Revenue Score Card

April revenue numbers bring May budget changes. On May 14, 2012 Governor Jerry Brown is expected to release a revised version of his January budget proposal.  State tax collection from July 1, 2011 to April 30, 2012 will set the stage for the upcoming debate on this year's final budget.  Since many Capitol watchers are examining revenue collections daily, this edition of Budget Fact Check aims to help put those numbers into context. 

2011-12 General Fund Revenue Estimates

April Revenues: "Phantom" Funds Never Materialized

The Governor's January budget assumed $9.1 billion in revenues by the end of April.  The Controller reported that the state only received $7.1 billion, $2 billion below the full month totals. 

However, that's not the full story.  Even though tax rates went down last year, revenues have grown.  Unfortunately, budget estimate manipulations have masked the true story behind the state's tax collections.

  • Final Budget Relied on "Phantom" Funding: The adopted budget did not rely on tax increase revenues.  At the last minute, the majority vote budget assumed $4 billion in "phantom revenues" which were used to close the budget on June 28, 2011, after the Governor vetoed the Democrat's original proposal. 
  • "Phantom" Revenues Hidden With Tax Hike: The Governor's January budget assumes $88.6 billion in revenues with his proposed retroactive tax increase.   The $88.6 billion revenue level recognized that the Department of Finance believed that $2.1 billion of the "phantom revenues" were not likely to materialize.  The Governor backfilled this shortfall with revenues from his proposed tax increase.  The tax increase includes $2.2 billion in retroactive Personal Income taxes (retroactive to January 1, 2012) which will be applied to the 2011-12 fiscal year.

Budget Deficit: Driven by Higher Spending, Missing "Phantom" Funds

The Governor's January budget already assumed that $2.2 billion of the projected "phantom revenues" would not materialize.  April revenues suggest that the state may not realize the remaining $2 billion, which adds another $2 billion to the Governor's projected $9.2 billion deficit.   Since revenues were already down about a billion before April, this adds another $3 billion to the Governor's projected $9.2 billion deficit. On the expenditure side of the equation, the Controller suggests spending is up $2.1 billion above the adopted budget's expectations.  This means that the 2011-12 budget deficit could be $5.1 billion before the Governor proposes other expenditure and revenue adjustments. 

The 2012-13 deficit will be affected by the Governor's Revenue Estimates and Tax Proposal:

  • Proposed Tax Hikes Grew: The Governor's new tax increase initiative currently in circulation is expected to raise $3.3 billion in 2011-12, $1.1 billion more than his first tax increase proposal.  Additionally, the Governor's new tax increase proposal will also increase revenue in the 2012-13 fiscal year.  As explained in past editions of Budget Fact Check, the revenue from these tax hikes will not be used to increase education funding, but will be used to fuel spending in health and welfare.
  • Facebook Sale Could Bring in Higher Revenue: The Legislative Analyst has valued the Facebook initial public offering (IPO), which is expected to take place on May 18, at $2 billion.  Some have suggested that the Administration believes that the Facebook IPO will bring in more revenue than the LAO suggests.
  • Legislature Rejected Governor's Spending Reductions: Lawmakers failed to adopt the Governor's proposed spending reductions in March, as he requested.  In fact, lawmakers have rejected about $2 billion in the Governor's suggested cuts. 

Conclusion: Revenues Are Up, But Spending is Up Higher

Despite varying interpretations of the state's current revenue numbers, the facts are clear about what is driving the state's continuing deficit.  The "phantom funding" never materialized, but overall revenue growth is on the upswing.  The budget shortfall is compounded by the fact that lawmakers have grown state spending by rejecting the Governor's proposed reductions.

Click here to read past issues of "Budget Fact Check."