Refund volume weakens revenue outlook
Income taxes may run a few hundred million short of April estimate after rough week
For a later update on April collections, see https://jasonsisney.substack.com/p/april-income-taxes-691-million-under
Revenue Outlook Weakened This Week. Earlier this week, I noted the possibility that high refund volume at the Franchise Tax Board (FTB) could weaken the mildly promising revenue outlook. Such refund volume materialized this week. Moreover, on Monday, the official revenue results for last month revealed a very weak sales tax collection month in March.
April Income Taxes May Fall Short of Estimates. As of today, the FTB’s net personal income tax (PIT) collections are barely on track to meet the April monthly estimate, while net corporation tax (CT) collections continue to be several hundred million below this month’s estimate. PIT withholding (collected by a different state department than FTB) reportedly is roughly on track with the monthly forecast. Sales tax data emerges later. All of these results suggest that April revenues, in the aggregate, may come in several hundred million dollars below monthly estimates, which is worse than my expectations as of Monday morning, April 22.
May Revision Virtually Certain to Lower Revenue Projections. It is virtually certain that the May Revision will downgrade revenue projections from those the Governor released in January. Will that downgrade be as significant as the Legislative Analyst’s Office (LAO) suggested in February and March? My personal view is: I doubt it, but that decision is now in the hands of those completing the administration’s official forecast update, due to be released on or before May 14.
As of the end of March, 2023-24 state General Fund revenues to date were $5.8 billion (4.0%) below projections. As noted above, April results may increase that year-to-date shortfall somewhat above the $6 billion mark.
In its latest forecast update, the LAO anticipated that General Fund revenues for the entire 2023-24 fiscal year would be $16 billion below the Governor’s January estimates and that 2024-25 revenues would be more than $9 billion below the January estimates. Based on revenue trends to date, including satisfactory PIT months in February and March, it is difficult for me to see revenues dropping quite that much. (In general, every $1 billion drop of revenues over the 2022-23 through 2024-25 “budget window” increases whatever the projected deficit is by around 50 to 60 cents, after taking into account typical revenue-driven reductions in constitutionally required spending and transfers, such as Proposition 98.)
April 25 Collections at FTB. Today was a pretty good collection day at FTB, with $312 million of PIT collections and $154 million of PIT refunds, as well as $14 million of CT collections and $8 million of CT refunds. For April to date, net PIT collections at FTB stand at $9.199 billion, which is several million dollars under the $9.207 billion forecast the entire month of April. CT collections stand at $4.16 billion, or more than $500 million below the monthly target of $4.75 billion. (A graphical summary of April PIT and CT net collections at FTB, as of April 25, is displayed at the bottom of this post.)
(The State Controller’s Office has tracked daily PIT collections at both FTB and EDD. Note that the “Controller’s cash” method of counting collections sometimes lags and therefore data received directly from tax collection agencies [“agency cash”] is preferred for budgetary tracking.)
More April Tax Tracking To Come. Daily FTB collection updates will continue to be posted on my Threads and LinkedIn pages through the end of this month.
