According to a report from the California Department of Finance on October 22, the state’s monthly tax revenue performance exceeded expectations.
In September, California’s tax revenue was about $2.4 billion higher than projected, including $1.8 billion in personal income tax and nearly $557 million in corporate tax revenue.
A spokesperson for the department noted that factors such as timing of payments could significantly impact monthly data and warned against using this data to predict economic conditions.
H.D. Palmer, the chief fiscal spokesperson for Governor Newsom, told Epoch Times that total revenue for one month should not be interpreted as an indicator of long-term revenue trends, as there are many factors that may affect total revenue in a single month that do not necessarily reflect any underlying trends.
In September, personal income tax revenues exceeded expectations by 20%, while corporate tax revenues were 22% higher than projected. However, analysts caution that the corporate over-collection may be due to the impact of new tax regulations, including the suspension of net operating loss deductions.
Therefore, the Finance Department report pointed out that this above-expected revenue may not fully indicate overall robustness in corporate tax revenue.
Meanwhile, sales and use tax revenue did not meet monthly forecasts, coming in 2.2% below expectations in September (about $60 million).
The nonpartisan State Legislative Analyst’s Office stated that it is currently unclear how the increased revenue will impact California’s future budget. Lawmakers are facing a $73 billion budget deficit this year, with deficits expected to continue over the next several fiscal years.
Analysts noted in the September budget analysis that Governor Newsom estimated in his budget report for this fiscal year that California will have a $37 billion deficit next year, a $30 billion deficit in the 2026-2027 fiscal year, and around a $28 billion deficit in the 2027-2028 fiscal year.
Measures passed in the current budget also include cuts and postponements of expenditures in the next fiscal year to help reduce the deficit.
The upcoming elections also bring uncertainty. Voters will decide whether to approve three bond proposals totaling tens of billions of dollars, which could increase costs when repaying the bonds in the coming years. Analysts suggest that due to financing costs, borrowing $30 billion could require around $50 billion for repayment.
Additionally, if voters reject Proposition 35, California’s future revenues could be affected in the next few years, as the proposition would permanently tax healthcare plans and reduce tax revenue used to fund existing Medi-Cal costs.
An analyst pointed out that the additional revenue is not sufficient to address the ongoing budget challenges faced by the state government, especially considering the impact of various variables.
Jason Sisney, the budget director for the California Assembly Speaker, stated in a Substack article on the 22nd, “Voters’ decisions on certain ballot measures may affect the state government’s budget situation. Therefore, the confirmed revenue growth so far is unlikely to raise the state government’s budget bottom line significantly.”
According to reports, California’s GDP grew by 2.8% in the second quarter of this year, while it surged by 6.3% in the first quarter. The actual GDP for the entire United States increased by 3% in the second quarter and by 1.6% in the first quarter.
According to the Finance Department’s report, inflation in the U.S. slightly decreased to 2.4% in September, the lowest level since February 2021.
Core inflation in September (excluding energy and food costs) rose to an annual rate of 3.3%.
California’s unemployment rate remained at 5.3% with the state adding 14,700 jobs in September. The healthcare services and private education sectors saw the largest growth, adding 9,600 positions, followed by government sector with an increase of 3,800 jobs.
The leisure and hospitality industry lost 4,400 jobs, while the information and technology companies reduced 2,400 positions. Other industries including service, mining, and logging also experienced job reductions.
The national unemployment rate dropped to 4.1% in September, adding about 254,000 nonfarm production jobs.
As of August, California’s housing permits remained relatively stable, receiving 104,000 permits for the year, a 6.8% decrease compared to the same period last year.
The median sales price of homes across the state dropped by 2.3% in September, reaching around $868,000, about a 2.9% increase from September last year.
Single-family home sales in September decreased by 3.4% compared to August, totaling 253,000 units, a 5.1% surge from September last year.