LAO: January withholding below projections

Other revenue tallies will lead to multibillion dollar revenue shortfall this month

The Legislative Analyst’s Office (LAO) reports today that the state’s Employment Development Department (EDD) personal income tax (PIT) withholding tallies for the month were $1 billion below the updated projections in the Governor’s January 10 budget proposal. Recent PIT withholding trends have been “underwhelming,” LAO reports. Most withholding payments are for employees’ wages and salaries, but withholding is also due on bonuses and stock options received by employees. Weakness in technology IPOs may be contributing to weak trends in PIT withholding.

In addition to the $1 billion EDD withholding shortfall, Franchise Tax Board (FTB) collections of quarterly estimated income tax payments have lagged far below January 10 projections this month: over $4 billion short, by my rough estimate. Total General Fund revenue shortfalls—inclusive of all collections by EDD, FTB, and the Department of Tax and Fee Administration—may end January around $6 billion short of the Governor’s January 10 budget projections for the 2023-24 fiscal year to date. This could add to General Fund deficit pressures in 2024 and likely would lower the Proposition 98 minimum guarantee further for 2022-23, 2023-24, and perhaps later years.

Authoritative monthly “agency cash” revenue results for January are scheduled for publication on February 20 in the Department of Finance Finance Bulletin. (Agency cash is the most timely method for California state revenue tallies, measuring revenue collections as they happen at the state’s tax collection agencies.)

California’s state treasury balances remain very strong due to rainy day and General Fund reserves, special fund balances, and other balances.