TAHOMA, Calif. – California revenues are well ahead of projections for the year, leading to speculation about how the extra money will be spent as Gov. Jerry Brown prepares to release his revised budget.
State Controller John Chiang’s early estimates have state personal income taxes more than $4.6 billion ahead of the budget forecasts through April, which is typically the biggest month for tax collections. The nonpartisan Legislative Analyst Office has said the initial tally of personal income tax receipts – the biggest portion of revenues - is about $4.5 billion over the year-to-date projections. For the fiscal year through March, state revenues were $4.7 billion higher than in Brown’s budget estimates, according to the controller.
Brown probably will propose his revised budget next week, starting the discussion with lawmakers over whether to use the new money to reduce liabilities or incease funding, a decision that could affect the state’s debt ratings.
“While the strong revenue collections thus far in 2013 obviously paints a brighter picture than in the last couple of years, there are still some difficult questions confronting lawmakers,” said Gabriel Petek, Standard & Poor’s lead California analyst in San Francisco.
The LAO and the Department of Finance will release updated revenue numbers through April in conjunction with the governor’s updated budget.
“These additional revenues raise a number of challenging questions for the updated budgetary forecasts to be released in mid-May,” the LAO said in its report last week. “A large portion of the additional revenues may be required to be allocated to schools and community colleges.”
Petek said that if revenues attributable to fiscal 2013 are higher than assumed in the budget, the minimum funding required for education would go up, which probably would mean that the state would not see a direct increase to its general fund.
The governor’s $98 billion spending plan proposed in January would increase Proposition 98 spending, a voter-approved spending guarantee per student, by $2.7 billion, or more than 5%, to $56 billion in fiscal 2014 from a year earlier.
However, the state still owes schools for past payment deferrals and Prop. 98 funding is still 10% below fiscal 2008 levels, according to Moody’s Investors Service.
Those delays typically translate into school districts issuing tax and revenue anticipation notes or internal borrowing.
Petek said lawmakers would have the option due to the higher revenues to potentially reverse its deferred payments to schools on an accelerated basis.
“In effect, what it may come down to for policymakers is a choice between retiring more of its budget liabilities than previously planned versus increasing programmatic funding but continuing to carry more of the liabilities,” Petek said.“Whether or not retiring these liabilities is a priority could have credit rating implications.”
Standard & Poor’s upgraded California to A from A-minus in January, and Fitch Ratings upped its outlook on the state to positive with an A-minus rating in March. Moody’s Investors Service rates the state’s general obligation bonds at A1.
