LOS ANGELES — California's budget writers are likely to have a good problem to solve this year — figuring out how to divvy up more money than expected.
General fund tax revenues are coming in $1 billion to $2 billion over the already healthy projections in Gov. Jerry Brown's proposed budget, according to a new report.
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California's "big three" revenue sources are the personal income tax, corporate income taxes, and the sales and use tax.
January is one of the largest tax collection months each year, driven by personal income tax withholding on year-end bonuses to high-income earners, each year's final set of personal income tax quarterly estimated payments, and collections of sales and use tax from holiday sales, according the LAO report.
The bulk of the additional revenues came from sales and use taxes, while income tax collections tracked the administration's projections.
The LAO believes income taxes "are likely to exceed the projection in some future months through June 2015."
Projections from Brown's Department of Finance assume minimal year-over-year growth in personal income tax withholding in February, March and June, modest assumptions for final payments to be received on 2014 tax obligations in April, and a decline in June quarterly estimated payments by high-income filers compared to last year - despite somewhat higher stock prices compared to early 2014, according to the LAO's report.
The DOF also projects minimal year-over-year growth for corporation and sales taxes.
"For these reasons, we remain of the opinion that 2014-15 general fund revenues are likely to exceed the administration's new projections by $1 billion to $2 billion, barring a sustained stock market drop between now and June," said the LAO's report.
Both the LAO and DOF will release new projections in May, when California's governor must submit a revised budget proposal to incorporate the fresh data.
Increased revenues represent a good news/bad news scenario for the state, because it triggers a mechanism through the Proposition 98 school funding formula in which increased revenue flows to schools and community colleges, the LAO said.
"Additional revenues in 2014-15 will go largely or entirely to schools and community colleges and could result in a few billion dollars of higher ongoing state payments to schools," the report said.
That's good for local schools, which had so many budget cuts in the downturn, but it means the state doesn't necessarily build up reserves, Jason Sisney, a chief deputy legislative analyst, told The Bond Buyer for an earlier story.
Higher revenues could also result in increased reserve and debt payment requirements for fiscal 2015-16 under Proposition 2, a measure approved by voters in November that increases payments to both.
The LAO report lauded the governor's push to not increase spending for other programs despite robust revenues, because the budget remains vulnerable to downturns that may re-emerge with little warning.
Brown's budget proposal provides a framework for the big issues he wants to see on the legislative agenda this year.
His $113.1 billion general fund budget released on Jan. 9 fueled a conflict between the administration and school districts over state bond funding for K-12 education building projects.
It would provide a sizable increase in operating funding for schools, but the budget documents demonstrate Brown's continued skepticism about whether the state should have a significant role in capital funding for local school districts.
In addition to the additional money for schools triggered under Proposition 98, Brown also budgeted nearly $1 billion toward paying down school funding deferrals made during lean budget years.
On the capital side, however, citing what he called in his budget summary "significant shortcomings," , Brown wants the state to scrap its current bond program for local schools, which provides districts with matching funds from state GO bonds.
