaires that will do major harm to California’s social programs.
Assembly Member Corey Jackson predicted that deaths will occur due to the funding changes made in the federal budget, while Assembly Member Steve Bennett contended that “what we have with this bill is an attempt to empower oligarchs.”
“In his war against California, President Trump’s legislation was deliberately designed to dismantle [California’s] achievements in order to provide his billionaire friends with tax breaks,” subcommittee Chair Gregg Hart said.
Jackson also opined that lower-income Californians will not benefit from the federal tax reductions in the bill.
“Ninety percent of tax breaks are actually going to the top 10 percent of wage earners – well, I won’t even say they earned those wages, but rich people, right?” Jackson said.
The Legislative Analyst’s Office (LAO) presented a report that discussed many of the federal changes and potential impacts on California, and noted that the tax reductions had widespread benefits. In the section on the bill’s major tax changes, the LAO wrote: “Extends the provisions of the Tax Cuts and Jobs Act (TCJA, 2017), which largely reduced taxes for most individuals and businesses. Creates several new temporary deductions for seniors, overtime pay, tips, and auto loan interest, as well as increases the State and Local Tax (SALT) deduction. Makes permanent a number of business provisions, including bonus depreciation and full expensing for short-lived Research and Development (R&D) investment permanent.”
The LAO report does not include specific estimates of potential costs for the state resulting from the federal changes. The analyst’s report and representatives at the hearing indicated that most of the federal changes – including changes in eligibility for various healthcare and food programs – cannot be fully analyzed until the federal government provides details by issuing regulations and other guidance.
Representatives of several unions and progressive activist groups testified in support of tax increases on corporations to generate revenue to pay for programs that will lose federal funds.