California’s revenues for August came in $1.3 billion above projections putting the state $75 million above the $21.9 billion expected for the first two months of the fiscal year, according to the Department of Finance.
The revenues of $1.3 billion were 11.1% above the forecast of $12.16 billion, as receipts from nearly all revenue sources exceeded the forecast, according to the state Department of Finance’s monthly cash report.
This is a much different scenario from earlier in the year when lawmakers had to spend the budget season closing a $22.5 billion shortfall.
Flooding in a good portion of the state earlier in the year prompted the federal government and then state officials, to push the tax filing deadline from April to October, which had wreaked havoc with revenue collections.
Sales tax was $441 million above the $3.5 billion forecast for the month, offsetting a $453-million shortfall in July that was due to processing delays that shifted over $650 million receipts from July to August.
“This gain is related to the timing of collections as higher-than-expected cash receipts shifted from July to August,” according to the cash report. “August receipts included a portion of the final payments for second-quarter taxable sales, which were due on July 31, as well as the first prepayment for third-quarter sales.”
Personal income tax withholding exceeded the forecast by $367 million in August, up 7.2% year-over-year, and was 4.8% higher cumulatively from May to August compared to the same period last year.
Personal income tax cash receipts were $416 million above the forecast of $7.3 billion in August, largely due to withholding.
“Following year-over-year decreases in nine out of 10 months from July 2022 to April 2023, withholding growth has generally been positive and above forecast in recent months,” according to the report. “Personal income tax refunds were $236 million higher than projected in August. Estimated payments, final payments, and other payments were cumulatively $282 million above forecast in August.”
The Budget Act monthly cash flow reflects the expected impact of delayed payment and filing deadlines for Californians in most counties to Oct. 16, according to the DOF.
The delay affects personal and corporate income tax categories other than withholding, but “the extent to which variance relative to the forecast is caused by taxpayers’ behavior differing from assumptions is unknown,” the report said.
Preliminary General Fund agency cash receipts for the entire 2022-23 fiscal year were $980 million above the 2023-24 Budget Act forecast of $167.6 billion.
Corporation tax cash receipts were $102 million above the forecast of $384 million in August, due to higher Pass-Through Entity Elective Tax payments. August corporate tax refunds were $130 million higher than projected. PTE payments were $208 million above the month’s forecast of $69 million in August. Excluding PTE payments, net corporation tax revenues were down $106 million relative to the forecast in August.
California’s unemployment rate remained unchanged at 4.6% for the third straight month in August 2023, as unemployment rose by 9,800, civilian employment fell by 27,900, and 18,000 people left the labor force. That compares to the U.S. unemployment rate, which increased by 0.3 percentage point to 3.8% in August, as both civilian unemployment and employment increased by 514,000 and 222,000 persons, respectively.
U.S. headline inflation accelerated to 3.7% year-over-year in August 2023 from 3.2% in July after 12 consecutive months of deceleration, the report said. Core inflation — which excludes food and energy — decelerated to 4.3% year-over-year from 4.7% in July, its lowest level since September 2021. Transportation inflation — which includes gasoline — accelerated to 1.4% in August from negative 3% in July, while shelter inflation decreased to 7.3% from 7.7% in July. Year-to-date, U.S. headline inflation averaged 4.5%, down from 8.3% for the same period last year. U.S. core inflation averaged 5.2% year-to-date, down from 6.2% in the same period in 2022.