State Revenues Continue to Outpace Projections

For the seventh straight month, state General Fund revenues have outperformed the projections upon which the current year budget is based. Through November, collections total $2.4 billion more than expected ($550 million in 2004-05 and $1.9 billion in 2005-06). For the month of November alone, collections exceeded the monthly projection by $145 million, or 2.8%.The Department of Finance reports that current-year collections are running 6.3% above estimate, with the greatest strength coming from the corporation tax (up almost 25%), followed by the personal income tax (up 6.2%) and the sales and use tax (up 2.6%). A strong showing in corporate profits related to the summer�s high fuel prices has been identified as one of the principal reasons for the strength in the corporate tax.

To put the latest information into context, the Legislative Analyst recently projected that total state General Fund revenues for 2004-05 and 2005-06 would exceed the 2005 Budget Act forecast by $3.9 billion. Thus, the state has already collected 60% of the Legislative Analyst�s projected increase, with seven months of the fiscal year remaining, including the major collection months of December, January, and April.

If the state economy continues to produce revenues at a pace that exceeds expectations, the state�s structural budget problem would be reduced, although not completely eliminated. We hope that this development, coupled with the Administration�s interpretation of the results of the special election, will produce a January Governor�s Budget that treats education more favorably than last year. Read the rest of this entry »

LAO Forecasts a Less Dire–But Still Dicey–Budget Outlook

Due to a combination of a revenue upturn and reduced spending, Legislative Analyst Elizabeth Hill writes in a November 16, 2005, report that California�s budget outlook for 2006-07 has “improved significantly” but “still faces major operating deficits in the next several years.”"We’re not out of the woods yet,” Hill later told a group of Capitol reporters.

This forecast–the annually produced “California’s Fiscal Outlook”–is the first real peek at the fiscal context for the 2006-07 California State Budget, and not only is it the earliest, it is also widely hailed as being the most objective and accurate. (The entire report is available online at: http://www.lao.ca.gov/2005/fiscal_outlook/fiscal_outlook_05.pdf.) Read the rest of this entry »