June 14, 2021

State revenues continue to outpace projections

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In a standard year, all eyes are fixated on the tax filing deadline of April 15 and the cash collections in the subsequent days. However, the pandemic deferred the 2021 tax filing deadline and the payment date from April 15 to May 17.

To accommodate the delay in the tax filing date, the State Controller’s Office updated its annual tracking chart to reflect the tax collections from both April and May 2021. Heading into April, the state’s collection of personal income taxes (PIT)—the largest of the “Big Three” tax collections—outpaced projections from January by more than $15.6 billion. Cash collections in April and May continued the trend by adding $3.2 billion to the total, bringing the year-to-date PIT cash collections to exceed projections by $18.8 billion.

Although the dust of May’s collections has not fully settled, the optimism surrounding this growth was reflected in Governor Gavin Newsom’s May Revision, where he lauded the state’s “roaring” economy. Governor Newsom’s message focused on California’s $100 billion Comeback Plan, inclusive of the $20 billion blueprint to transform schools. The rapid recovery of California’s General Fund is fueled by the conservative assumptions used in developing the 2020 Enacted Budget, a stock market that is hitting all-time highs, and $26 billion in one-time federal funds.

The Legislative Analyst’s Office in its Multiyear Budget Outlook (Outlook) gives credence to the revenue assumptions in the short-term, but provides words of caution regarding out-year spending. The Outlook notes that if the Legislature adopts the spending proposals from the May Revision, the state would have an operating deficit in fiscal years 2022–23 through 2024–25. The Outlook also identifies that even with the strong cash collections, budget safeguards—meaning reliance on the drawdown of reserves—and carryover of cash deferrals have not been fully restored.

The Legislature is currently developing its own version of the proposed State Budget that will need to be approved and sent to the Governor by midnight June 15, 2021.