California has a full piggy bank, but its revenue picture is murky

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Though California entered the pandemic with a full piggybank, warning signs are popping up.

The state budget is highly dependent on income and capital gains taxes.

Budget talks, which usually ramp up in May, are approaching with murky revenue numbers after the income tax filing deadline was pushed out to July 15. The state usually has a better picture of income taxes heading into the annual May budget revise.

When California Gov. Gavin Newsom introduced his $222.2 billion budget proposal in January, the state had $20.5 billion in reserves.

California Assemblyman Phil Ting, left says California Gov. Gavin Newsom's May budget revisions may become an August revise.

Though the state won’t have the tax receipts from which to base May revise numbers, the state has historical receipts and forecasting tools to further the budget process, said Department of Finance spokesman H.D. Palmer.

"We are still working on a regular May revision schedule," Palmer said. "By statute the governor has to submit the revised budget to the Legislature by May 14. We are still doing that, in addition to all the work we are doing fiscally to respond to the coronavirus."

Traditionally, the Legislature receives a revised budget from the governor in May and budget talks ramp up leading to budget passage in June. The fiscal year begins on July 1.

This year, however, Assemblyman Phil Ting, D-San Francisco, who chairs the Assembly Budget Committee, sent a memo to legislators in which he referred to an August budget revise, which would be based off more exact revenue receipts following the July 15 income tax filing.

The Legislature has been on break since March. With the state under stay-at-home orders, that hiatus was extended through April this week.

"Before the Legislature adjourned last month, they approved Senate Bill 89, which appropriated $500 million right off the bat for COVID-related expenditures," Palmer said. "They have since authorized $500 million on top of that."

The governor has spent $361.8 million of that, Palmer said. The second $500 million authorized by the Legislature has to be approved in $50 million increments, he said.

The money is coming from the special fund for economic uncertainties, of which Palmer said the state has spent $500 million, and $1 billion still remains.

In addition, the governor has additional reserve funds he can tap, Palmer said.

State Controller Betty Yee launched an annual online tracker for April personal income tax receipts Thursday citing the unique circumstances necessitated by the COVID-19 pandemic.

“The month is a crucial bellwether for the state budget as Californians typically file hundreds of thousands of tax returns, the governor revises his Fiscal Year 2020-21 budget proposal in May, and the new fiscal year starts July 1,” said Yee, the state’s chief fiscal officer and chair of the Franchise Tax Board.

April 15 is usually the personal income filing deadline, and April the highest-grossing month for PIT receipts. This year California’s Franchise Tax Board, conforming with a federal action, extended the filing deadline for returns and tax payments on 2019 income to July 15.

Last fiscal year, personal income taxes accounted for 69.4% of all state General Fund revenues, with 19.5% arriving during the month of April, according to the controller.

The proposed FY 2020-21 budget released in January relied on an estimate of $18.4 billion in personal income tax receipts for April, Yee said. While nearly 10.2 million Californians already have filed, it is too early to forecast how many will wait until July, she said.

Newsom had requested more spending from the Legislature this week in order to insure state healthcare workers have enough masks and protective gear to keep them safe at work.

"It is not an insignificant amount of money, but we need to go boldly and meet the moment without playing small ball," Newsom said during a Wednesday teleconference call with reporters.

The deal to acquire the 150 million N95 and 50 million surgical masks monthly will give California enough to export to other states, Newsom said.

The state will make a down payment of $495 million, with a projected total cost of $990 million, according to a California Department of Finance letter to the Legislature. The state has committed to purchasing medical safety gear that will cost $1.4 billion.

"We are spending the $1.4 billion on masks and PPE, because we needed to alleviate the anxiety many of us have, not just the healthcare workers, but also our grocery store workers, the DMV, and people walking the streets to check on the elderly and the homeless," Newsom said.

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