Tax Performance Continues to Amaze…Mostly

I remember a time, not too long ago, when the State Controller’s monthly report of cash receipts consistently induced shudders, giving us a collective chance to cringe at just how bad the fiscal situation was.

No longer.

Today’s report (narrative version, nerd version) states that California’s three major taxes beat recent estimates by almost a billion dollars, most of that ($721.7 million) due to the income tax, which came in about 45 percent higher than the Administration thought it would just a couple months ago.

While the state’s fiscal situation is of interest to counties because of the close financial and program ties between the two levels of government, one state revenue source in particular is more directly tied to county concerns: the sales tax.

A portion of the state’s sales and use tax revenue directly funds public safety realignment (including AB 109). And even though the sales tax was 3.9 percent above estimates for the month, it’s still running behind for the fiscal year so far.

The sales tax is now and always will be a volatile revenue source, while crime, even while remaining at the lowest levels in decades, is a constant. Counties budgeting their realignment funding should remember that just a couple years ago, sales tax receipts across the state dropped like a rocks in an avalanche, taking revenues levels back six years. They still have not recovered from that dramatic decline.

Although coming in a couple percent below estimates for the year won’t decimate local programs, it is a useful reminder that future tax performance is difficult to estimate, and that, although the current economic recovery is notoriously slow, history tells us that a recession is not too many years distant, and counties can’t expect the criminal element to let up just because revenues do.

As with other programs, counties will need to build a reserve during these relatively good times. However, while most county programs rely on the relatively stable property tax, realignment’s reliance on the more volatile sales tax means that counties might need a larger reserve than they’re used to having.

The time to have these budget discussions is now, before the next crisis hits.

About: Geoffrey Neill:
Geoffrey Neill is CSAC's senior legislative analyst for revenue & tax issues. He can be reached at gneill.at.counties.org.

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