Bottom Line: What the Numbers Mean | Receipts | Disbursements

California's economic recovery continued to bolster revenues in October, helping the state move toward a path of better financial health. For the fiscal year so far, which covers the four months since July 1, tax receipts have run ahead of projections, while disbursements have been generally in line with estimates.

Revenues beat October estimates contained in the 2013-14 Budget Act by $510 million, or 10.7%. Personal income taxes, California’s most important revenue source, surpassed projections by $439 million, or 11.8%.

Higher total income, driven by job growth, has supported the tax base, while capital gains resulting from this year’s sharp rise in stock prices have provided a special boost. Technology companies, which favor California, have been in the forefront. October saw both the effects of last year’s income gains and this year’s expected increases. Payments linked to the filing of final returns for 2012 exceeded estimates, while refunds were lower. Reflecting higher anticipations for 2013 earnings and tax obligations, both estimated taxes and tax withholding were ahead of October’s forecasts.

More jobs, higher stock prices, and rising home values drove consumer spending and put sales tax receipts $53.2 million, or 7.4%, ahead of Budget estimates. Of the three major revenue sources, only corporate taxes missed estimates during the month, with a shortfall in tax receipts of $16 million, or 8.9%.

Through October 31, total General Fund receipts have surpassed Budget forecasts by $632 million, or 2.5%. (See Table 1.) Personal income tax receipts have led that outperformance. (See Figure 1.)  On the disbursement side, outlays were less than expected in October, but the result was impacted by the fact that $625 million linked to federally-mandated educational reform (Common Core), along with other education bills, will be paid in November instead of October.

California ended October with a loan balance  of $18.3 billion, down from a balance of $24.7 billion at the same time last year. The current balance represents the sum of the $2.4 billion carried over from last year plus the $15.9 billion difference between disbursements and revenues in the fiscal year to date. October’s borrowing requirements, which largely reflect the timing mismatch during the year of tax receipts and spending obligations, were financed from a combination of internal and external sources.

Looking forward, California’s revenue stream appears promising. Innovation and technology remain as major economic drivers. Consumers are benefiting from lower gasoline prices due to the surge in U.S. energy production and some easing in political tensions in the Middle East. The Federal Reserve seems to have pushed back plans to tighten monetary policy, and the revival of the state’s housing market is an additional bonus.

Economic uncertainties remain. Companies will need to have the confidence to continue to add jobs, while the outcome of budget negotiations in Washington remains in question. In California, spending will need to be restrained in order for the state to continue its good progress in improving its budget picture.

Related Reading:

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

Figure 1: Revenues Beat Most Estimates

Fiscal year 2013-14, Variance From Budget Estimates, ($ In Millions)

Table 1: General Fund Receipts

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

Table 2: General Fund Disbursements

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

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