Bottom Line: What the Numbers Mean | Receipts | Disbursements

California State revenues were close to estimates in August, but impending federal decisions relating to the Middle East and the Federal Reserve bond buying program raise uncertainty about future months. Total revenues last month were only about $27 million, or 0.4%, below estimates contained in the 2013-14 Budget Act. The two largest sources of revenue — personal income taxes and sales taxes — narrowly missed projections, but were offset by better-than-anticipated numbers in several other categories. (See Figure 1.)

Personal income taxes came in $56 million, or 1.5%, below Department of Finance projections during August. Analysts at the Franchise Tax Board (FTB) speculate that the miss may be the result of off-target timing assumptions and, if so, the revenues could be received later this year. Specifically, the August revenue shortfall in this category was due almost entirely to payroll withholding amounts being substantially below expectations. While it is possible that this could reflect weakness in employment wages or salaries, FTB analysts speculate that the problem more likely rests with the assumption that higher income households (earning more than $250,000 per year) would boost their withholding rates because of increased tax rates approved by voters last November. Instead, many high-income individuals, who receive the bulk of their earnings from investments, including dividends and capital gains, are more likely to pay their tax liability on a quarterly basis through estimated tax payments. We’ll know whether this speculation is realized when quarterly estimated payments are received later this month and in December.

Retail sales taxes missed estimates by about $62 million, or 2.3%. Although employment gains continue in California, they remain moderate and consumer spending outside of autos continues to be somewhat erratic.

On the positive side, California corporate profits continued their recent trend of beating expectations, with August numbers running $27 million, or 69%, over forecasts. Insurance firm taxes beat estimates by about $80 million, or 65%, while alcoholic beverage taxes bested projections by around $33 million, or 128%.

The impact of California’s economic recovery may be reflected in year-over-year comparisons. Total August revenues were up $269 million, or 4.0%, from a year ago with all of the three major revenue sources — personal income, corporate, and sales taxes — all in the plus category.

Spending or disbursements from the State’s General Fund were a sizable $580 million, or 6.4%, below expectations in August. Although the cost of State operations slightly exceeded estimates last month, payments to local governments were about $412 million, or 5.7%, below projections. Some of that shortfall reflected payments for K-12 education. Reimbursements to local districts for Common Core, the national program to improve educational standards, could boost spending in September.

Since the start of the fiscal year on July 1, 2013, General Fund receipts have totaled $11.9 billion, which is about $304 million, or 2.5%, below projections contained in the 2013-14 Budget Act. (See Table 1.)  Disbursements during the first two months of the current fiscal year, totaling $21.8 billion, have undershot estimates by $1.2 billion, or 5.0%.  (See Table 2.)

At the end of August, California had a loan balance of approximately $12.4 billion. This reflected the largely seasonal gap between revenues and spending for July-August of $9.9 billion and the $2.4 billion balance carried over from the end of fiscal year 2012-13. The total loan balance was financed from both internal funds ($6.9 billion) and external sources ($5.5 billion), such as bond investors and banks.

Monthly revenues and disbursements can be highly volatile. While spending shortfalls relative to the budget have more than offset the negative variances on the revenue side during the first two months of fiscal year 2013-14, caution is warranted. Spending discrepancies relative to expectations could reflect timing issues and could quickly be reversed. Meanwhile, although California’s economic recovery currently remains on track, disruptions in the Middle East could drive oil prices upward, while a scaling back of the Federal Reserve’s bond buying program could push mortgage rates higher and housing lower.

Related Reading:

• Department of Finance's 2013-14 State Budget Summary
• Controller's State Finances 101

Figure 1: August Tax Revenues Mixed

Actual vs. 2013-14 Budget Act estimates, millions of dollars

Table 1: General Fund Receipts

July 1, 2013 – August 31, 2013 (in Millions)

Table 2: General Fund Disbursements

July 1, 2013 – August 31, 2013 (in Millions)

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