Official data: revenues $4.7 billion below projection as of February 28

As previewed here on March 6, this month’s Finance Bulletin shows that February 2023 California General Fund revenues were $1.4 billion below projections, including a 25 percent shortfall for the month in the combined personal and corporate income tax streams. The monthly Finance Bulletin is the authoritative source to track the performance of California General Fund revenues.

While the IRS has delayed key income tax payment dates until October, the administration previously adjusted revenue projections to try to reflect the IRS changes through May. Still, it is possible, as the Finance Bulletin states, that lower refunds and payments in February “were related to the delayed tax deadline to some extent.” If so, a portion of the February income tax shortfall would show up later in October 2023 tax receipts.

For the 2022-23 fiscal year through February 28, revenues are now $4.7 billion (4.1%) below the administration’s January budget projections, including income taxes, sales taxes, and various other tax, fee, and miscellaneous revenue sources.

The Legislative Analyst’s Office (LAO) also has updated its revenue estimates for income and sales taxes for the 2022-23 fiscal year, finding that they may be about $5 billion below the administration’s January budget projections. Projected revenue shortfalls for both 2022-23 and 2023-24, if they persist, will add to the budget problem identified by the Governor in January. On February 15, considering 2022-23 and 2023-24 fiscal year projections, the LAO opined that its “best estimate is that revenues for these two years will be roughly $10 billion lower” than projected by the administration in January, “implying a larger budget problem by about $7 billion” based just on revenue estimates. Under state law, the Governor is required to release his May revision of budget projections on or before May 14.

Declines in the stock market, layoffs in the tech sector, challenges affecting bonuses in some parts of the financial sector, and last year’s collapse of technology’s initial public offering market likely are key reasons underlying the weaker-than-projected California tax receipts.

California’s economy and revenues have grown remarkably over the last several years, despite the recent sluggishness of receipts. As of February 2020, just as the pandemic was beginning to affect the economy, 2019-20 General Fund revenues to date were $89 billion. As of February 2022—last year—2021-22 revenues to date were $135 billion. As of February 2023—this year—2022-23 revenues to date are $109 billion.