State Budget

April PIT Revenue $3.8 Billion Below Budget Projection

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The state collected $7.49 billion in personal income tax revenue during the month of April – approximately $3.8 billion less than anticipated in Governor Gavin Newsom’s January budget proposal – according to the PIT revenue tracker maintained by the State Controller’s Office.

The revenue figures are not good news for a state facing an operating deficit estimated to be at least $22.5 billion – a January projection that is expected to grow significantly when Newsom unveils his updated budget plan and fiscal projections next week.

From the beginning of the 2022-23 fiscal year through the end of April, the state collected $79.68 billion in PIT revenue, or roughly $45 billion less than during the same period last year.

The figures are not an apples-to-apples comparison, however, as the filing deadline was extended this year (from April 18 to October 16 for most California taxpayers), making it likely that much of the state’s PIT revenue will arrive far later in the year than usual.

Newsom’s 2023-24 budget proposal, released in January, estimated that April PIT collections would total $11.29 billion, representing 5.44 percent of total general fund revenue of $207.34 billion projected for the 2022-23 fiscal year, which ends June 30.

The January projection was based on the filing deadline being extended to May 15, as the estimate was made prior to the second extension of the deadline.

Newsom has a deadline of May 14 – Mother’s Day this year – to release a revised budget proposal with new revenue and spending projections.

The Legislature’s deadline for sending a budget bill to the governor is June 15. The courts have ruled that this bill does not have to comprise a complete budget, so budget “trailer bills” often are approved after the deadline.

Given the uncertainty of the PIT collections, which typically account for roughly half of the state’s total revenue, observers expect the Legislature to delay many budget decisions until late in the year, after an expected rush of payments near the October deadline.

In other budget-related news:

Legislature Approves Early-Action Budget Bills. The Assembly and Senate voted May 4 to send several “early action” budget bills to the governor. The bills approved by both houses:

  • Additional Spending in Current Budget. AB 100 (Ting), which includes funding for state costs from the McKinney fire that occurred in the current fiscal year, after the budget 2022-23 budget was enacted. This bill also helps facilitate the continuation of the state’s early care and education family fee waiver until September 30, 2023, by allowing funds already contained in the 2022 budget to be available for three additional months.
  • Child Care Subsidies. AB 110 (Assembly Budget Committee), which reappropriates one-time federal funds from the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 to provide an additional, temporary rate supplement for all state-subsidized child care and preschool programs and extend the family fee waiver from June 30, 2023, to September 30, 2023, for all child care programs.
  • Forgiven Student Loan Debt. AB 111 (Assembly Budget Committee), which excludes specified forgiven student loan debt from income for tax years 2021 through 2025, in conformity with exclusions in federal law.
  • Support for Struggling Hospitals. AB 112 (Assembly Budget Committee), establishing the Distressed Hospital Loan Program to provide loans to public hospitals in financial distress or to facilitate the reopening of a closed hospital. Members of both parties said the early action on this budget item is needed to protect Californians’ access to emergency medical care.
  • Farm Worker Union Elections. AB 113 (Assembly Budget Committee), which makes pro-union changes to the process of conducting farm worker union votes. Senator Roger Niello objected to the process of adding a $10,000 allocation to the bill so it could be characterized as a budget bill. “This is pure public policy,” Niello said, but was developed without the normal policy process and public hearings. Niello argued that such maneuvers are being used more now than during his previous tenure in the Assembly, prompting Skinner to state that she served in the Assembly with Niello and remembers items in budget bills that “had little or nothing to do with the budget.” Skinner, a Democrat, indicated that such items were added at the behest of Republicans, whose votes were needed to reach the two-thirds threshold for approving a budget at that time.

Senate Subcommittee Discusses Tax Credits Proposed by Senate Democrats. The Senate Budget and Fiscal Review Subcommittee on State Administration and General Government took testimony May 4 on the three tax credit provisions in the Senate Democrats’ recently released budget plan, but did not discuss the plan’s proposed corporate tax increase or other corporate tax changes.

“Obviously, the enactment of the suggested Senate plan will depend upon the final budget structure around the new components.” Senator Stephen Padilla, who chairs the subcommittee, said.

The hearing on the tax credit provisions was for informational purposes only.

Advocates of the three tax credit proposals – a renter’s credit expansion, a minimum benefit for the earned income tax credit, and a refundable tax credit for amounts paid for union dues – touted the ideas as ways to improve the lives of low-income Californians.

Senator Roger Niello noted that typically, budget items are presented to committees by their legislative authors or members of the administration, with public testimony coming later. In this case, he noted, union officials and other advocates presented the items.

Niello said the tax credit for union dues would create “a tremendous conflict of interest” because it would force the taxpayers to fund unions that advocate for higher salaries and benefits – equating to higher costs for their employers, the taxpayers. None of the witnesses or other subcommittee members responded to Niello’s statement.

The subcommittee also took testimony on budget proposals to increase funding and personnel at the Franchise Tax Board to increase data-sharing with social services agencies to increase outreach relating to the earned income tax credit, and to implement the Newsom administration’s proposal to expand the film and television tax credit. Votes were not taken on these issues.

Additionally, the subcommittee voted on several budget items relating to the tax agencies, without discussion. These items included:

  • Notification of Redirection of Tax Agency Employees. The subcommittee unanimously rejected the governor’s proposal to eliminate provisional language from the budget items for the State Board of Equalization, Franchise Tax Board, and Department of Tax and Fee Administration that require notification to the Joint Legislative Budget Committee if specified positions are redirected from their intended purposes. “The Legislature may wish to consider alternate proposals before removing Legislative control established in Provision 1 language for specified departments,” the subcommittee staff advised.
  • Minor Budget Augmentations for the Franchise Tax Board. The subcommittee approved three relatively small budget augmentations to the Franchise Tax Board to pay for software improvements, software licensing agreements, and online security improvements.