Bottom Line: What the Numbers Mean | Receipts | Disbursements

February was another good month for California’s finances.  Revenues exceeded estimates contained in the Governor’s new 2014-15 Budget, while disbursements were lower than expected. The latest news mean that California's current borrowing requirements are more than $2.0 billion less than the forecasts revised just two months ago.

All three of California’s major revenue sources beat expectations in February. This might seem surprising in light of the stock market’s sell-off and a number of weak economic reports. Total revenues were nearly $970 million, or approximately 21%, above predictions. Personal income tax receipts scored the highest, sweeping past forecasts by $722 million or 46%. Taxpayers opted to have much higher amounts of their income withheld for taxes in expectations that various sources of earnings, including capital gains, will fare well in 2014.

After months of underperforming predictions, corporate tax payments have also recently picked up. In February, they surged past forecasts by $87 million or a stunning 236%. The pickup in these tax receipts may reflect the waning impact of losses carried forward from earlier years as well as the improvement in current profitability. Not to be left out, sales tax receipts also beat expectations by $114 million, or 4%, as job and income gains drew consumers either to the mall or the Internet to shop.

With eight months, or two-thirds, of the fiscal year in the books, how does California’s ledger look? “Good” is the short answer. For the period July 1, 2013 through February 28, 2104, the state’s General Fund receipts totaled $61.5 billion, or $1.5 billion, over projections. (See Table 1.) Sales tax receipts were slightly behind estimates, but they were substantially offset by corporate and personal income tax payments. Disbursements over this same period summed to $73.2 billion, which was $0.6 billion less than expected. (See Table 2.) Both the cost of state operations and funds distributed to various local government agencies fell shy of estimates. At the state level, debt service costs were the single largest source of shortfall on the balance sheet.

At the end of February, California's balance sheet appeared to be healthier than predicted in the latest estimates, and when compared to the same time last year. Its outstanding loan balance stood at $14.1 billion versus the $16.3 billion estimate contained in the Governor’s budget. This $2.2 billion reduction reflects the higher-than-expected revenue totals for the fiscal year-to-date and the lower-than-anticipated disbursement rates. (See Figure 1.) The current loan balance also compares favorably with the $16.2 billion owed a year ago.

California's current loan balance of $14.1 billion represents the sum of the $2.4 billion carried over from the prior fiscal year plus the spending-revenue gap of $11.7 billion recorded so far this year. The expected influx of tax receipts in April should close that gap. The state continues to finance its borrowing with a combination of external sources, such as banks and investors ($5.5 billion) and internal sources, such as other state funds ($8.6 billion.)

All eyes will focus on tax filings this spring, but California’s finances remain on the upswing. Many disparities exist. The Bay Area’s tech boom contrasts sharply with water-starved farms in the Central Valley. For the state as a whole, employment, income, sales, and profits are rising, albeit not as strongly as they could. At the same time, risks should not be discounted. The Ukrainian crisis, stock market volatility, weather, monetary policy, and uncertainty regarding federal spending or taxes all warrant caution.

Figure 1: Revenue and Spending Lower State's Cash Needs by More Than $2 Billion

July 2013-Feb 2014, Variance From Governor's Budget, (Dollars in Billions)

Table 1: General Fund Receipts

July 1, 2013 – February 28, 2014 (in Millions)

Table 2: General Fund Disbursements

July 1, 2013 – February 28, 2014 (in Millions)

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